<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
VISION TWENTY-ONE, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
FLORIDA 8741 59-3384581
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
<TABLE>
<C> <C>
VISION TWENTY-ONE, INC. THEODORE N. GILLETTE, PRESIDENT AND CEO
7209 BRYAN DAIRY ROAD VISION TWENTY-ONE, INC.
LARGO, FLORIDA 34647 7209 BRYAN DAIRY ROAD
(813) 545-4300 LARGO, FLORIDA 34647
(Address, including zip code, and telephone (813) 545-4300
number, including area code, of registrant's (Name, address, including zip code, and
principal executive offices) telephone number, including area code, of
agent for service)
</TABLE>
---------------------
WITH COPIES TO:
<TABLE>
<C> <C>
DARRELL C. SMITH, ESQUIRE JEFFREY M. STEIN, ESQUIRE
SHUMAKER, LOOP & KENDRICK, LLP KING & SPALDING
101 E. KENNEDY BLVD., SUITE 2800 191 PEACHTREE STREET
TAMPA, FLORIDA 33602 ATLANTA, GEORGIA 30303-1763
(813) 229-7600 (404) 572-4600
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value.... 2,415,000 $13.00 $31,395,000 $9,514
===============================================================================================================
</TABLE>
(1) Includes 315,000 shares which the Underwriters have an option to purchase to
cover over allotments, if any.
(2) Estimated solely for purposes of determining the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED JUNE 13, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
2,100,000 Shares
VISION 21 [Graphic of Company Logo]
Common Stock
- --------------------------------------------------------------------------------
All of the 2,100,000 shares of common stock, par value $.001 per share (the
"Common Stock"), offered hereby are being sold by Vision Twenty-One, Inc. (the
"Company"). Prior to this offering (the "Offering"), there has been no public
market for the Common Stock of the Company. It is currently anticipated that the
initial public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
The Company has applied for inclusion of the Common Stock in The Nasdaq Stock
Market's National Market (the "Nasdaq National Market") under the symbol "EYES."
SEE "RISK FACTORS" ON PAGES 6 TO 14 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $
=============================================================================================================
</TABLE>
(1) The Company, Theodore N. Gillette and Richard L. Sanchez, who are executive
officers, directors and principal stockholders of the Company, Bruce S.
Maller and Richard L. Lindstrom, M.D., who are directors of the Company, and
certain other selling stockholders of the Company (collectively the "Selling
Stockholders"), have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
See "Principal and Selling Stockholders" and "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $900,000.
(3) The Company and the Selling Stockholders have granted the several
Underwriters 30-day over-allotment options to purchase in the aggregate up
to 315,000 additional shares of Common Stock on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to Public will be $ , the total
Underwriting Discounts and Commissions will be $ , the total
Proceeds to Company will be $ and the total Proceeds to Selling
Stockholders will be $ . See "Principal and Selling Stockholders"
and "Underwriting."
- --------------------------------------------------------------------------------
The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Stockholders and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about , 1997.
PRUDENTIAL SECURITIES INCORPORATED WHEAT FIRST BUTCHER SINGER
July , 1997
<PAGE> 3
[Graphic of the Company's Local Area Delivery System]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and information under "Risk Factors." Unless the
context otherwise requires, references in this Prospectus to the Company or
Vision Twenty-One include Vision Twenty-One, Inc., its predecessors and its
subsidiaries. As used herein, the term "Managed Providers" refers to the
licensed optometrists and ophthalmologists employed by professional associations
and providing eye care services at Company clinic facilities and ambulatory
surgical centers ("ASCs"), both of which are managed by the Company pursuant to
long-term management agreements ("Management Agreements"); "Contract Providers"
refers to the licensed optometrists and ophthalmologists who provide eye care
services at optometry and ophthalmology clinics and ASCs pursuant to the
Company's managed care contracts; and "Affiliated Providers" refers collectively
to the Managed Providers and the Contract Providers. Except as otherwise
indicated, the information contained in this Prospectus (i) assumes that the
Underwriters' over-allotment options will not be exercised and (ii) gives
retroactive effect to a reverse stock split resulting in an exchange of 1 share
for 1.5 shares of Common Stock issued and outstanding.
THE COMPANY
The Company provides a wide range of management and administrative services
to local area delivery systems ("LADS(SM)") established by the Company. LADS are
integrated networks of optometrists, ophthalmologists, ASCs and retail optical
centers that are designed to offer the full continuum of eye care services in
local markets. The Company began operations in 1984, providing management
services to seven optometrists practicing at eight clinic locations. The Company
currently provides its services to 11 LADS located in six states through which
659 Affiliated Providers deliver eye care services. Of these Affiliated
Providers, 62 are Managed Providers, consisting of 41 optometrists and 21
ophthalmologists practicing at 39 clinic locations and two ASCs, and 597 are
Contract Providers, consisting of 260 optometrists and 337 ophthalmologists
practicing at 308 clinic locations and 38 ASCs. The Company signed its first
managed care contract in 1988 for 18,000 patient lives serviced through the
Company's network of optometrists practicing within retail optical locations.
The Company's Affiliated Providers, in conjunction with select national retail
optical chains operating over 300 retail optical centers, deliver eye care
services under the Company's 22 managed care contracts and seven discount
fee-for-service plans covering over 1.8 million patient lives.
Eye care services in the United States are delivered through a highly
fragmented system of local providers that industry sources estimate consisted of
approximately 47,000 practicing eye care professionals in 1996, including
approximately 29,500 optometrists and 17,500 ophthalmologists. According to the
Health Care Financing Administration ("HCFA"), expenditures for all eye care
services in the United States were approximately $31.2 billion in 1995. Industry
sources estimate $19.6 billion of these expenditures was spent on primary care,
including approximately $13.8 billion for optical goods (frames, lenses and
accessories) and $5.8 billion for primary eye care services (routine eye exams,
contact lens fitting and diagnosis/management of eye disease), while $11.6
billion was spent on secondary and tertiary care, including $6.9 billion for
ophthalmology services (medical and surgical eye care) and $4.7 billion for
facility services (services provided by hospital facilities and ASCs). The
Company believes several trends are effecting the growth of the overall eye care
industry as well as the delivery of eye care services. First, as the "baby boom"
generation ages, the demand for eye care services at all levels is expected to
increase to treat such conditions as glaucoma, cataracts and other eye disorders
that naturally occur as part of the aging process. Second, technological
advances and innovations in such areas as refractive surgery utilizing the
excimer laser to correct nearsightedness are expected to contribute to increased
spending on eye care services. Third, the Company believes that patients are
increasingly seeking convenient and accessible primary eye care through retail
centers where primary eye care services and products are being bundled, thus
making the retail optical center an important access point for eye care delivery
networks. Finally, as more people become eligible to receive eye care benefits,
the Company believes there will be increased utilization of primary eye care
services, which will in turn lead to an increase in the demand for secondary and
tertiary eye care services.
3
<PAGE> 5
The Company's goal is to enable each of its LADS to capture the leading
market share of fee-for-service patients and managed care members. To achieve
its goal, the Company is focused on the following strategies: (i) developing
LADS in order to provide for a complete continuum of easily accessible, high
quality and affordable eye care services, (ii) increasing patient revenue and
cost efficiencies for each LADS through practice development and managed care
initiatives and (iii) expanding into select new markets to create regional
networks of LADS.
The Company earns practice management fees by providing Managed Providers
with a wide range of management and administrative services. These management
and administrative services are designed to increase patient flow while
effecting cost efficiencies, and to permit the Managed Provider to concentrate
on the delivery of easily accessible, high quality and affordable eye care
services. The Company also earns revenues by entering into capitated managed
care contracts with third party insurers and payors and by administering
indemnity fee-for-service plans for its Affiliated Providers. The Company
believes it provides its Affiliated Providers with significant advantages in
negotiating, obtaining and effectively administering managed care contracts
through its experienced management team, management information systems, greater
capital resources and more efficient cost structure.
THE ACQUISITIONS
In a series of acquisitions completed from December 1996 through May 1997,
the Company acquired the business assets of 23 optometry clinics, 13
ophthalmology clinics, 19 optical dispensaries and two ASCs. Business assets
consist of certain non-medical and non-optometric assets, including accounts
receivables, leases, contracts, equipment and other tangible and intangible
assets. Concurrently, the Company entered into long-term management agreements
with the related professional associations employing 38 optometrists and 21
ophthalmologists. Additionally, in December 1996, the Company entered into an
agreement to acquire the business assets of an additional ASC and at that time
agreed to enter into a Management Agreement with the entity operating the ASC,
which the Company expects to finalize in September 1997. In addition, the
Company has several pending letters of intent which are binding on the sellers
of the clinics, optical dispensaries and ASCS to be acquired. See "The
Acquisitions."
THE OFFERING
Common Stock Offered by the Company....... 2,100,000 shares
Common Stock to be Outstanding after the
Offering(1)............................... 7,616,124 shares
Use of Proceeds........................... To repay outstanding indebtedness
and to finance the acquisition and
development of optometry and
ophthalmology clinics and ASCs.
See "Use of Proceeds," "Certain
Transactions" and "Underwriting."
Proposed Nasdaq National Market Symbol.... EYES
- ---------------
(1) Excludes (a) an aggregate of 1,600,000 shares of Common Stock reserved for
issuance under the Company's stock plans (the "Plans"), pursuant to which
options to purchase approximately 672,667 shares have been granted as of
June 12, 1997, (b) an aggregate of 1,175,000 shares of Common Stock which
are issuable upon the exercise of warrants granted by the Company and (c) an
aggregate of 79,805 shares of Common Stock which are being held in escrow as
contingent consideration in several acquisitions. See "The Acquisitions,"
"Management -- The Stock Option Plans," "Certain Transactions" and
"Underwriting."
RISK FACTORS
Investors should consider the material risk factors involved in connection
with an investment in the Common Stock and the impact to investors from various
events which could adversely affect the Company's business. See "Risk Factors."
4
<PAGE> 6
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(1) 1996 1997 1997(2)
------- ------- ------- ---------- ------- ------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................... $ 1,192 $ 3,082 $ 9,564 $ 33,272 $ 2,100 $ 7,718 $ 9,072
Operating expenses............... 1,340 4,299 15,524 36,458 2,923 7,939 9,127
------- ------- ------- ---------- ------- ------- ----------
Loss from operations............. (148) (1,217) (5,960) (3,186) (823) (221) (55)
Net loss......................... (153) (1,226) (6,120) (3,191) (825) (448) (61)
Pro forma net loss per common
share(3)....................... $ (0.45) $ (0.01)
Pro forma weighted average shares
outstanding(3)................. 7,072,751 7,072,751
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(6,158) $(6,158) $10,774
Total assets.............................................. 19,990 22,630 34,168
Long-term debt, including current maturities.............. 10,509 10,509 953
Stockholders' equity...................................... 3,395 6,035 28,571
</TABLE>
- ---------------
(1) Gives effect to the following transactions as if they were completed on
January 1, 1996: (i) the 1996 Acquisitions, (ii) the Pinellas Acquisition,
(iii) the Recent Acquisitions, (iv) the ASC Agreement and (v) the Offering
and the application of the estimated net proceeds therefrom. See "The
Acquisitions" and "Selected Pro Forma Financial Data."
(2) Gives effect to the following transactions as if they were completed on
January 1, 1997: (i) the Pinellas Acquisition, (ii) the Recent Acquisitions,
(iii) the ASC Agreement and (iv) the Offering and the application of the
estimated net proceeds therefrom. See "The Acquisitions" and "Selected Pro
Forma Financial Data."
(3) Reflects the pro forma net loss per share assuming an increase in the
weighted average number of outstanding shares to the extent necessary to
repay the existing indebtedness as described in "Use of Proceeds." See Note
6 to the Company's Unaudited Pro Forma Consolidated Financial Information
for a description of the computation of pro forma net loss per common share.
(4) Gives effect to the Recent Acquisitions and the ASC Agreement as if they
were completed as of March 31, 1997. See "The Acquisitions."
(5) Gives effect to the Offering and the application of the estimated net
proceeds therefrom. See "Selected Pro Forma Financial Data."
5
<PAGE> 7
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
in connection with an investment in the Common Stock offered hereby.
This Prospectus contains forward looking statements that involve risks and
uncertainties. Those statements appear in a number of places in this Prospectus
and include statements regarding the intent, belief or current expectations of
the Company, its directors or its officers with respect to, among other things:
(i) the future financial prospects of the Company; (ii) potential acquisitions
by the Company and the successful integration of both completed and future
acquisitions; (iii) the use of the proceeds of the Offering; (iv) the Company's
financing plans; (v) trends affecting the Company's financial condition or
results of operations; (vi) the Company's growth strategy and operating
strategy; (vii) trends in the health care and managed care industries; (viii)
government regulations; (ix) the declaration and payment of dividends; (x) the
Company's current and future managed care contracts; (xi) the Company's ability
to continue to recruit Contract Providers, to convert Contract Providers to
Managed Providers, and to maintain its relationships with Affiliated Providers;
(xii) the Company's relationship with BSM Consulting Group and Bruce Maller; and
(xiii) the Company's relationships with affiliated retail optical companies.
Prospective investors are cautioned that any such forward looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in the forward
looking statements as a result of various factors. The accompanying information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Business," identifies
important factors that could cause such differences.
HISTORY OF LOSSES. Although the Company has experienced substantial
revenue growth, the Company incurred operating and net losses in the years ended
December 31, 1994, 1995 and 1996 and in the three months ended March 31, 1997.
As of March 31, 1997, the Company had an accumulated deficit of $8.0 million.
There can be no assurance that the Company will not incur further operating and
net losses or achieve profitability in the near future.
RISKS ASSOCIATED WITH EXPANSION STRATEGY. A significant portion of the
Company's expansion strategy is to grow its Managed Provider network through the
acquisition of certain assets of ophthalmology and optometry practices, ASCs and
related businesses. The success of the Company's expansion strategy will depend
on factors which include the following:
Ability to Identify and Consummate Suitable Acquisitions. The Company
intends to devote substantial resources to identifying, negotiating and
consummating appropriate acquisitions. The Company may compete for
acquisition opportunities with entities that have greater resources than
the Company. Additionally, there can be no assurance that suitable
acquisition candidates are available or can be identified or that
acquisitions can be consummated on terms favorable to the Company.
Integration of Acquisitions. The Company has made significant
acquisitions in the past year. In the past twelve months, the number of
clinics and ASCs managed by the Company, the size of its Contract Providers
network, and the number and size of its managed care contracts and related
covered lives have increased significantly. The Company's financial results
in fiscal quarters immediately following a material acquisition or series
of acquisitions may be adversely impacted while the Company attempts to
integrate the acquisition or acquisitions. There can be no assurance that
there will not be substantial unanticipated costs or problems associated
with the integration effort. During the first few months after an
acquisition, the Company's expenses related to an acquisition may exceed
the revenue it realizes from the acquisition and, accordingly, any such
acquisition may have a negative effect on the Company's short-term
operating results. As the Company pursues its expansion strategy, there can
be no assurance that the Company will be able to continue to successfully
integrate acquisitions and any failure or inability to do so may have a
material adverse effect on the Company's results of operations or financial
condition. In addition, acquisitions require the Company to attract and
retain competent and experienced management personnel and require the
integration of reporting and tracking systems, management information
systems
6
<PAGE> 8
and other operating systems. At the present time, the Company's management
information systems have not been fully integrated into the Company's
recent acquisitions, and there can be no assurance that the Company will be
able to fully integrate its management information systems in the near
future. There can also be no assurance that the Company will be able to
attract suitable management or other personnel or effectively expand its
operating systems. The success of the Company's expansion strategy will
depend on the Company's ability to effectively manage an increasing number
of new acquisitions while continuing to manage its existing business.
Availability of Funds for Expansion Strategy. The Company's expansion
strategy will require that substantial capital investment and adequate
financing be available to the Company. Capital is needed not only for
acquisitions, but also for the integration of operations and the addition
of equipment and technology. The Company currently believes that the net
proceeds from this Offering, cash flow from operations and future
borrowings will be adequate to meet the Company's anticipated capital needs
for the next eighteen months. Thereafter, the Company may be required to
obtain financing through additional borrowings or the issuance of
additional equity or debt securities, which could have an adverse effect on
the value of the shares of Common Stock of the Company. There can be no
assurance that the Company will be able to obtain such financing or that,
if available, such financing will be on terms acceptable to the Company.
Any inability of the Company to obtain suitable additional financing could
cause the Company to change its expansion strategy, which could have a
material adverse effect on the Company.
Managed Care Contract Expansion. The success of the Company's
expansion strategy also will be dependent on its ability to expand its
managed care contract relationships. The ability of the Company to maintain
and expand its Contract Provider network and retail affiliations will be
important in expanding these contractual relationships with both existing
and new payors. Correspondingly, expanding managed care contract
relationships will be important in maintaining and expanding its Contract
Provider networks and retail affiliations. Additionally, the ability to
effect acquisitions that add to the Company's Managed Provider network will
be dependent upon the Company's ability to expand its managed care contract
relationships.
Risks Associated with Merger Transactions. Several of the Company's
acquisitions have been accomplished by way of merger. As a result of such
merger transactions, there could be potential liabilities to which the
Company could be subject. The agreements entered into in connection with
the acquisitions provide for the Company to be fully indemnified against
any losses incurred by the Company as a result of certain material
liabilities. However, while the Company is not aware of any such
liabilities, there can be no assurance that the Company will not incur
losses in the event that the indemnifications are inadequate to reimburse
the Company for any such losses.
Pending Acquisitions. The Company currently has a pending acquisition
to acquire the assets of an additional ASC in Arizona. The Company has
treated this acquisition as if it had been completed for purposes of its
pro forma financial presentation contained herein. Should this acquisition
not be finalized as anticipated, the pro forma presentation would be
affected and the Company would not obtain the benefits expected in
connection with such acquisition.
RELIANCE ON AFFILIATED PROVIDERS. The Company's revenue depends on revenue
generated by the Affiliated Providers. There can be no assurance that the
practices managed by the Company will continue to maintain successful practices,
that the Management Agreements between the Company and such professional
associations will not be terminated or that the Managed Providers will continue
to be employed by the professional associations. Under the Management
Agreements, the Company has agreed with the professional associations that,
subject to certain exceptions, it will not provide management services for any
practice located within five miles of such professional associations without
first obtaining the express written consent of the professional associations.
The Company's ability to expand the managed care business will be dependent upon
the Company's ability to recruit and maintain an expanded Contract Provider
network as well as to market such network successfully to payors. The inability
to effectively expand the network and contractual relationships with payors
would have a material adverse effect on the Company's growth strategy.
7
<PAGE> 9
RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS AND CAPITATED FEE
ARRANGEMENTS. As an increasing percentage of the population is covered by
managed care organizations, the Company believes that its success will be, in
part, dependent upon its ability to negotiate managed care contracts with HMOs,
health insurance companies and other third party payors pursuant to which
services will be provided on a risk-sharing or capitated basis. Managed care
contracts accounted for 25.8% and 30.1% of the Company's pro forma revenues for
the year ended December 31, 1996 and the three month period ended March 31,
1997, respectively. Revenue derived from contractual arrangements with certain
affiliates of Humana accounted for 60.3% and 16.7% of the Company's historical
revenues for the year ended December 31, 1996 and the three months ended March
31, 1997, respectively. Any adverse development in the Company's relationship
with Humana would have a material adverse effect on the Company's results of
operations and financial condition. There can be no assurance that the Company
will be able to maintain a relationship with Humana or any other association
with which it has a managed care contract. Most of the Company's managed care
contracts are for one year terms which automatically renew and the contracts are
terminable by either party on sixty days notice. Under some of these contracts,
the health care provider may accept a pre-determined amount per month per
patient in exchange for providing all necessary covered services to the patients
covered under the agreement. These contracts pass much of the risk of providing
care from the payor to the provider. The proliferation of these contracts in
markets served by the Company could result in greater predictability of revenue,
but less certainty with respect to profitability. There can be no assurance,
however, that the Company will be able to negotiate satisfactory arrangements on
a risk-sharing or capitated basis. In addition, to the extent that patients or
enrollees covered by these contracts require, in the aggregate, more frequent or
extensive care than is anticipated, operating margins may be reduced or the
revenue derived from these contracts may be insufficient to cover the costs of
the services provided. Any such developments could have a material adverse
effect on the Company's results of operations or financial condition.
GOVERNMENT REGULATIONS. Business arrangements between business
associations that provide practice management services and ophthalmologists and
optometrists are regulated extensively at the state and federal levels,
including regulation in the following areas:
Corporate Practice of Optometry and Ophthalmology. The laws of many
states prohibit corporations that are not owned entirely by eye care
professionals from employing eye care professionals, having control over
clinical decision-making, or engaging in other activities that are deemed
to constitute the practice of optometry and ophthalmology. The Company
contracts with professional associations (which are owned by one or more
licensed optometrists or ophthalmologists), which in turn employ or
contract with licensed optometrists or ophthalmologists to provide
professional services. The Company performs only non-professional services,
is not representing to the public or its customers that it provides
professional eye care services, and is not exercising influence or control
over the practices of the eye care practitioners employed by the
professional associations.
Fee-Splitting and Anti-kickback Laws.
State Law. Many states prohibit "fee-splitting" by eye care
professionals with any party except other eye care professionals in the
same professional corporation or practice association. In most cases,
these laws have been construed as applying to the paying of a portion of
a fee to another person for referring a patient or otherwise generating
business, and not to prohibit payment of reasonable compensation for
facilities and services (other than the generation of referrals), even
if the payment is based on a percentage of the practice's revenues. In
addition, most states have laws prohibiting paying or receiving any
remuneration, direct or indirect, that is intended to induce referrals
for health care products or services.
Federal Law. Federal law prohibits the offer, payment,
solicitation or receipt of any form of remuneration in return for the
referral of patients covered by federally funded health care programs
such as Medicare and Medicaid, or in return for purchasing, leasing,
ordering or arranging for the purchase, lease or order of any product or
service that is covered by a federal program. For this reason, the
Management Agreement provides that the Company will not engage in direct
marketing
8
<PAGE> 10
to potential sources of business, but will only assist the practice's
personnel in these endeavors by providing training, marketing materials
and technical assistance.
Advertising Restrictions. Many states prohibit eye care
professionals from using advertising which includes any name other than
their own, or from advertising in any manner that is likely to lead a
person to believe that a non eye care professional is engaged in the
delivery of eye care services. The Management Agreement provides that
all advertising shall conform to these requirements.
In addition, the Company's managed care arrangements with health care
service payors on the one hand, and its network of Affiliated Providers on the
other, are subject to federal and state regulations, including the following:
Insurance Licensure. Most states impose strict licensure requirements
on health insurance companies, HMOs, and other companies that engage in the
business of insurance. In most states, these laws do not apply to
discounted fee-for-service arrangements or networks that are paid on a
"capitated" basis, i.e. based on the number of covered persons the network
is required to serve without regard to the cost of service actually
rendered, unless the association with which the network provider is
contracting is not a licensed health insurer or HMO. There are exceptions
to these rules in some states. For example, certain states require a
license for a capitated arrangement with any party unless the risk-bearing
association is a professional corporation that employs the eye care
professionals. In the event that the Company is required to become licensed
under these laws, the licensure process can be lengthy and time consuming
and, unless the regulatory authority permits the Company to continue to
operate while the licensure process is progressing, the Company could
experience a material adverse change in its business while the licensure
process is pending. In addition, many of the licensing requirements mandate
strict financial and other requirements which the Company may not
immediately be able to meet. Once licensed, the Company would be subject to
continuing oversight by and reporting to the respective regulatory agency.
Limited Health Service Plans. Some states permit managed care
networks that assume insurance risk, but only as to a limited class of
health services, to be licensed as limited health service plans, and
thereby avoid the need to be licensed as an insurer or HMO even if its
arrangements are with individual subscribers or self-insured employers. The
Company intends to seek such licensure in those states where it is
available for eye care networks. However, the Company may not be able to
meet such requirements in all cases.
Physician Incentive Plans. Medicare regulations impose certain
disclosure requirements on managed care networks that compensate providers
in a manner that is related to the volume of services provided to Medicare
patients (other than services personally provided by the provider). If such
incentive payments exceed 25 percent of the provider's potential payments,
the network is also required to show that the providers have certain "stop
loss" financial projections and to conduct certain Medicare enrollee
surveys.
"Any Willing Provider" Laws. Some states have adopted, and others are
considering, legislation that requires managed care networks to include any
provider who is willing to abide by the terms of the network's contracts
and/or prohibit termination of providers without cause. Such laws would
limit the ability of the Company to develop effective managed care networks
in such states.
The Company and its affiliated professional associations are subject to a
range of antitrust laws that prohibit anti-competitive conduct, including price
fixing, concerted refusals to deal and divisions of markets. Among other things,
these laws limit the ability of the company to enter into Management Agreements
with separate practice groups that compete with one another in the same
geographic market. This does not apply to professionals within the same practice
group. In addition, these laws prevent acquisitions of business assets that
would be integrated into existing professional associations if such acquisitions
substantially lessen competition or tend to create a monopoly.
The several laws described above have civil and criminal penalties and have
been subject to limited judicial and regulatory interpretation. They are
enforced by regulatory agencies that are vested with broad discretion in
interpreting their meaning. The Company's agreements and activities have not
been examined by
9
<PAGE> 11
federal or state authorities under these laws and regulations. For these
reasons, there can be no assurance that review of the Company's business
arrangements will not result in determinations that adversely affect the
Company's operations or that certain agreements between the Company and eye care
providers or third party payors will not be held invalid and unenforceable. In
addition, these laws and their interpretation vary from state to state. The
regulatory framework of certain jurisdictions may limit the Company's expansion
into, or ability to continue operations within, such jurisdictions if the
Company is unable to modify its operational structure to conform with such
regulatory framework. Any limitation on the Company's ability to expand could
have an adverse effect on the Company. See "Business -- Government Regulations."
COST CONTAINMENT AND REIMBURSEMENT TRENDS. The Company estimates that on a
pro forma basis for the year ended December 31, 1996, 74.5% of the revenues
received by the professional associations currently managed by it were derived
from government sponsored health care programs and private third-party payors.
The health care industry has experienced a trend toward cost containment as
government and private third party payors seek to impose lower reimbursement and
utilization rates and negotiate reduced payment schedules with service
providers. The Company believes that these trends may result in a reduction from
historical levels in per patient revenue received by the professional
associations. Recent changes in Medicare payment rates will reduce payments to
optometrists and ophthalmologists. Medicare payments to physicians and other
practitioners are based on the "relative value units" ("RVUs") assigned to the
service in question. These RVUs were adjusted effective January 1, 1997 in a
manner that generally assigns a relatively lower value to services performed by
optometrists and ophthalmologists. As a result of these changes, the projected
Medicare payments to optometrists and ophthalmologists will be reduced by less
than five percent. Private insurance payments could also be affected to the
extent that the payment methodologies used by insurance companies are based on
the Medicare RVUs. Further reductions in payments to professionals or other
changes in reimbursement for health care services could have an adverse effect
on the Company's results of operations. There can be no assurance that any
potential reduced revenues and operating margins from such trends could be
offset through cost reductions, increased volume, introduction of new procedures
or otherwise. See "Business -- Governmental Regulations."
NON-COMPETITION COVENANTS. The Management Agreements require each
professional association to use its best efforts to enter into employment
agreements with each Managed Provider that include covenants not to compete with
the professional association for periods ranging from one to two years after
termination of employment, and which require the professional association's
shareholders to pay certain specified amounts to the Company if such shareholder
professionals violate their respective covenants not to compete. Laws affecting
the enforceability of such covenants vary significantly from state to state. In
most states, a covenant not to compete will be enforced only to the extent it is
necessary to protect a legitimate business interest of the party seeking
enforcement, does not unreasonably restrain the party against whom enforcement
is sought, and is not contrary to the public interest. This determination is
made based on all the facts and circumstances of the specific case at the time
enforcement is sought. For this reason, one cannot predict with certainty
whether a court will enforce such a covenant in a given situation. In addition,
it is unclear whether a management company's interest under a management
agreement will be viewed by the courts as the type of protectable business
interest that would permit the management company to enforce such a covenant or
to require the managed professional association to enforce such a covenant
against the employed professional. Furthermore, liquidated damages provisions
will not be enforced unless the court determines that the amount is a reasonable
estimate of actual damages that would be difficult to ascertain in a precise
manner. Since the intangible value of the Management Agreement depends primarily
on the ability of the professional association to preserve its business, which
could be harmed if employed professionals went into competition with the
professional association, a determination that these provisions will not be
enforced could have a material adverse effect on the Company. See
"Business -- Management Agreements." Additionally, the Company is not permitted
under certain circumstances to expand its Affiliated or Managed Provider network
within a certain geographical area surrounding a Managed Provider without prior
consent of the Managed Provider. Such covenants could serve to limit market
penetration opportunities within a LADS and thus have an adverse effect on the
Company's ability to expand within a LADS.
10
<PAGE> 12
RISKS ASSOCIATED WITH BSM RELATIONSHIP. The Company has exclusive
consulting agreements with leading ophthalmology practice consultants BSM
Consulting Group ("BSM") and Bruce S. Maller. The agreements are for a term of
five years and may be terminated by a party only for "cause" in the event of a
material breach which remains uncured for 30 days or the occurrence of certain
events related to bankruptcy. Mr. Maller is the chief executive officer of BSM
and a director of the Company. BSM and Mr. Maller assist the Company in
identifying and evaluating suitable ophthalmology practices for acquisition,
integrating of the acquired practices and providing strategic planning designed
to enhance the growth and development of the Affiliated Providers. A large part
of the success of the Company in implementing its growth strategy will depend on
the ability of such consultants to identify and evaluate suitable ophthalmology
practices and to assist Managed Providers in growing their practices, and there
can be no assurance that the consultants will be able to provide such services
successfully. Furthermore, in the event that such consultants are no longer able
to provide such services for any reason, there can be no assurance that the
Company will be able to retain other consultants with similar expertise or
undertake these tasks internally. Therefore, the loss of the services of either
BSM or Maller could have a material adverse effect on the Company. See "Certain
Transactions."
RISKS RELATED TO AMORTIZATION OF INTANGIBLE VALUE IN MANAGEMENT
AGREEMENTS. The Company's pro forma combined total assets reflect substantial
intangible assets in the form of Management Agreements with Managed Providers.
The intangible asset value represents the excess of cost over the fair value of
the separate assets acquired in connection with rights received by the Company
under its acquired Management Agreements. There can be no assurance that the
value of such assets will ever be realized by the Company. These intangible
assets are expected to be amortized on a straight-line basis over their
estimated useful lives ranging from 20 to 40 years. The Company evaluates on a
regular basis whether events and circumstances have occurred that indicate that
all or a portion of the carrying amount of the asset may no longer be
recoverable, in which case an additional charge to earnings would become
necessary. Any determination requiring the write-off of a significant portion of
unamortized intangible assets would adversely affect the Company's results of
operations. See "Selected Pro Forma Financial Data."
RELATIONSHIP WITH RETAIL OPTICAL COMPANIES. An important factor in the
Company's business and growth strategy is its strategic affiliations with retail
optical companies in the Company's markets. The Company currently has
contractual arrangements with Eye Care Centers of America, Inc. and For Eyes
Optical, which are terminable by either party under certain circumstances, and
there can be no assurance that the Company will be able to maintain these
arrangements. The Company expects to gain benefits from strategic affiliations
with optical retailers through increasing patient flow into a LADS, increasing
opportunities to obtain managed care contracts and providing an opportunity to
add affiliated optometrists practicing within retail optical locations. However,
under applicable regulations these retailers may not be required to refer
patients to the Affiliated Providers and there can be no assurance that the
Company's arrangements with retail optical companies will result in the intended
benefits to the Company. Additionally, in those markets where more than one
affiliated optical retailer operates and competes with others, the Company may
have to choose among such optical retailers. There can be no assurance that the
Company will be able to successfully establish strategic affiliations in any
particular market or that any such affiliations will be successful. The
inability of the Company to maintain and develop its strategic affiliations
could have a material adverse effect on the Company's business, results of
operations and financial condition.
COMPETITION. The health care industry is highly competitive and subject to
continual changes in the methods by which services are provided and the manner
in which health care providers are selected and compensated. The Company
believes that private and public reforms in the health care industry emphasizing
cost containment and accountability will result in an increasing shift of eye
care from highly fragmented, individual or small practice providers to larger
group practices, affiliated practice groups or other eye care delivery systems.
The Company competes with other physician practice management companies which
seek to acquire the allowable business assets of and provide management services
to eye care professionals, some of which have substantially greater financial
resources than the Company. Companies in other health care industry segments,
such as managers of other hospital-based specialties or currently expanding
large group practices, some of which have financial and other resources greater
than those of the Company, may become competitors in providing management to
providers of eye care services. Increased competition could have a
11
<PAGE> 13
material adverse effect on the Company's financial condition and results of
operations. The basis for competition in the practice management area is
service, pricing, strength of the delivery network, strength of operational
systems, the degree of cost efficiencies and synergies, marketing strength,
management information systems, managed care expertise, patient access and
quality assessment programs. The Company also competes with other providers of
eye care services, including HMOs, PPOs and private insurers, for managed care
contracts, many of which have larger provider networks and greater financial and
other resources than the Company. Managed care organizations compete on the
basis of administrative strength, size, quality and geographic coverage of their
provider networks, marketing abilities, informational systems, the strategy of
their managed care contracts, operating efficiencies and price. See
"Business -- Competition."
RISKS ARISING FROM HEALTH CARE REFORM. There can be no assurance that the
laws and regulations of the states in which the Company operates will not change
or be interpreted in the future either to restrict or adversely affect the
Company's relationships with its Affiliated Providers or the operation of the
professional associations with which it contracts. Federal and state governments
are currently considering various types of health care initiatives and
comprehensive revisions to the health care and health insurance systems. Some of
the proposals under consideration, or others that may be introduced, could, if
adopted, have a material adverse effect on the Company's financial condition and
results of operations. It is uncertain what legislative programs, if any, will
be adopted in the future, or what actions Congress or state legislatures may
take regarding health care reform proposals or legislation. In addition, changes
in the health care industry, such as the growth of managed care organizations
and provider networks, may result in lower payments for the services of the
Affiliated Providers, which could have a material adverse effect on the Company.
Congress and the Clinton administration recently announced a balance budget
agreement that is expected to lead to future legislation. When compared to
projected Medicare spending levels under current law, the agreement would reduce
Medicare spending by $115 billion over five years and $430 billion over 10
years. The vast majority of these savings would come from reductions in payments
for services of health care facilities, practitioners and other providers.
Although Congress has not agreed to specific reductions, it appears that
Congressional leaders will use the President's proposed fiscal 1998 budget as
the starting place for future legislation. The President's proposed budget
would, among other things, (i) reduce payments to managed care plans from the
current rate of 95% of fee-for-service rates, (ii) reduce payment rates in
geographic areas that have high service utilization rates, (iii) reduce the
annual inflation adjustment for ASC fees, (iv) eliminate disparities in payment
rates for similar services by physicians in different specialties, and (v)
eliminate payments for assistants at surgery. It is impossible to determine
precisely how these changes will affect payments for services of
ophthalmologists, optometrists and ASC facilities until the final legislation is
adopted. Any reductions in payment for these services could have an adverse
effect on the Company's results of operations and financial condition. See
"Business -- Governmental Regulations."
RISKS ASSOCIATED WITH EYE CARE SERVICES. The Company's business entails an
inherent risk of claims of liability. The optometrists, ophthalmologists and
ASCs which the Company contracts with are involved in the delivery of health
care services to the public and, therefore, are exposed to the risk of
professional liability claims. As a result of the Company's providing management
services pursuant to its Management Agreements, the Company will also be named
as a co-defendant in professional liability lawsuits against its Affiliated
Providers from time to time. The Company does not control the practice of
optometry or ophthalmology by the Affiliated Providers or the compliance with
regulatory and other requirements directly applicable to the Affiliated
Providers and their practices. Claims of this nature, if successful, could
result in substantial damage awards to the claimants that may exceed the limits
of any applicable insurance coverage. Insurance against losses related to claims
of this type can be expensive and varies widely from state to state. The Company
is indemnified under the Management Agreements for claims against the
professional associations with which it contracts and maintains liability
insurance for itself. Successful malpractice claims asserted against the
professional associations, however, could have an adverse effect on the
Company's profitability. The Company maintains an umbrella insurance policy
which includes professional liability and general liability insurance on a
claims made basis in the amounts of $5 million per incident, and $5 million in
the aggregate per year. While the Company believes it maintains reasonable
levels of liability insurance coverage, there can be no assurance that a pending
or future claim or claims will not be successful or, if
12
<PAGE> 14
successful, will not exceed the limits of available insurance coverage or that
such coverage will continue to be available at acceptable costs and on favorable
terms. See "Business -- Management Agreements."
DEPENDENCE ON KEY INDIVIDUALS. The success of the Company is dependent
upon the continued services of the Company's senior management. The loss of the
services of one or more of these individuals, including the Company's Chairman,
President and Chief Executive Officer, Theodore N. Gillette, O.D. could have a
material adverse effect on the Company. The Company and Dr. Gillette are parties
to an employment agreement which expires on September 30, 2001 and is renewable
for subsequent one year terms. See "Management -- Employment Agreements." There
can be no assurance that Dr. Gillette will remain employed by the Company during
such period or that his employment agreement will be renewed. The Company
believes that its future success will also depend in part upon its ability to
attract and retain qualified management personnel. Competition for such
personnel is intense and the Company competes for qualified personnel with
numerous other employers, some of whom have greater financial and other
resources than the Company. There can be no assurance that the Company will be
successful in attracting and retaining such personnel. See "Management."
CONTROL BY CURRENT STOCKHOLDERS AND MANAGEMENT. Upon completion of the
Offering, the Company's current officers and directors will own approximately
46.5% of the outstanding shares of Common Stock. Accordingly, these individuals,
as a group, will have the ability to control all matters requiring stockholder
approval, including the election of the Company's directors and any amendments
to the Company's Articles of Incorporation and Bylaws, and to control the
business of the Company. Such control could preclude any acquisition of the
Company and could adversely affect the market price of the Common Stock. See
"Principal and Selling Stockholders" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have 7,616,124 shares of Common Stock outstanding of which the
2,100,000 shares sold in the Offering (2,415,000 shares if the Underwriters'
overallotment options are exercised in full), will be freely tradeable without
restriction or the requirement of future registration under the Securities Act
of 1933 (the "Securities Act"). All of the remaining 5,516,124 shares are
Restricted Securities ("Restricted Securities") as that term is defined by Rule
144 promulgated under the Securities Act and are subject to certain restrictions
described below. 2,820,484 of the Restricted Shares will become eligible for
sale 90 days following the completion of this Offering but are subject to
certain lock-up agreements described below. Holders of the 2,695,640 remaining
Restricted Shares will be eligible to sell a portion of such shares pursuant to
Rule 144 beginning in September 1997. These shares are subject to certain
lock-up agreements described below and also subject to registration rights
agreements requiring the Company to register such shares under certain
circumstances. See "Description of Capital Stock -- Registration Rights" and
"Shares Eligible for Future Sale." The Company has reserved 1,600,000 shares of
Common Stock under the Plans for issuance pursuant to stock options granted by
the Company of which options to purchase 672,667 shares have been granted. See
"Management -- Stock Option Plans." In addition, 1,175,000 shares of Common
Stock are reserved for issuance pursuant to the exercise of warrants granted by
the Company. See "Description of Capital Stock -- Warrants." The warrant shares
are subject to registration rights agreements requiring the Company to register
such shares under certain circumstances and otherwise will be eligible for
resale subject to all of the limitations on resale imposed by Rule 144. See
"Description of Capital Stock -- Registration Rights."
The Company, the Selling Stockholders, and certain of its executive
officers and directors have executed agreements pursuant to which each has
agreed not to, directly or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) of any shares of Common Stock
or other capital stock of the Company or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company, for a period of 180 days after the date of this
Prospectus, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except for bona fide gifts or
transfers affected by such stockholders other than on any securities exchange or
in the over-the-counter market to donees or transferees that agree to be bound
by similar agreements (the "Lock-up Agreements") and except for sales made by
Selling Stockholders pursuant to options granted to the Underwriters to purchase
an additional 315,000 shares to cover over-allotments, if any. In addition,
certain non-affiliates of the Company have entered into 180-day Lock-up
Agreements with the
13
<PAGE> 15
Company similar to the above Lock-Up Agreements which prohibit the direct or
indirect disposition of shares without the prior written consent of the Company.
Such non-affiliates have also contractually agreed that they will be subject to
the same restrictions as affiliates of the Company under Rule 144. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the shares of Common Stock subject to such
agreements. Sales of substantial amounts of Common Stock in the public market,
or the availability of such shares for future sale, could adversely affect the
market price of the Common Stock and could impair the Company's future ability
to raise additional capital through an offering of its equity securities. See
"Shares Eligible for Future Sale" and "Underwriting."
The Company intends to file several registration statements under the
Securities Act to register all shares of Common Stock subject to then
outstanding stock options and Common Stock issuable pursuant to the Plans. The
Company expects to file these registration statements promptly following the
closing of the Offering, and such registration statements are expected to become
effective upon filing. Shares covered by these registration statements will
thereupon be eligible for sale in the public markets, subject to the Lock-up
Agreements relating to shares held by executive officers. See "Management" and
"Shares Eligible for Future Sale."
Following the Offering, the Company may issue its Common Stock from time to
time in connection with the acquisition of stock or assets of other companies.
Such securities may be issued in transactions exempt from registration under the
Securities Act. The Company currently expects for the foreseeable future to
continue to require contractual lock-up agreements and to provide registration
rights consistent with previous transactions for sellers receiving stock in
acquisitions.
CERTAIN ANTI-TAKEOVER PROVISIONS. Certain provisions in the Company's
Articles of Incorporation and Bylaws and Florida law may make a change in
control of the Company more difficult to effect, even if a change in control
were in the stockholders' interest. Such provisions include certain
supermajority voting requirements contained in the Company's Articles of
Incorporation. The Company's Articles of Incorporation also provide that the
Board of Directors is divided into three classes of directors, elected for
staggered three-year terms. In addition, the Company's Articles of Incorporation
allows the Board of Directors to determine the terms of preferred stock which
may be issued by the Company without approval of the holders of the Common
Stock, and thereby enables the Board of Directors to inhibit the ability of the
holders of the Common Stock to effect a change in control of the Company. See
"Description of Capital Stock -- Certain Provisions of Florida Law." The Company
has entered into employment agreements with executive officers Theodore
Gillette, Richard Sanchez and Richard Welch, as well as certain other employees
of the Company, that require the Company to pay certain amounts to such
employees upon their termination following certain events including a change in
control of the Company. Such agreements may inhibit a change in control of the
Company. See "Management -- Employment Agreements."
RESTRICTIONS ON PAYMENT OF DIVIDENDS. The Company's future credit
facilities may place certain restrictions on the future payment of dividends.
Furthermore, the Company currently intends to retain all future earnings for the
operation and expansion of its business and, accordingly, the Company does not
anticipate that any dividends will be declared or paid for the foreseeable
future. See "Dividend Policy."
POTENTIAL CONFLICTS OF INTEREST FROM RELATED PARTY TRANSACTIONS. There are
currently Management Agreements existing between the Company and professional
associations owned and controlled by several of the Company's officers,
directors and key employees which could create the potential for possible
conflicts of interests for such individuals. Any future transactions and
agreements or modifications of current agreements between the Company and such
individuals, other affiliates and their professional associations will be
approved by a majority of the Company's independent directors and will be on
terms no less favorable to the Company than those that could be obtained from
unaffiliated parties. See "Certain Transactions."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock
in the Offering will experience an immediate and substantial dilution of
approximately $10.38 per share in the net tangible book value per share of
Common Stock from the assumed initial public offering price. See "Dilution."
14
<PAGE> 16
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Company's Common Stock and
there can be no assurance that an active public market for the Common Stock will
develop or, if a trading market does develop, continue after the Offering. The
initial public offering price will be determined by negotiations among the
Company and the representatives (the "Representatives") of the Underwriters. See
"Underwriting" for a description of the factors to be considered in determining
the initial public offering price. The market price of the Common Stock could be
subject to significant fluctuations in response to variations in financial
results or announcements of material events by the Company or its competitors.
Quarterly operating results of the Company, changes in general conditions in the
economy or the health care industry, or other developments affecting the Company
or its competitors, could cause the market price of the Common Stock to
fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and that have often been unrelated to the
operating performance of these companies. Concern about the potential effects of
health care reform measures has contributed to the volatility of stock prices of
companies in health care and related industries and may similarly affect the
price of the Common Stock following the Offering. Any such fluctuations that
occur following completion of the Offering may adversely affect the market price
of the Common Stock.
15
<PAGE> 17
THE COMPANY
The Company was founded in 1984 to provide management services to optometry
practices owned primarily by the Company's Chief Executive Officer, Theodore N.
Gillette, O.D.. Beginning in 1984, the Company contracted with VisionWorks and
Eckerd Optical (subsidiaries of Eckerd Corporation) to manage optometry
practices located within VisionWorks and Eckerd retail optical centers. As the
Company expanded its network of optometry practices under management, its
management services were also expanded to include management information
systems, electronic claims processing, practice administration, continuing
education and credentialing of associated optometrists. By 1987, the Company
provided management services to over 20 optometry clinics located in the state
of Florida in close proximity to, or within, VisionWorks and Eckerd Optical
retail optical centers. Additionally, during that period the Company began to
form strategic relationships with independent ophthalmologists to provide its
optometric patients with access to secondary and tertiary eye care services.
In 1986, the Company began to provide management and administrative
services to networks of eye care providers that offered primary, secondary and
tertiary eye care services. The Company's first managed care contract was
awarded in 1988 and covered in excess of 18,000 patient lives, with retail
optical and optometric services provided by the Company's network of eye care
providers.
The Company was incorporated in Florida on May 9, 1996. The principal
operating subsidiaries of the Company are Vision 21 Managed Eye Care of Tampa
Bay, Inc. and Vision 21 Physician Practice Management Company, Inc., both of
which merged with the Company in November 1996.
The Company's 659 Affiliated Providers deliver eye care services to 11 LADS
located in six states. Of these Affiliated Providers, 62 are Managed Providers,
consisting of 41 optometrists and 21 ophthalmologists practicing at 39 clinic
locations and two ASCs, and 597 are Contract Providers, consisting of 260
optometrists and 337 ophthalmologists practicing at 308 clinic locations and 38
ASCs. The Company's Affiliated Providers, in conjunction with select national
retail optical chains operating over 300 retail optical centers, deliver eye
care services under the Company's 22 managed care contracts and seven discount
fee-for-service plans covering over 1.8 million patient lives.
The principal executive office of the Company is located at 7209 Bryan
Dairy Road, Largo, Florida 34647, and its telephone number is (813) 545-4300.
THE ACQUISITIONS
1996 ACQUISITIONS
In December 1996, the Company completed a series of transactions resulting
in the acquisition of the business assets of 22 optometry clinics, nine
ophthalmology clinics, 15 optical dispensaries and one ASC. Business assets
consist of certain non-medical and non-optometric assets, including accounts
receivables, leases, contracts, equipment and other tangible and intangible
assets. Concurrently, the Company entered into Management Agreements with the
related professional associations employing 34 optometrists and 13
ophthalmologists. Additionally, the Company acquired substantially all the
business assets of a managed care company servicing four capitated managed care
contracts covering over 100,000 patient lives (collectively, the "1996
Acquisitions"). In connection with the 1996 Acquisitions, the Company provided
aggregate consideration of $11.0 million, consisting of 2.1 million shares of
Common Stock, unsecured promissory notes in the aggregate principal amount of
$1.9 million and $800,000 in assumed debt. Additionally, the Company may be
required to provide additional consideration of up to $316,000, consisting of up
to 79,805 shares of Common Stock, in connection with several of the 1996
Acquisitions, which will be transferred out of escrow to certain sellers in the
event they meet certain post-acquisition performance targets. See "Certain
Transactions."
Acquisitions of significant size in the 1996 Acquisitions include: (i) the
business assets of a professional association providing optometry services at 11
clinics located in Tampa, Port Richey, Clearwater, St. Petersburg, Palm Harbor,
and Seminole, Florida for a total consideration of $1.9 million, consisting of
373,971 shares of Common Stock and a promissory note in the amount of $416,000;
(ii) the business assets of a
16
<PAGE> 18
professional corporation providing ophthalmology services at three clinics
located in Tucson, Arizona for a total consideration of $1.6 million, consisting
of 396,612 shares of Common Stock; (iii) the business assets of a professional
association providing ophthalmology services at one clinic located in St. Paul,
Minnesota for a total consideration of $1.4 million, consisting of 247,108
shares of Common Stock and a promissory note in the amount of $460,000; and (iv)
the business assets of a professional limited liability company providing
ophthalmology services at two clinics located in Tucson and Oro Valley, Arizona
for a total consideration of $1.7 million, consisting of 327,717 shares of
Common Stock and a promissory note in the amount of $396,000.
PINELLAS ACQUISITION
In March 1997, the Company completed the acquisitions of the business
assets of one ophthalmology clinic and one optical dispensary located in
Pinellas County, Florida. Concurrently, the Company entered into Management
Agreements with the related professional associations employing one optometrist
and six ophthalmologists (the "Pinellas Acquisition"). In connection with the
Pinellas Acquisition, the Company provided aggregate consideration of $1.1
million, consisting of 128,541 shares of Common Stock.
RECENT ACQUISITIONS
Effective May 1997, the Company completed the acquisition of the business
assets of one optometry clinic, three ophthalmology clinics, three optical
dispensaries and one ASC located in Sierra Vista, Arizona and Fort Lauderdale,
Florida. Concurrently, the Company entered into Management Agreements with the
related professional associations employing three optometrists and two
ophthalmologists (the "Recent Acquisitions"). In connection with the Recent
Acquisitions, the Company provided aggregate consideration of $1.6 million,
consisting of 180,561 shares of Common Stock, $19,000 in promissory notes and
$29,000 in cash.
PENDING ACQUISITIONS
In December 1996, the Company entered into an agreement to acquire the
business assets of an ASC (the "ASC Agreement") located in Tucson, Arizona and
agreed to enter into a Management Agreement with the entity operating the ASC.
The ASC Agreement is expected to be finalized in September 1997, following
termination of the management agreement that is currently in effect. In
connection with the ASC Agreement, the Company expects to provide aggregate
consideration of $555,000, consisting of 140,201 shares of Common Stock, subject
to closing adjustments.
In addition, the Company has several pending letters of intent which are
binding upon the sellers of the clinics, optical dispensaries and ASCs to be
acquired. The letters of intent together with the ASC Agreement are collectively
referred to as the "Pending Acquisitions."
17
<PAGE> 19
RELATIONSHIPS WITH AFFILIATED PROVIDERS AND RETAIL OPTICAL COMPANIES
The Company provides practice management services pursuant to long-term
Management Agreements with professional associations employing Managed Providers
or with entities operating ASCs. This arrangement allows the Managed Providers
to focus on providing professional eye care services to patients. The related
professional associations receive payments from third-party payors or patients
for services provided. The Company receives management fees from the
professional associations for providing management services and employs all
administrative and non-professional staff for the clinic or ASC. The Company
owns all the business assets of the clinics and ASCs to the extent allowable by
law. Furthermore, the Company does not engage in the practice of optometry or
ophthalmology and does not control the practice of optometry or ophthalmology by
the Managed Providers or the compliance with regulatory and other requirements
directly applicable to the Managed Providers and their practices or the
operation of ASCs. The professional associations maintain full control over the
professional eye care services provided by the Managed Providers and set the
fees for all such services. See "Business -- Management Agreements."
The Company has also entered into managed care agreements with HMOs, health
insurance companies and other third-party payors pursuant to which the Company's
Managed Providers and Contract Providers provide eye care services to patients
who are covered by the payors' health benefit plans. The Company does not
provide practice management services to the Contract Providers. Furthermore, the
Company does not control the practice of optometry or ophthalmology by the
Contract Providers or the compliance with regulatory and other requirements
directly applicable to the Contract Providers and their practices or the
operation of ASCs.
The Company has contractual affiliations with ECCA Managed Vision Care,
Inc. ("ECCA") and For Eyes Managed Care, Inc. ("For Eyes"), subsidiaries of
retail optical chains that operate a combined total of over 300 optical retail
locations in 48 cities in the United States. As part of its strategic
relationship with ECCA, the Company's LADS provide certain eye care services to
customers of ECCA at retail optical centers located within the Company's local
area markets. In addition, the Company and ECCA jointly seek to benefit from
increasing managed care business by marketing to managed care plans an
integrated network of eye care providers that are able to offer primary,
secondary and tertiary care as well as retail optical products and services. In
its contractual agreement with For Eyes, the Company is a joint venture partner
in a general partnership called "Vision 21 Plus" in which the Company and For
Eyes each have a 50% interest. The objective of the joint venture is to maximize
opportunities for the Company in managed care by securing contracts and
providing comprehensive, fully integrated eye care products and services to
health care organizations and self-funded employer groups.
18
<PAGE> 20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,100,000 shares of
Common Stock offered by the Company, at an assumed initial public offering price
of $12.00 per share, are estimated to be approximately $22.5 million (after
deducting underwriting discounts and commissions and estimated offering
expenses).
The Company intends to use the net proceeds from the Offering as follows:
(a) an aggregate of approximately $13.6 million to repay outstanding
indebtedness as follows: (i) $4.7 million of senior notes, the proceeds of which
were utilized for acquisitions and general corporate purposes and the repayment
of the Company's bank facility, which bear interest at 10% per annum and are due
in January 1998; (ii) $3.0 million of a senior note payable to Peter Fontaine, a
director of the Company, which bears interest at 8% per annum and is required to
be repaid upon completion of an initial public offering; (iii) $2.0 million of
senior subordinated notes, the proceeds of which were utilized for acquisitions
and general corporate purposes, which bear interest at 10% per annum and are due
upon the earlier of completion of an initial public offering or in December
1999; (iv) $1.9 million of notes payable to the sellers in the 1996
Acquisitions, which bear interest at 8% per annum and are due upon the earlier
of completion of an initial public offering or in March 1998; (v) $1.3 million
of senior subordinated notes which bear interest at 10% per annum and are due
upon the earlier of completion of an initial public offering or in December
1999; and (vi) $700,000 of notes payable in connection with an acquisition,
which bear interest at 8.5% per annum and are due upon completion of an initial
public offering and (b) an aggregate of $8.9 million to finance the acquisition
and development of optometry and ophthalmology clinics and ASCs. See "Certain
Transactions" and "Underwriting." Pending such uses, the net proceeds will be
invested in short-term, investment grade securities, certificates of deposit or
direct or guaranteed obligations of the United States government.
If the Underwriters' over-allotment options are exercised, the Company will
not receive any of the proceeds from the sale of the shares of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
DIVIDEND POLICY
The Company has not paid or declared any dividends since its inception. The
Company currently intends to retain all future earnings for the operation and
expansion of its business and, accordingly, the Company does not anticipate that
any dividends will be declared or paid on the Common Stock for the foreseeable
future. Any future determination to pay cash dividends will be at the discretion
of the Board of Directors and will be dependent upon the Company's financial
condition, results of operations, capital requirements and other factors the
Board of Directors deems relevant. In addition, the Company's future credit
facilities may place certain restrictions on the future payment of dividends.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
19
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997, (i) on an actual basis, (ii) on a pro forma basis to give effect
to the Recent Acquisitions and the Pending Acquisitions and (iii) as adjusted
for the issuance of 2,100,000 shares of Common Stock in the Offering at an
assumed initial public offering price of $12.00 per share and the application of
the net proceeds therefrom, which are estimated to be approximately $22.5
million (after deducting underwriting discounts and commissions and estimated
offering expenses). This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Unaudited Pro Forma Consolidated
Financial Information and related Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt and capital lease
obligations............................................... $ 4,415 $ 4,415 $ 796
======= ======= =======
Long-term debt and capital lease obligations................ $ 6,094 $ 6,094 $ 157
------- ------- -------
Stockholders' equity(1):
Common Stock: $.001 par value; 50,000,000 shares
authorized, 5,335,563 shares outstanding, 5,656,325
shares outstanding, pro forma, 7,756,325 shares
outstanding, pro forma as adjusted..................... 5 6 8
Additional paid-in capital................................ 11,921 14,560 37,094
Deferred compensation..................................... (490) (490) (490)
Retained earnings......................................... (8,041) (8,041) (8,041)
------- ------- -------
Total stockholders' equity........................ 3,395 6,035 28,571
------- ------- -------
Total capitalization......................... $ 9,489 $12,129 $28,728
======= ======= =======
</TABLE>
- ---------------
(1) Excludes (a) an aggregate of 1,600,000 shares of Common Stock reserved for
issuance under the Plans, pursuant to which options to purchase 672,667
shares of Common Stock have been granted as of June 12, 1997, (b) an
aggregate of 1,175,000 shares of Common Stock which are issuable upon the
exercise of warrants granted by the Company and (c) an aggregate of 79,805
shares of Common Stock which are being held in escrow as contingent
consideration in several acquisitions. See "The Acquisitions,"
"Management -- The Stock Option Plans," "Shares Eligible for Future Sale"
and "Underwriting."
20
<PAGE> 22
DILUTION
Purchasers of Common Stock offered hereby will experience an immediate and
substantial dilution in the net tangible book value of the Common Stock from the
initial public offering price. At March 31, 1997, the pro forma net tangible
book value (deficit) of the Company was $(10.3 million), or $(1.82) per share.
Pro forma net tangible book value per share is determined by dividing the
Company's pro forma net tangible book value (tangible assets less total
liabilities, after giving effect to the Recent Acquisitions and the ASC
Agreement) by the number of shares of Common Stock outstanding. After giving
effect, as of such date, to the sale of 2,100,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $12.00 per share and after
deducting underwriting discounts and commissions and estimated offering
expenses, the pro forma net tangible book value of the Company would have been
$12.6 million, or $1.62 per share. This represents an immediate increase in pro
forma net tangible book value of $3.44 per share to existing stockholders and an
immediate dilution in net tangible book value of $10.38 per share to new
investors purchasing shares of Common Stock in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $ 12.00
Pro forma net tangible book value (deficit) at March
31, 1997.............................................. $ (1.82)
-------
Increase attributable to new investors................. 3.44
-------
Pro forma net tangible book value after the Offering........ 1.62
-------
Dilution in net tangible book value to new investors........ $ 10.38
=======
</TABLE>
The following table sets forth, on a pro forma basis at March 31, 1997 as
described above, the differences between the existing stockholders and the new
investors purchasing shares in the Offering with respect to the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share at an assumed initial public offering
price of $12.00 per share, without giving effect to the underwriting discounts
and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 5,656,325 72.9% $ 6,034,802 19.3% $ 1.07
---------- ----- ------------ ------
New investors..................... 2,100,000 27.1 25,200,000 80.7 12.00
---------- ----- ------------ ------
Total(1)................ 7,756,325 100.0% $ 31,234,802 100.0%
========== ===== ============ ======
</TABLE>
- ---------------
(1) Excludes (a) an aggregate of 1,600,000 shares of Common Stock reserved for
issuance under the Plans, pursuant to which options to purchase 672,667
shares have been granted as of June 12, 1997, (b) an aggregate of 1,175,000
shares of Common Stock which are issuable upon the exercise of warrants
granted by the Company and (c) an aggregate of 79,805 shares of Common Stock
which are being held in escrow as contingent consideration in several
acquisitions. To the extent that such stock options and warrants are
exercised, there will be further dilution to new investors. See
"Management -- The Stock Option Plans," "Shares Eligible for Future Sale,"
"Underwriting" and Notes 10 and 11 of Notes to Consolidated Financial
Statements. Assuming the Underwriters' over-allotment options are exercised
in full, the number of shares held by existing stockholders will be reduced
to 5,551,026 shares, or 70.0% of the total number of shares outstanding
after the Offering, and the number of shares held by new investors will
increase by 315,000 shares to 2,415,000 shares, or 30.0% of the total shares
of Common Stock outstanding after the Offering. See "Principal and Selling
Stockholders."
21
<PAGE> 23
SELECTED PRO FORMA FINANCIAL DATA
The pro forma financial data are derived from the Unaudited Pro Forma
Consolidated Financial Information of the Company appearing elsewhere in this
Prospectus. The Pro Forma Statement of Operations Data for the year ended
December 31, 1996 give effect to the following transactions as if they had
occurred on January 1, 1996: (i) the 1996 Acquisitions (ii) the Pinellas
Acquisition, (iii) the Recent Acquisitions, (iv) the ASC Agreement and (v) the
Offering at an assumed public offering price of $12.00 per share and the
application of the estimated net proceeds therefrom. The Pro Forma Statement of
Operations Data for the three months ended March 31, 1997 give effect to the
following transactions as if they had occurred on January 1, 1997: (i) the
Pinellas Acquisition, (ii) the Recent Acquisitions, (iii) the ASC Agreement and
(iv) the Offering at an assumed public offering price of $12.00 per share and
the application of the estimated net proceeds therefrom. The Pro Forma Balance
Sheet Data as of March 31, 1997 gives effect to the Recent Acquisitions and the
ASC Agreement and the completion of the Offering at an assumed public offering
price of $12.00 per share and the application of the estimated net proceeds
therefrom as if they had occurred as of March 31, 1997.
The pro forma financial data should be read in conjunction with the
Unaudited Pro Forma Consolidated Financial Information of the Company and the
related notes thereto included elsewhere in this Prospectus. Management believes
the assumptions used in the Unaudited Pro Forma Consolidated Financial
Information provide a reasonable basis on which to present the pro forma
financial data. The pro forma financial data are provided for informational
purposes only and should not be construed to be indicative of the Company's
financial position or results of operations had the transactions and events
described in the notes thereto been consummated on the dates assumed and are not
intended to project the Company's financial condition or results of operations
on any future date or for any future period.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 MARCH 31, 1997
------------------ ---------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues:
Managed care........................................... $ 8,583 $ 2,763
Practice management fees............................... 24,380 6,192
Other revenue.......................................... 309 117
------- --------
Total revenues.................................... 33,272 9,072
------- --------
Operating expenses:
Medical claims......................................... 10,269 2,338
Practice management expenses........................... 19,787 5,079
Salaries, wages and benefits........................... 1,927 1,046
Business development................................... 1,927 --
General and administrative............................. 1,375 414
Depreciation and amortization.......................... 1,173 250
------- --------
Total operating expenses.......................... 36,458 9,127
------- --------
Loss from operations................................... (3,186) (55)
Interest expense....................................... 5 6
------- --------
Loss before income taxes............................... (3,191) (61)
Income taxes........................................... -- --
------- --------
Net loss............................................... $(3,191) $ (61)
======= ========
Net loss per common share.............................. $ (0.45) $ (0.01)
======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
(IN THOUSANDS)
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital........................................... 10,774
Total assets.............................................. 34,168
Long-term debt, including current maturities.............. 953
Stockholders' equity...................................... 28,571
</TABLE>
See Notes to the Unaudited Pro Forma Consolidated Financial Information.
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data with respect to the Company's
statements of operations for the years ended December 31, 1994, 1995 and 1996,
and the balance sheet data as of December 31, 1995 and 1996 are derived from the
Consolidated Financial Statements of the Company which have been audited by
Ernst & Young LLP, independent certified public accountants. The selected
financial data presented below for the years ended December 31, 1992, 1993 and
for the three months ended March 31, 1996 and 1997, are unaudited and were
prepared by management of the Company on the same basis as the audited
Consolidated Financial Statements included elsewhere herein and, in the opinion
of management of the Company, include all adjustments necessary to present
fairly the information set forth therein. The results for the three months ended
March 31, 1997 are not necessarily indicative of the results to be expected for
the full year ending December 31, 1997 or future periods. The following data
should be read in conjunction with the Consolidated Financial Statements of the
Company and the related notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Managed care(1).......................... $ -- $ -- $ 669 $ 2,446 $ 7,315 $ 1,936 $ 2,763
Practice management fees................. 645 653 392 424 1,943 140 4,838
Other revenue............................ 8 6 131 212 306 24 117
-------- -------- -------- -------- -------- -------- --------
Total revenues...................... 653 659 1,192 3,082 9,564 2,100 7,718
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Medical claims........................... -- -- 551 2,934 9,129 2,463 2,338
Practice management expenses............. -- -- -- -- 1,244 -- 3,931
Salaries, wages and benefits............. 494 501 538 904 1,889 299 1,046
Business development..................... -- -- -- -- 1,927 -- --
General and administrative............... 167 168 238 443 1,209 153 414
Depreciation and amortization............ 11 8 13 18 126 8 210
-------- -------- -------- -------- -------- -------- --------
Total operating expenses............ 672 677 1,340 4,299 15,524 2,923 7,939
-------- -------- -------- -------- -------- -------- --------
Loss from operations....................... (19) (18) (148) (1,217) (5,960) (823) (221)
Interest expense........................... 1 5 5 9 160 2 227
-------- -------- -------- -------- -------- -------- --------
Loss before income taxes................... (20) (23) (153) (1,226) (6,120) (825) (448)
Income taxes............................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss................................... $ (20) $ (23) $ (153) $ (1,226) $ (6,120) $ (825) $ (448)
======== ======== ======== ======== ======== ======== ========
Net loss per common share(2)............... $ (1.00) $ (0.07)
======== ========
Weighted average number of common shares
outstanding(2)........................... 6,136 6,136
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................ $ 19 $ (5) $ (193) $ (1,499) $ (2,857) $ (6,158)
Total assets............................. 53 67 49 165 15,712 19,990
Long-term debt, including current
maturities............................. 56 89 85 363 7,735 10,509
Stockholders' equity (deficit)........... (16) (38) (191) (1,439) 2,536 3,395
</TABLE>
- ---------------
(1) Revenues related to managed care for 1992 and 1993 are included under other
revenue as managed care revenues were not separately accounted for during
such periods.
(2) See Note 3 to Notes to Consolidated Financial Statements for a description
of the computation of net loss per common share.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides a wide range of management and administrative services
to local area delivery systems ("LADS") established by the Company. LADS are
integrated networks of optometrists, ophthalmologists, ASCs and retail optical
centers that are designed to offer the full continuum of eye care services in
local markets. The Company began operations in 1984, providing management
services to seven optometrists practicing at eight clinic locations. The Company
currently provides its services to 11 LADS located in six states through which
659 Affiliated Providers deliver eye care services. Of these Affiliated
Providers, 62 are Managed Providers, consisting of 41 optometrists and 21
ophthalmologists practicing at 39 clinic locations and two ASCs, and 597 are
Contract Providers, consisting of 260 optometrists and 337 ophthalmologists
practicing at 308 clinic locations and 38 ASCs. The Company signed its first
managed care contract in 1988 for 18,000 patient lives serviced through the
Company's network of optometrists practicing within retail optical locations.
The Company's Affiliated Providers, in conjunction with select national retail
optical chains operating over 300 retail optical centers, deliver eye care
services under the Company's 22 managed care contracts and seven discount
fee-for-service plans covering over 1.8 million patient lives.
The Company enters into Management Agreements with professional
associations managed by the Company, the initial term of which is typically 40
years. Under most of its Management Agreements, the management fee ranges from
24% to 37% of the Managed Professional Associations' gross revenues after
deducting from such revenues all expenses of the clinic other than those related
to shareholders of the Managed Professional Associations. The practice
management fees earned by the Company pursuant to these Management Agreements
fluctuate depending on variances in revenues and expenses of the Managed
Professional Associations.
The Company recognizes as managed care revenue certain fixed payments
received pursuant to its managed care contracts on a capitated or risk sharing
basis. The Company also recognizes fees received for the provision of certain
financial and administrative services related to its indemnity fee-for-service
plans. Pursuant to its capitated managed care contracts, the Company receives a
fixed payment per member per month for a predetermined benefit level of eye care
services, as negotiated between the Company and the payor. Profitability of the
Company's capitated managed care contracts is directly related to the specific
terms negotiated, utilization of eye care services by member patients and the
effectiveness of administering the contracts. The Company receives a percentage
of collected medical billings for administering indemnity fee-for-service plans
for its Affiliated Providers. Although the terms and conditions of the Company's
managed care contracts vary considerably, they are typically for a one year
term. As of March 31, 1997, the Company maintained 16 capitated managed care
contracts and administered 13 indemnity fee-for-service plans for its Affiliated
Providers.
In December 1996, the Company completed a series of transactions resulting
in the acquisition of the business assets of 22 optometry clinics, nine
ophthalmology clinics, 15 optical dispensaries and one ASC. Business assets
consist of certain non-medical and non-optometric assets, including accounts
receivables, leases, contracts, equipment and other tangible and intangible
assets. Concurrently, the Company entered into Management Agreements with the
related professional associations employing 34 optometrists and 13
ophthalmologists. Additionally, the Company acquired the business assets of a
managed care company servicing four capitated managed care contracts covering
over 100,000 patient lives (collectively, the "1996 Acquisitions"). In
connection with the 1996 Acquisitions, the Company provided aggregate
consideration of $11.9 million, consisting of 2.1 million shares of Common
Stock, unsecured promissory notes in the aggregate principal amount of $1.9
million and $800,000 in assumed debt. Additionally, the Company may be required
to provide additional consideration of up to $316,000, consisting of up to
79,805 shares of Common Stock, in connection with several of the 1996
Acquisitions which will be transferred out of escrow to certain sellers in the
event they meet certain post-acquisition performance targets. The 1996
Acquisitions were accounted for under the purchase method of accounting. If the
1996 Acquisitions had occurred at the beginning of 1996, they would have added
$16.8 million in additional practice management fee revenue for 1996. The
Company
24
<PAGE> 26
elected to take a one-time charge of $1.4 million in the fourth quarter of 1996
for expenses associated with the attempted acquisition of the business assets of
certain Contract Providers at the time of the 1996 Acquisitions.
In March 1997, the Company completed the acquisition of the business assets
of one ophthalmology clinic and one optical dispensary. Concurrently, the
Company entered into Management Agreements with the related professional
associations employing one optometrist and six ophthalmologists (the "Pinellas
Acquisition"). In connection with the Pinellas Acquisition, the Company provided
aggregate consideration of $1.1 million, consisting of 128,541 shares of Common
Stock. The Pinellas Acquisition was accounted for under the purchase method of
accounting. If the Pinellas Acquisition had occurred at the beginning of 1996,
it would have added $2.1 million in additional practice management fee revenue
for 1996.
Effective May 1997, the Company completed the acquisitions of the business
assets of one optometry clinic, three ophthalmology clinics, three optical
dispensaries and one ASC. Concurrently, the Company entered into Management
Agreements with the related professional associations employing three
optometrists and two ophthalmologists (the "Recent Acquisitions"). In connection
with the Recent Acquisitions, the Company provided aggregate consideration of
$1.6 million, consisting of 180,561 shares of Common Stock, $19,000 in
promissory notes and $29,000 in cash.
In December 1996, the Company entered into an agreement to acquire the
business assets of an additional ASC and at that time agreed to enter into a
Management Agreement with the entity operating the ASC. The ASC Agreement is
expected to be finalized in September 1997, following termination of the
management agreement that is currently in effect. In connection with the ASC
Agreement, the Company expects to provide aggregate consideration of $555,000,
consisting of 140,201 shares of Common Stock, subject to closing adjustments. In
addition, the Company has several pending letters of intent which are binding
upon the sellers of the clinics, optical dispensaries and ASCs to be acquired,
see "The Acquisitions."
Effective October 1996, the Company entered into renegotiated agreements to
pay certain ophthalmology Contract Providers a per member per month fee for
surgical eye care services provided under the Company's largest capitated
managed care contract. The renegotiated capitation agreements improved the
Company's medical claims ratio (medical claims expense divided by managed care
revenue) from 136% for the third quarter of 1996 to 90% for the fourth quarter
of 1996 and 84.6% for the first quarter of 1997. On a pro forma basis for 1996,
the renegotiated capitation agreements would have reduced medical claims expense
by $2.6 million.
Effective June 1997, the Company entered into an agreement to pay the
operator of multiple surgical eye care facilities a per member per month fee for
facility services provided at its facilities pursuant to the Company's largest
capitated managed care contract. On a pro forma basis for the three months ended
March 31, 1997, the renegotiated capitation agreement would have reduced medical
claims expense by $132,000.
The following table illustrates the effect on the Company's pro forma
operating results of the renegotiated surgical eye care services and facility
capitation agreements as if they had been effective January 1, 1996 and as if
the one-time charge of $1.4 million had not occurred:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Revenues............................................ $33,272 $9,072
Operating expenses.................................. 32,457 8,996
------- -------
Income from operations.............................. $ 815 $ 76
</TABLE>
Since December 31, 1996, the Company has expanded two existing capitated
managed care contracts and added five new capitated managed care contracts
covering approximately 323,000 lives. In addition, the Company leveraged its
strategic alliance with a leading optical retailer by adding, in the three
months ended March 31, 1997, three internally developed optometry clinics
located in Louisiana and entering into a Management Agreement with the related
professional association employing three optometrists. As of June 1,
25
<PAGE> 27
1997, the Company reached a tentative agreement with the same optical retailer
to add at least 20 internally developed optometry clinics throughout the
remainder of 1997. The Company will continue to leverage its strategic alliances
by adding select internally developed optometry clinics in affiliated optical
retail locations.
The Managed Professional Associations currently receive revenues from a
combination of sources, including fees paid by private-pay patients, indemnity
insurance reimbursements, capitation payments from managed care companies and
government funded reimbursements (Medicare and Medicaid). The following table
outlines this payor mix for the Managed Professional Associations for the
periods presented:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Private-pay....................................... 25.5%
Capitated managed care............................ 27.4
Indemnity insurance plans......................... 20.4
Medicare/Medicaid................................. 26.7
------ ------
Total................................... 100.0%
====== ======
</TABLE>
The Managed Professional Associations derive their revenues from fees
received for professional services provided by optometrists and
ophthalmologists, charges for the use of ASCs and sales of optical goods. The
following table indicates the mix of revenues received by the Managed
Professional Associations for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Optometry fees.................................... 42% 40%
Ophthalmology fees................................ 41 42
Optical goods..................................... 14 15
ASCs.............................................. 3 3
------ ------
Total................................... 100.0% 100.0%
====== ======
</TABLE>
26
<PAGE> 28
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues, certain
items in the Company's statement of operations for the periods indicated. As a
result of the Company's 1996 Acquisitions, the Pinellas Acquisition, the Recent
Acquisitions, the Pending Acquisitions and the Company's entering into capitated
arrangements with its Contract Providers, the Company does not believe that the
historical percentage relationships for 1994, 1995, 1996 and the three months
ended March 31, 1996 and 1997 reflect the Company's expected future operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------
1994 1995 1996 1996 1997
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Managed care..................................... 56.1% 79.4% 76.5% 92.2% 35.8%
Practice management fees......................... 32.9 13.8 20.3 6.7 62.7
Other revenue.................................... 11.0 6.8 3.2 1.1 1.5
----- ----- ----- ----- -----
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Operating expenses:
Medical claims................................... 46.2 95.2 95.5 117.3 30.3
Practice management expenses..................... 0.0 0.0 13.0 0.0 50.9
Salaries, wages and benefits..................... 45.1 29.3 19.8 14.2 13.6
Business development............................. 0.0 0.0 20.1 -- --
General and administrative....................... 20.0 14.4 12.6 7.3 5.4
Depreciation and amortization.................... 1.1 0.6 1.3 0.4 2.7
----- ----- ----- ----- -----
Total operating expenses................. 112.4 139.5 162.3 139.2 102.9
----- ----- ----- ----- -----
Loss from operations............................... (12.4) (39.5) (62.3) (39.2) (2.9)
Interest expense................................... 0.3 0.3 1.7 0.1 2.9
----- ----- ----- ----- -----
Loss before income taxes........................... (12.7) (39.8) (64.0) (39.3) (5.8)
Income taxes.......................................
Net loss........................................... (12.8) (39.8) (64.0) (39.3) (5.8)
===== ===== ===== ===== =====
Medical claims ratio............................... 82.5% 120.0% 124.8% 127.2% 84.6%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996
Revenues. Revenues increased 267.6% from $2.1 million for the three months
ended March 31, 1996 to $7.7 million for the three months ended March 31, 1997.
This increase was caused primarily by an increase in practice management fees
attributable to the 1996 Acquisitions and the Pinellas Acquisition, which
accounted for $4.8 million of the increase, and a 42.6% increase in managed care
revenues attributable to the addition of one capitated contract and the
expansion of an existing contract, which accounted for $826,000 of the increase.
Medical Claims. Medical claims expense decreased 5.1% from $2.5 million
for the three months ended March 31, 1996 to $2.3 million for the three months
ended March 31, 1997. The Company's medical claims ratio decreased from 127.2%
for the three months ended March 31, 1996 to 84.6% for the three months ended
March 31, 1997. These decreases were caused primarily by the Company's
renegotiated agreement to pay its ophthalmology Contract Providers a per member
per month fee for surgical eye care services provided under the Company's
largest capitated managed care contract. Medical claims expense consists of
payments by the Company to its Affiliated Providers for primary eye care
services, medical and surgical eye care services and facility services. These
payments are based on either negotiated fixed per member per month fees or
negotiated fee-for-service schedules.
Practice Management Expenses. Practice management expenses were $3.9
million for the three months ended March 31, 1997 as a result of the 1996
Acquisitions and the Pinellas Acquisition. Prior to the 1996
27
<PAGE> 29
Acquisitions, the Company recognized no practice management expenses related to
its management services. Practice management expenses consist of salaries, wages
and benefits of certain clinic staff, professional fees, medical supplies,
advertising, building and occupancy costs, and other general and administrative
costs related to the operation of clinics and ASCs.
Salaries, Wages and Benefits. Salaries, wages and benefits expense
increased 249.8% from $299,000 for the three months ended March 31, 1996 to $1.0
million for the three months ended March 31, 1997. This increase was caused
primarily by an increase in corporate staff necessary to support the Company's
expanded practice management and managed care business. Salaries, wages and
benefits expense consists of expenses related to management and administrative
staff located at the Company's corporate headquarters and regional offices. As a
percentage of revenues, salaries, wages and benefits decreased from 14.2% for
the three months ended March 31, 1996 to 13.6% for the three months ended March
31, 1997. This decrease was caused primarily by increased economies of scale
resulting from the Company's expanding business.
General and Administrative. General and administrative expenses increased
170.6% from $153,000 for the three months ended March 31, 1996 to $414,000 for
the three months ended March 31, 1997. This increase was caused primarily by
increases in travel expenses, professional fees and occupancy costs. As a
percentage of revenues, general and administrative expenses decreased from 7.3%
for the three months ended March 31, 1996 to 5.4% for the three months ended
March 31, 1997. This decrease was caused primarily by increased economies of
scale resulting from the Company's expanding business.
Depreciation and Amortization. Depreciation and amortization expense
increased from $8,000 for the three months ended March 31, 1996 to $210,000 for
the three months ended March 31, 1997. As a percentage of revenues, depreciation
and amortization expense increased from 0.4% for the three months ended March
31, 1996 to 2.7% for the three months ended March 31, 1997. These increases were
caused primarily by the amortization of intangibles attributable to the 1996
Acquisitions and the Pinellas Acquisition.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Revenues increased 210.3% from $3.1 million for 1995 to $9.6
million for 1996. This increase was caused primarily by a 358.3% increase in
practice management fees attributable to the 1996 Acquisitions, which accounted
for $1.5 million of the increase, and a 199.1% increase in managed care revenues
attributable to the addition of one new capitated contract and the expansion of
the Company's largest managed care contract, which accounted for $4.9 million of
the increase.
Medical Claims. Medical claims expense increased 211.1% from $2.9 million
in 1995 to $9.1 million in 1996. The Company's medical claims ratio increased to
124.8% for 1996 from 120.0% for 1995. These increases were caused primarily by
excess utilization of surgical eye care services and facility services related
to the Company's largest managed care contract, which accounted for $4.8 million
of the increase, and an increase in members covered by the Company's capitated
managed care contracts, which accounted for $1.8 million of the increase.
Practice Management Expenses. Practice management expenses were $1.2
million for 1996, all of which resulted from the 1996 Acquisitions. Prior to the
1996 Acquisitions, the Company recognized no practice management expenses
related to its management services.
Salaries, Wages and Benefits. Salaries, wages and benefits expense
increased 109.0% from $904,000 in 1995 to $1.9 million in 1996. This increase
was caused primarily by an increase in corporate staff necessary to support the
Company's expanded practice management and managed care business. As a
percentage of revenues, salaries, wages and benefits decreased from 29.3% in
1995 to 19.8% in 1996. This decrease was caused primarily by increased economies
of scale resulting from the Company's expanding business.
Business Development. Business development expenses were $1.9 million in
1996. Business development expenses consisted of a one-time charge of $1.4
million related to potential acquisitions that were not completed and $500,000
related to the amortization of deferred compensation charges attributable to
consulting services.
28
<PAGE> 30
General and Administrative. General and administrative expenses increased
172.9% from $443,000 in 1995 to $1.2 million in 1996. This increase was caused
primarily by increases in travel expenses, professional fees, occupancy costs,
temporary labor and recruitment costs related to the Company's expanding
business. As a percentage of revenues, general and administrative expenses
decreased from 14.4% in 1995 to 12.6% in 1996. This decrease was caused
primarily by increased economies of scale resulting from the Company's expanding
business.
Depreciation and Amortization. Depreciation and amortization expense
increased from $18,000 in 1995 to $126,000 in 1996. As a percentage of revenues,
depreciation and amortization expense increased from 0.6% in 1995 to 1.3% in
1996. This increase was caused primarily by the amortization of intangibles
attributable to the 1996 Acquisitions.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Revenues increased 158.6% from $1.2 million for 1994 to $3.1
million for 1995. This increase was primarily caused by an increase in managed
care revenues as a result of the Company obtaining its first complete eye care
capitated contract from a leading HMO, which accounted for $1.8 million of the
increase.
Medical Claims. Medical claims expense increased 432.5% from $551,000 for
1994 to $2.9 million for 1995. The Company's medical claims ratio increased to
120.0% for 1995 from 82.5% for 1994. These increases were caused primarily by
excess utilization of surgical eye care services and facility services related
to the Company's largest managed care contract.
Practice Management Expenses. The Company incurred no practice management
expenses during 1994 or 1995. Prior to the 1996 Acquisitions, the Company
recognized no practice management expenses related to its management services.
Salaries, Wages and Benefits. Salaries, wages and benefits expense
increased 68.0% from $538,000 in 1994 to $904,000 in 1995. This increase was
caused primarily by an increase in corporate staff necessary to support the
Company's expanded practice management and managed care business. As a
percentage of revenues, salaries, wages and benefits decreased from 45.1% in
1994 to 29.3% in 1995. This decrease was caused primarily by increased economies
of scale resulting from the Company's expanding business.
Business Development. The Company incurred no business development expense
during 1994 or 1995.
General and Administrative. General and administrative expenses increased
86.1% from $238,000 in 1994 to $443,000 in 1995. This increase was caused
primarily by increases in travel expenses, professional fees, occupancy costs
and temporary labor and recruitment costs. As a percentage of revenues, general
and administrative expenses decreased from 20.0% in 1994 to 14.4% in 1995. This
decrease was caused primarily by increased economies of scale resulting from the
Company's expanding business.
Depreciation and Amortization. Depreciation and amortization expense
increased 38.5% from $13,000 in 1994 to $18,000 in 1995. This increase was
caused primarily by the amortization of intangibles. As a percentage of
revenues, depreciation and amortization expense decreased from 1.1% in 1994 to
0.6% in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its working capital and capital
expenditure requirements primarily through institutional borrowings and private
debt and equity financings. Net cash provided by operating activities for 1994
was $30,000 and net cash used in operating activities for 1995 and 1996 and the
three months ended March 31, 1997 was $138,000, $4.2 million and $275,000,
respectively. Net cash provided by operating activities for 1994 was caused
primarily by an increase in liabilities more than offsetting a net loss. Net
cash used in operating activities for 1995 and 1996 and the three months ended
March 31, 1997 was caused primarily by net losses offset in part by increases in
medical claims payable, deferred compensation and accrued acquisition expenses.
29
<PAGE> 31
Net cash used in investing activities for 1994, 1995 and 1996 and the three
months ended March 31, 1997 was $14,000, $88,000, $1.6 million and $1.6 million,
respectively, and was caused primarily by the purchase of furniture and
equipment and payments for capitalized acquisition and offering costs.
Net cash used in financing activities for 1994 was $4,000. Net cash
provided by financing activities for 1995 and 1996 and the three months ended
March 31, 1997 was $256,000, $5.8 million and $2.9 million, respectively. The
amounts for 1996 and for the three months ended March 31, 1997 were attributable
to private debt and equity financings and higher levels of institutional
borrowings to support the Company's internal expansion and acquisition
activities.
In June 1996, the Company borrowed $3.0 million from Peter Fontaine, a
director of the Company, for working capital purposes pursuant to an unsecured
promissory note (the "Fontaine Note"). The Fontaine Note bears interest at 8.0%
per annum and is due upon completion of an initial public offering by the
Company. The Fontaine Note will be repaid by the Company from the net proceeds
of the Offering. In addition, the Company borrowed $200,000 and $500,000 from
Mr. Fontaine in November and December 1996, respectively, for working capital
purposes pursuant to unsecured promissory notes. The unsecured promissory notes
each bear interest at 8.5% per annum and are due in January 1998. See "Certain
Transactions."
In December 1996, the Company completed a series of transactions resulting
in the acquisition of the business assets of 22 optometry clinics, nine
ophthalmology clinics, 15 optical dispensaries and one ASC for an aggregate
consideration of $11.0 million, consisting of 2.1 million shares of Common
Stock, unsecured promissory notes in the aggregate principal amount of $1.9
million and $800,000 in assumed debt. Additionally, the Company has agreed to
aggregate contingent consideration of $316,000, consisting of 79,805 shares of
Common Stock, in connection with several of the 1996 Acquisitions which will be
transferred out of escrow to certain sellers in the event they meet certain
post-acquisition performance targets. The promissory notes bear interest at 8.0%
per annum and are due at the earlier of March 1, 1998 or 15 business days after
the completion of an initial public offering by the Company. These promissory
notes will be repaid by the Company from the net proceeds of the Offering.
In December 1996, the Company borrowed an aggregate of $1.3 million from
certain individuals for working capital purposes pursuant to the issuance of
senior subordinated notes (the "1996 Subordinated Notes"). The 1996 Subordinated
Notes included detachable warrants to purchase an aggregate of 208,333 shares of
Common Stock at exercise prices ranging from $6.00 to $7.11 per share. The 1996
Subordinated Notes bear interest at 10.0% per annum and are due at the earlier
of December 19, 1999 or upon a Liquidation Event, as defined in the 1996
Subordinated Notes. The 1996 Subordinated Notes will be repaid by the Company
from the net proceeds of the Offering.
In February 1997, the Company borrowed an aggregate of $2.0 million from
Piper Jaffray Healthcare Fund II Limited Partnership ("Piper Jaffray") for
working capital purposes pursuant to the issuance of senior subordinated notes
(the "1997 Subordinated Notes"). The 1997 Subordinated Notes included a
detachable warrant to purchase an aggregate of 333,333 shares of Common Stock at
exercise prices ranging from $6.00 to $7.11 per share. The 1997 Subordinated
Notes bear interest at 10.0% per annum and are due at the earlier of December
19, 1999 or upon a Liquidation Event, as defined in the 1997 Subordinated Notes.
The 1997 Subordinated Notes will be repaid by the Company from the net proceeds
of the Offering.
In March 1997, the Company completed the acquisitions of the business
assets of one ophthalmology clinic and one optical dispensary. Concurrently, the
Company entered into Management Agreements with the related professional
association employing one optometrist and six ophthalmologists. In connection
with the Pinellas Acquisition, the Company provided aggregate consideration of
$1.1 million, consisting of 128,541 shares of Common Stock.
Effective May 1997, the Company completed the acquisitions of the business
assets of one optometry clinic, three ophthalmology clinics, three optical
dispensaries and one ASC. Concurrently, the Company entered into Management
Agreements with the related professional associations employing three
optometrists and two ophthalmologists. In connection with the Recent
Acquisitions, the Company provided aggregate
30
<PAGE> 32
consideration of $1.6 million, consisting of 180,561 shares of Common Stock,
$19,000 in promissory notes and $29,000 in cash. The promissory note bears
interest at 8.0% per annum and matures on March 1, 1998.
In April 1997, the Company entered into a credit facility in the aggregate
amount of $5.0 million with Prudential Securities Group Inc. pursuant to a Note
and Warrant Purchase Agreement amended and restated in June 1997 ("the Amended
and Restated Note and Warrant Purchase Agreement"). The proceeds from the
borrowing were used to repay the Company's existing credit facility with Barnett
Bank N.A. in the principal amount of $2.0 million and for general working
capital purposes. Under the Amended and Restated Note and Warrant Purchase
Agreement, the Company issued a senior note secured by all the Company's assets
(the "Prudential Note"). The Prudential Note bears interest at 10% per annum and
is due at the earlier of January 1, 1998 or upon completion of an initial public
offering. In addition, the Amended and Restated Note and Warrant Purchase
Agreement includes a detachable warrant to purchase an aggregate of 633,333 of
Common Stock at exercise prices ranging from $6.00 per share to 80% of the price
of the Common Stock at an initial public offering. The Prudential Note will be
repaid by the Company from the net proceeds of the Offering. See "Underwriting".
The Amended and Restated Note and Warrant Purchase Agreement contain negative
and affirmative covenants and agreements requiring the maintenance of certain
financial ratios.
In addition, pursuant to the ASC Agreement, the Company expects to acquire
the business assets of an ASC. Additionally, the Company expects to enter into a
Management Agreement with the related entity owning the ASC. In connection with
the ASC Agreement, the Company expects to pay an aggregate consideration of
$555,000 consisting of 140,201 shares of Common Stock subject to adjustment at
closing.
Based upon the Company's anticipated capital needs for operation of its
business, general corporate purposes, the acquisition of clinics and ASCs and
repayment of certain indebtedness, management believes that the combination of
the funds expected to be provided from the Company's operations, anticipated
future institutional borrowings, seller financing and the net proceeds received
from the Offering will be sufficient to meet the Company's funding requirements
to conduct its operations and for further implementation of its growth strategy
for a period of approximately twelve months. The Company will continue to offer
Common Stock, notes or combinations thereof as consideration for certain future
mergers and acquisitions related to the growth of its LADS and currently expects
for the foreseeable future to continue to require contractual lock-up agreements
and to provide registration rights consistent with previous transactions for
sellers receiving stock in acquisitions. After the twelve-month period, or in
the event the Company's capital expenditures are greater than currently expected
and to the extent additional capital resources are needed, the Company expects
to utilize supplemental borrowings and/or the proceeds from the offering of debt
or equity securities.
31
<PAGE> 33
BUSINESS
OVERVIEW
The Company provides a wide range of management and administrative services
to local area delivery systems ("LADS") established by the Company. LADS are
integrated networks of optometrists, ophthalmologists, ASCs and retail optical
centers that are designed to offer the full continuum of eye care services in
local markets. The Company began operations in 1984, providing management
services to seven optometrists practicing at eight clinic locations. The Company
currently provides its services to 11 LADS located in six states through which
659 Affiliated Providers deliver eye care services. Of these Affiliated
Providers, 62 are Managed Providers, consisting of 41 optometrists and 21
ophthalmologists practicing at 39 clinic locations and two ASCs, and 597 are
Contract Providers, consisting of 260 optometrists and 337 ophthalmologists
practicing at 308 clinic locations and 38 ASCs. The Company signed its first
managed care contract in 1988 for 18,000 patient lives serviced through the
Company's network of optometrists practicing within retail optical locations.
The Company's Affiliated Providers, in conjunction with select national retail
optical chains operating over 300 retail optical centers, deliver eye care
services under the Company's 22 managed care contracts and seven discount
fee-for-service plans covering over 1.8 million patient lives.
THE EYE CARE INDUSTRY
The Eye Care Market. According to the Health Care Financing Administration
("HCFA"), expenditures for all eye care services in the United States were
approximately $31.2 billion in 1995. Industry sources estimate $19.6 billion of
these expenditures was spent on primary care, including approximately $13.8
billion for optical goods (frames, lenses and accessories) and $5.8 billion for
primary eye care services (routine eye exams, contact lens fitting and
diagnosis/management of eye disease), while $11.6 billion was spent on secondary
and tertiary care, including $6.9 billion for ophthalmology services (medical
and surgical eye care) and $4.7 billion for facility services (services provided
by hospital facilities and ASCs).
The aging of the "baby boom" generation in the United States is expected to
result in increased spending on all eye care services. As individuals age, their
need for eye services at all levels of care -- primary, secondary and
tertiary -- increases with the onset of cataracts, glaucoma and other eye
diseases and disorders. According to the American Academy of Ophthalmology, U.S.
surgeons performed 1.4 million cataract surgeries in 1995, up from 1.2 million
procedures in 1994. Additionally, according to HCFA, cataract surgery is the
largest single Medicare expenditure.
Technological advances and innovations are also expected to contribute to
increased spending on eye care services. Innovative procedures in the area of
refractive surgery, such as Photo Refractive Keratectomy (PRK) procedures, which
utilize the excimer laser to surgically correct nearsightedness, along with
enhancements in current technology and micro surgical protocols have allowed for
less invasive and disruptive outpatient ocular procedures utilizing local rather
than general anesthesia. For example, according to industry sources, PRK
procedures alone are expected to increase from 108,000 in 1996 to 945,000 in the
year 2000.
Today's Delivery of Eye Care. Eye care services in the United States are
delivered through a highly fragmented system of local providers which industry
sources estimate consisted of approximately 47,000 practicing eye care
professionals in 1996, including approximately 29,500 optometrists and 17,500
ophthalmologists. A patient's first encounter with an eye care provider
frequently occurs with an optometrist or optical retailer for some form of
primary care. According to the American Optometric Association, approximately 86
million eye exams are performed each year in the U.S., 70% of which are
performed by optometrists. During the eye exam, the optometrist typically issues
prescriptions for corrective eye wear and evaluates the need for secondary
and/or tertiary procedures. As such, the optometrist is in a natural position as
the "gate keeper" for additional eye care services, influencing in excess of
$17.0 billion in domestic eye care expenditures annually.
The Company believes that patients are increasingly seeking convenient and
accessible primary eye care through retail optical centers that typically
feature extended hours of operation, convenient locations, walk-in service, wide
selections of familiar name brand eyeglass frames and contact lenses, prompt
service, lower pricing, extensive advertising and the availability of an
optometrist on the premises. While optometrists have
32
<PAGE> 34
traditionally marketed eye wear in their offices, the proliferation of large
retail optical centers has placed pressure on an optometrist's ability to
compete for patients and has caused optometrists to increasingly affiliate with
retailers by locating within, or in close proximity to, retail optical centers.
Through such affiliations, optometrists attempt to improve their access to
patients. As a result, the Company believes primary eye care services and
products are increasingly being bundled together at the retail level.
While some ophthalmologists provide certain primary eye care services, such
as eye exams, their main focus is on the delivery of secondary and tertiary
care, predominantly at office-based clinics and ASCs. Because optometrists are
an important source of patients, many ophthalmologists develop informal and non-
binding referral networks in conjunction with optometrists. However, despite
these initiatives, industry sources estimate that only 4.8% of all optometrists
actually provide eye care services within the same practice of an
ophthalmologist.
Eye Care Payors. The number of people covered by managed care and
indemnity eye care insurance plans has increased significantly in recent years
and is expected to continue to increase as health insurers seek to gain a
competitive advantage by offering insurance packages that include primary eye
care coverage. Many of these insurers are HMOs presently focused on the need to
increase revenue and market share by offering a full range of health insurance
options, including coverage for primary eye care, to both commercial and
Medicare patients. According to industry sources, HMO enrollment overall has
increased from 33.7 million members in 1988 to 58.0 million members in 1995,
while HMO Medicare membership increased to approximately 3.6 million in 1995 and
is expected to reach 7.2 million by the 1999. It is estimated that in 1995,
65.0% of commercial HMO plans and 86.0% of Medicare plans offered primary eye
care benefits.
While both private and government funded insurance programs vary widely in
their coverage and benefits, these programs are expected to significantly impact
the structure of the eye care industry. As more people become eligible to
receive eye care benefits, the Company believes there will be increased
utilization of primary eye care services, which will in turn lead to an increase
in the demand for secondary and tertiary eye care services. As such, provider
networks that can deliver and effectively manage all levels of eye care are
becoming increasingly attractive to health insurance companies that are then
able to market comprehensive "carve out" eye care plans covering not only
primary eye care, but also secondary and tertiary care. Additionally, health
insurance companies, including HMOs and other managed care companies, are
contracting with eye care provider networks on a capitated basis to provide eye
care services as well as all related administration and quality assurance
services. In 1995, 45% of HMO contracts with specialty care networks (i.e., eye
care, dentistry and other medical specialties) were capitated, up from 35% in
1994.
Emerging Eye Care Delivery Models. Optometrists and ophthalmologists have
traditionally provided eye care services on a fee-for-service basis, primarily
through independent, office-based practices. The fee-for-service model provides
few incentives for the efficient utilization of resources and, the Company
believes, has contributed to increases in health care costs at rates
significantly higher than inflation. Concerns over the accelerating costs of
health care have resulted in the increasing prominence of managed care,
pressuring eye care providers to deliver care at a lower cost while maintaining
quality. The Company believes that this recent focus on cost containment has
placed independent optometry and ophthalmology practices at a disadvantage.
These practices typically lack the capital to expand, develop information and
billing systems, and purchase new technologies, which often facilitate increased
patient visits and per patient revenue, improve quality of care and reduce
costs. These practices also lack the cost accounting and quality management
systems necessary to allow eye care providers to enter into capitated or
risk-sharing contracts with private third-party payors. Finally, small to
mid-sized eye care provider groups and individual practices often have higher
operating costs because overhead must be spread over a relatively small revenue
base.
In order to remain competitive in the changing eye care service
environment, optometrists and ophthalmologists are increasingly seeking to
affiliate with larger organizations, which offer skilled and experienced
management, improved access to payors and their enrollees, more sophisticated
information systems, greater capital resources and more efficient cost
structures. Much of this consolidation is taking place through the formation of
physician practice management companies ("PPMs"). Eye care PPMs are growing in
response to the demand by managed care companies for larger practice groups
which can offer full service,
33
<PAGE> 35
quality eye care over a wide geographic area. According to industry sources,
less than 2% of optometrists and ophthalmologists have affiliated with a PPM.
However, the mere consolidation of practices and creation of a PPM will most
likely not, in itself, be sufficient to enhance the competitive position of
combined eye care professional groups. Rather, the Company believes that a cost
efficient eye care delivery system integrated within local markets is required
to effectively compete in today's changing eye care industry.
THE VISION TWENTY-ONE LOCAL AREA DELIVERY SYSTEM ("LADS")
The Company's goal is to enable each of its LADS to capture the leading
market share of fee-for-service patients and managed care members. To achieve
its goal, the Company is focused on the following strategies: (i) developing
LADS in order to provide for a complete continuum of easily accessible, high
quality and affordable eye care services, (ii) increasing patient revenue and
cost efficiencies for each LADS through practice development and managed care
initiatives and (iii) expanding into select new markets to create regional
networks of LADS.
Developing Integrated LADS (The LADS Model)
LADS are integrated networks of eye care providers that are designed to
offer the full continuum of eye care services in local markets. This continuum
of eye care services begins with primary eye care services provided by
optometrists practicing at free-standing clinics, optometrists located in retail
optical locations and primary care ophthalmologists. To provide greater access
for patients seeking primary eye care, the Company affiliates with both
optometrists and retail optical centers. To facilitate this patient access, the
Company has strategic affiliations with two major national retail optical
chains, one regional optical chain and numerous smaller, independent retail
optical centers. The Company generally has an affiliated optometrist in or
adjacent to each retail optical center that is located within a LADS.
Once managed care patients have initially accessed a LADS to obtain primary
eye care services, they are able to move within the LADS to the next appropriate
level of eye care. The Company affiliates with general ophthalmologists and
cataract surgeons that provide secondary eye care, with subspecialists (such as
oculoplastics, retina/vitreous and neuro-ophthalmology) that provide tertiary
eye care, and with ASCs that provide facility services. LADS are especially
attractive to managed care companies because the Company's Affiliated Providers
are able to deliver all levels of eye care to the managed care plan's members.
Each Affiliated Provider generally begins as a fully credentialed Contract
Provider who delivers eye care services to members of the Company's contracted
managed care plans. The Company intends to acquire the business asset, employ
the non-professional personnel of and enter into Management Agreements with
select Contract Providers who then become Managed Providers. To date, the
Company has successfully acquired the business assets of 47 Contract Providers.
In addition, the Company intends to add affiliated optometry clinics located
within retail optical centers of leading national retail optical chains. To
date, the Company has added three optometry clinics located within retail
optical centers and has reached a tentative agreement with a leading optical
retailer to add at least 20 additional internally developed optometry clinics
throughout the remainder of 1997.
The successful integration of optometrists, ophthalmologists and ASCs is a
key component to the development of each LADS. The integration of Affiliated
Providers is accomplished through the implementation of proprietary quality
assurance, management and governance programs (the "PRO CARE" program). The PRO
CARE quality assurance program is administered by the Company's Credentialing
Committee, Clinical Protocol and Risk Management Committee, Peer Review
Committee, Outcome Assessment and Utilization Review Committee and a Medical
Advisory Board whose members include select Affiliated Providers. The PRO CARE
quality assurance program provides for (i) the review and implementation of
technology standards and clinical protocols for the provision of high quality
and cost effective eye care services, and (ii) continuing assessments as to the
quality of facilities, equipment, record keeping, physician credentials,
utilization trends and clinical outcomes. The integration of Managed Providers
is accomplished through the PRO CARE management and governance programs. The PRO
CARE management program includes (i) development of LADS-specific and
practice-specific strategic plans, (ii) integration of operations,
34
<PAGE> 36
personnel, facilities and equipment, (iii) consolidation of specialty and
ancillary services and (iv) coordination of marketing initiatives. The PRO CARE
governance program establishes an active local governance structure consisting
of Practice Advisory Councils, Local Advisory Councils and a National Appeals
Council. These councils are designed to provide for substantial involvement and
clinical leadership by select Managed Providers in the local operations,
physician relationships and business development plans within each practice and
LADS.
Increasing Patient Revenue and Cost Efficiencies
Managed care initiatives are implemented for each LADS to enable the
Affiliated Providers to gain incremental market share and increased patient
visits. In conjunction with its affiliated retail optical centers and affiliated
optometrists, the Company jointly markets regional primary eye care networks to
managed vision plans. In addition, the Company markets regional networks of
affiliated ophthalmologists and ASCs to managed care plans for the provision of
medical and surgical eye care. More importantly, the Company is able to market
each of its LADS to managed care plans seeking to contract with integrated
networks of optometrists, ophthalmologists, retail optical centers and ASCs that
can offer all primary, secondary and tertiary eye care services pursuant to
comprehensive "carve out" eye care plans.
The Company seeks to increase patient visits for each LADS through
cooperative marketing initiatives. The Company assists in developing cooperative
marketing campaigns between affiliated optometrists and optical retailers to
attract incremental fee-for-service primary eye care patients. The Company and,
in some cases, managed care companies sponsor extensive free community screening
activities. The Company has also initiated outreach programs through its Managed
Providers, such as providing primary eye care to long-term care facilities (the
Long-Term Care Program) and more complicated tertiary care to rural areas (the
Rural Outreach Program) where such care might otherwise be unavailable.
The Company also seeks to generate incremental per patient revenue for its
Managed Providers by providing access to new eye care services and products for
its LADS. This may be as a core service for fee-for-service patients or as a
value added option for managed care patients over and above their insured
benefit. Patients are educated at the primary care level on new products and
procedures, including refractive surgery, oculoplastic procedures, pediatric
services (the "Eye Care For Kids" program), eye wear upgrades, specialty contact
lenses and accessories. By facilitating the addition of new eye care services
and products, the Company is able to leverage existing facilities and equipment
to generate substantial incremental per patient revenue for the Company's
Managed Providers. For example, the Company's Chief Medical Officer, Richard
Lindstrom, M.D., a world renowned refractive surgeon, is assisting in the
development of refractive surgery initiatives for each LADS.
Finally, the Company develops and implements a practice development program
to increase productivity and efficiency, which is designed to reduce costs per
patient for its Managed Providers. The practice development program includes
re-engineering patient flow, establishing clinical protocols, providing
physician development programs and practice governance, monitoring patient
feedback, and improving office design. The Company has exclusively retained BSM
Consulting Group, a highly respected leader in ophthalmology consulting, to
assist the Company in developing these practice development programs.
Additionally, the Company will continue to consolidate the back office functions
of Managed Providers, including payroll, benefit administration, accounts
payable, accounts receivables, purchasing and general administrative services,
to gain further efficiencies for its LADS.
Expanding the LADS Model to New Markets
The Company intends to continue expanding its LADS model to new markets.
The Company seeks to enter select markets where (i) the Company has a strategic
affiliation with a leading corporate retail optical provider, (ii) there is an
existing network of optometrists and ophthalmologists that the Company can
affiliate with, and/or (iii) the Company is able to obtain a managed care
contract that provides an initial patient base. Other considerations include an
analysis of the competitive environment, the legal and regulatory environment as
it pertains to delivery of eye care services and the level of managed care
penetration. The Company also
35
<PAGE> 37
intends to leverage existing managed care relationships to expand into new
markets where such managed care providers have established a significant
presence.
The Company's practice acquisition team continuously searches for
Affiliated Providers to develop additional LADS in new markets and to supplement
the eye care services offered by its LADS in existing markets. The Company's
acquisition team meets with selected acquisition candidates within a particular
local market area and evaluates such acquisition candidates on the basis of
their clinical reputation, quality of care, provider credentials, market share,
profitability and mix of payors. The Company's acquisition team also bases its
acquisition decisions on the strengths of the candidate's management team, the
stability of the practice, the existence of an ASC or optical dispensary, the
compatibility of the candidate's work philosophy and values, the potential to
expand the types of eye care services provided and the potential to increase
patient access to the candidate through the Company's managed care and practice
management initiatives. The Company's goal is to affiliate with well-respected
practices and it intends to utilize such leading practices to assist in
identifying additional acquisition candidates for the LADS.
LADS LOCATIONS
The following table sets forth the location of and certain data regarding
the Company's existing LADS as of June 1, 1997:
<TABLE>
<CAPTION>
AFFILIATED PROVIDERS(1) AFFILIATED MANAGED
------------------------ RETAIL(1) CONTRACT
LOCAL AREA MDS ODS ASCS OPTICAL LOCATIONS LIVES(2)
- ---------- ----- ----- ------ ----------------- ---------
<S> <C> <C> <C> <C> <C>
Tampa Bay.......................... 93 108 17 18 717,000
Miami.............................. 55 64 4 24 394,000
Orlando............................ 20 46 8 12 112,000
Jacksonville....................... 8 16 3 3 139,000
Tallahassee........................ 3 13 1 4 5,000
Chicago............................ 66 17 -- 18 10,000
Phoenix............................ 33 13 2 11 107,000
Tucson............................. 19 9 3 -- 50,000
Minneapolis........................ 4 11 -- -- --
Long Island........................ 57 1 -- 4 225,000
New Orleans........................ -- 3 -- 13 --
Total.................... 358 301 38 107 1,759,000
</TABLE>
- ---------------
(1) Excludes in excess of 700 Contract Providers in select markets where the
Company is beginning to conduct managed care business.
(2) Represents HMO members exclusively contracted to the Company and does not
include the managed care patients directly contracted to the Affiliated
Providers or any fee-for-service patients of Managed Providers.
LADS MANAGEMENT AND SUPPORT SERVICES
The Company provides all necessary management and support services to
develop and expand its LADS. The Company employs over 80 team members at its
corporate headquarters and approximately 300 team members located within the
LADS to provide a wide range of management and support services, including
information services, managed care development, practice integration and
development, administration, credentialing, provider relations, outcome
assessment, human resources, financial management, marketing and communications,
member services, and purchasing.
Information Services. The Company's management information system combines
current computer technology with proprietary software developed over the past
ten years that integrates front-end practice management, back-end corporate
management, managed care administration, accounting, and marketing. The Company
utilizes its management information system to coordinate patient flow and
administer patient documentation; track patient inquiries/problems from
inception to resolution; support credentialing of
36
<PAGE> 38
Affiliated Providers; administer managed care contracts, including billing,
collection and claims processing; and organize marketing initiatives.
Furthermore, the Company's proprietary software allows it to effectively manage
sophisticated risk-sharing arrangements with Affiliated Providers and
third-party payors, administer disease state management initiatives, and track
and assess utilization trends. By electronically integrating all aspects of LADS
management, the Company is able to decrease duplication of efforts, enhance
quality control, and maximize cost efficiencies.
Managed Care Development. The Company assists its Affiliated Providers in
obtaining both fee-for-service and capitated managed care contracts. After
analyzing competitive market demographics and managed care penetration, the
Company identifies potential managed care relationships. The Company's managed
care development team responds to requests for proposals (RFPs) from selected
payors and works with HMOs to develop custom eye care benefit programs and
services for their members.
Practice Integration and Development. The Company assists in developing
the practices of its Managed Providers and the implementation of long-term
strategic initiatives to increase revenue and enhance operating efficiencies.
The Company has entered into exclusive consulting agreements with BSM Consulting
Group, a leading professional practice development consultant, and its chief
executive officer, Bruce S. Maller, to assist with the Company's practice
integration and development efforts. The Company's regional operating personnel
assist with implementing practice integration and development initiatives and
measure improvements achieved through such efforts.
Administrative Services. The Company provides certain administrative
services to its Affiliated Providers, including billing, collections,
eligibility verification and claims processing. The Company handles over 300,000
claims per year, including Medicare and Medicaid. The Company's administrative
services department utilizes sophisticated information systems to provide claims
processing support and submit claims electronically to payors in order to reduce
time for reimbursement.
Credentialing. The Company provides credentialing services according to
national standards as set forth by the National Committee for Quality Assurance
("NCQA") by which all health plans are measured for compliance with quality
assurance initiatives. All Affiliated Providers are fully credentialed. The
credentialing process includes collection of data from Affiliated Providers in
the form of an application; verification of licenses, insurance and education;
review of the Affiliated Provider's file in the National Practitioner Data Bank;
computerized management of all Affiliated Provider credentials and renewals; and
approval by an Affiliated Provider peer group. Several managed care companies
have awarded the Company "Delegated Provider" status. Delegated Provider status
is awarded only after a managed care company has audited credentialing policies
and procedures as well as each health care provider's patient files and has
determined each provider is in compliance with NCQA standards. The Company
re-credentials its Affiliated Providers every two years.
Provider Relations. The Company actively maintains its relationships and
communication with all Affiliated Providers. The Company has established
Provider Relations Representatives who educate, assist and support Affiliated
Providers and their clinic staff with respect to all their managed care needs.
Provider Relations Representatives are available 24-hours a day through a
toll-free telephone support number.
Outcome Assessment. The Company provides outcome assessment services to
its Managed Providers, including custom developed protocols and disease state
management. Through the measurement of outcomes, the Managed Providers are able
to evaluate the effectiveness of clinical initiatives. Certain of the Company's
Managed Providers have been selected as a beta site for the implementation of a
study developed by Johns Hopkins University School of Medicine to evaluate the
need for and outcome of cataract surgery. The Company is currently developing
additional disease management modules for laser and glaucoma surgery.
Human Resources. The Company provides human resource services to its
Managed Providers, including recruitment of optometrists, ophthalmologists and
clinic staff as well as administration of payroll, benefit and paid time off
programs. In addition, the Company develops training programs to enhance the
management and administrative skills of the clinic staff employed by the Company
and maintains management and administrative protocols and policies.
37
<PAGE> 39
Financial Management. The Company provides financial management services
to its Managed Providers, including the development of budgets, implementation
of financial controls, capital budgeting and initiation of cost-containment
measures designed to improve operating and financial performance. The Company
also provides comprehensive financial analysis and cash management, tax and
accounting services.
Marketing and Communications. The Company's marketing department works in
conjunction with an outside advertising agency to create and produce marketing
materials supporting the development initiatives of its LADS and Managed
Providers. The Company's communications department develops and produces
corporate newsletters and works with the Company's Managed Providers and clinic
staff to produce feature news articles, press releases and related promotional
materials.
Member Services. The Company's Member Services Representatives provide
customer service for issues related to the Company's managed care business.
Member Services Representatives expedite the resolution of managed care service
issues and track member service inquiries in a database maintained by the
Company. Statistics are developed and tracked to identify trends in specific
member service issues.
Purchasing. The Company purchases certain clinical and office supplies and
equipment for its Managed Providers. The Company has developed purchasing
arrangements and relationships to facilitate more efficient bulk purchasing and
delivery.
MANAGEMENT AGREEMENTS
The Company intends to continue to acquire the business assets of select
optometry and ophthalmology practices as it establishes and develops LADS and
expands into new markets. In conjunction with acquiring the assets of eye care
practices, the Company has entered, and will continue to enter, into long-term
business management agreements with the professional associations conducting
such practices (the "Managed Professional Associations") to provide management
and administrative services to Managed Professional Associations, as well as
managed care business development and administration. The Company also expects
to acquire ASC facilities.
The Company enters into Management Agreements with the Managed Professional
Associations pursuant to which the Company is the sole provider of comprehensive
management, business and administrative services for the non-professional
aspects of the professional practices. Each Managed Provider maintains full
authority, control and responsibility over the provision of professional care
and services to its patients. The Company does not provide professional care to
patients nor does the Company employ any of the ophthalmologists or
optometrists, or any other professional health care provider personnel, of the
Managed Professional Association. The following is a summary of the typical form
of the Management Agreements the Company enters into with each Managed
Professional Association, and is qualified by reference to the actual Management
Agreements and terms may vary depending upon the particular facts and
circumstances, as well as the different laws and regulations of each state.
The Company enters into Management Agreements with professional
associations managed by the Company, the initial term of which is typically 40
years. Under most of its Management Agreements, the management fee ranges from
24% to 37% of the Managed Professional Associations' gross revenues after
deducting from such revenues all expenses of the clinic other than those related
to shareholders of the Managed Professional Associations. The practice
management fees earned by the Company pursuant to these Management Agreements
fluctuate depending on variances in revenues and expenses of the Managed
Professional Associations.
Under the Management Agreements, the Company is obligated, among other
things, to (i) provide, maintain and repair office and clinical equipment for
the Managed Professional Association, (ii) order and purchase all reasonable
supplies on behalf of the Managed Professional Association, (iii) provide
appropriate support services for the operation of the Managed Professional
Association's offices, (iv) assist the Managed Professional Association in
establishing and implementing quality assessment, risk management and
utilization review programs, (v) employ all management, clinicians,
administrative, clerical, secretarial, bookkeeping, accounting, payroll, billing
and collection personnel, and other nonprofessional personnel as necessary,
38
<PAGE> 40
(vi) assist the Managed Professional Association in negotiating managed care
contracts, (vii) bill and collect professional and other fees on behalf of the
Managed Professional Association, (viii) establish and administer accounting
procedures, controls and systems for the financial books and records relating to
the business of the Managed Professional Association, (ix) monitor and maintain
the files and records of the Managed Professional Association and (x) provide
such management services as are necessary and appropriate for the day-to-day
administration of the business aspects of the Managed Professional Association.
The Management Agreements provide that the Managed Professional Association
is responsible for, among other things, (i) hiring, supervising, and directing
certain of the Managed Professional Association's professional employees, (ii)
adopting a peer review/quality assurance program and (iii) maintaining
appropriate worker's compensation, professional and comprehensive general
liability insurance.
Pursuant to the Management Agreements, a Practice Advisory Council,
consisting of equal representation for the Company and the Managed Professional
Association, is responsible for (i) reviewing and making recommendations
regarding any renovation and expansion plans and capital equipment expenditures
relating to the Managed Professional Association's facilities, (ii) reviewing
and making recommendations regarding all marketing and public relations
services, (iii) reviewing and making recommendations regarding the fee schedule
and collection policies for the Managed Professional Association, (iv) approving
new non-professional ancillary services provided by the Managed Professional
Association, (v) approving and making recommendations regarding agreements with
institutional care providers and third party payors which are not in accordance
with guidelines established by the applicable Local Advisory Council (described
below), (vi) assisting the Managed Professional Association in developing
long-term strategic planning objectives, (vii) making recommendations regarding
the priority of major capital expenditures, (viii) recommending to the Managed
Professional Association the number and type of health care personnel required
for the efficient operation of the Managed Professional Association, (ix) making
recommendations regarding fee disputes, (x) approving the decision to terminate
higher level non-professional personnel employed by the Company who are
performing services at the Managed Professional Associations's offices, (xi)
approving any office relocation or expansion and the establishment of any new
ASC or optical business of the Managed Professional Association and (xii)
adopting, approving and amending the Managed Professional Association's budget.
Local Advisory Councils consist of Company representatives and delegates
from Managed Professional Associations located in each region. Each Managed
Professional Association is entitled to appoint one delegate to the Local
Advisory Council and the Company is entitled to appoint two delegates who will
have voting power equal to the combined voting power of all delegates appointed
by the Managed Professional Association. The Local Advisory Council makes
recommendations to the Company and the Managed Professional Associations as to
the regional policy and strategy issues within the region and as to (i) the
establishment of private pay fee schedules where permitted by law, (ii) the
establishment of guidelines for agreement with institutional health care
providers and third party payors and (iii) any agreement with an institutional
health care provider or third-party payor which materially differs from
guidelines established by the Local Advisory Council. The Local Advisory Council
may also select commercial carriers for professional, casualty and comprehensive
general liability insurance for the Managed Professional Associations in the
region. Finally, the Local Advisory Council considers and determines any issue
upon which the Practice Advisory Council is deadlocked, except for the
determination of the budget of each Managed Professional Association. Decisions
of the Local Advisory Council may be appealed to the National Appeal Council
consisting of one delegate appointed by each of the Local Advisory Councils and
two delegates appointed by the Company.
The Management Agreements are terminable by either party if the other party
materially defaults in the performance of any of its obligations under the
Management Agreement and such default continues for a certain period of time
after notice, if the other party files a petition for bankruptcy or upon the
occurrence of other similar events. The Management Agreements may also be
terminated by mutual agreement in writing.
During the term of the Management Agreement, the Company and the Managed
Professional Association agree not to compete with each other in the business of
providing management services to professional
39
<PAGE> 41
associations and agree not to disclose certain confidential and proprietary
information regarding the other. The Management Agreements require the Company
and the Managed Professional Associations to indemnify and hold harmless the
other party against claims resulting from negligent or intentional acts or
omissions.
The Managed Professional Association is required under each Management
Agreement to enter into written employment agreements with each of its
professional employees containing covenants not to compete with the Managed
Professional Association in a specified geographic area for a specified period
of time after termination of the employment agreement. The employment agreements
also require the payments of significant liquidated damages in the event of a
default by shareholders of the Managed Professional Associations and certain
employees of the Managed Professional Associations, early termination by such
shareholders and key non-shareholder professionals, or a breach of the covenant
not to compete.
Upon the expiration of the term of the Management Agreement, or in the
event that the Managed Professional Association breaches the Management
Agreement, and to the extent permitted by law, the Managed Professional
Association is obligated to purchase the related assets owned by the Company
(including the unamortized portion of the Management Agreement) at book value
and assume all related liabilities. For a period of five years from the date of
the Management Agreement, the shareholders of the Managed Professional
Association are required to personally guarantee any note provided in connection
with the repurchase. If the Company breaches the Management Agreement, the
Managed Professional Association has the option to purchase the related assets
owned by the Company pursuant to terms described in the Management Agreement.
STRATEGIC AFFILIATIONS WITH RETAIL OPTICAL COMPANIES
The Company has considered it important to enter into affiliations with
retail optical companies based on their market position, name recognition,
quality of service, accessibility through extended hours, geographic
distribution, and compatibility of management and facilities with the Company's
primary eye care objectives. The Company currently has contractual affiliations
with ECCA Managed Vision Care, Inc. ("ECCA") and For Eyes Managed Care, Inc.
("For Eyes") which have a combined total of over 300 retail locations in 48
cities in the United States.
Under the Company's strategic relationship with ECCA, the Company makes
available its LADS to provide the full continuum of high quality, cost effective
eye care services to customers at ECCA retail optical locations (Eyemasters,
Binyons and VisionWorks) in close proximity to the LADS. Further, the Company
seeks to expand revenues at ECCA through increasing managed care business which
require easy accessibility to optical products. In return, the Company believes
its strategic affiliations with retail optical companies will assist the LADS in
increasing their managed care market share. The Company believes most HMOs
strongly prefer a recognized retail optical company as the contracted vendor for
eye wear. By "bundling" retail optical services with LADS that provides
comprehensive eye care services at the primary, secondary and tertiary levels,
the Company believes it significantly improves its joint opportunity with ECCA
to obtain managed care business. The Company expects its retail optical
affiliates to serve increasingly as an important access point to its LADS for
fee-for-service and primary care patients. Further, the Company's relationship
with ECCA has resulted in the addition of three internally developed Managed
Provider optometry clinics adjacent to three ECCA retail optical locations,
along with a tentative agreement to add at least an additional 20 similar
clinics throughout the remainder of 1997. These arrangements are expected to
further increase the above described benefits sought by both parties in
connection with their affiliation.
The Company is a joint venture partner in a general partnership called
"Vision 21 Plus" in which the Company and For Eyes each have a 50% interest. The
objective of the joint venture is to maximize opportunities for the Company in
managed eye care by securing contracts and providing comprehensive, fully
integrated eye care products and services to health care organizations and
self-funded employer groups. The general benefits to For Eyes in its
relationship with the Company are similar to that derived by ECCA. Under the
joint venture agreement, Vision 21 Plus is to enter into, perform and carry out
contracts and agreements related to the development of managed eye care business
and to explore opportunities to develop certain ancillary eye care businesses.
40
<PAGE> 42
MANAGED CARE CONTRACTS
As an increasing percentage of the population is covered by managed care
organizations, the Company believes that its success will be, in part, dependent
upon its ability to negotiate managed care contracts with HMOs, health insurance
companies and other third-party payors pursuant to which services will be
provided on a risk-sharing or capitated basis. The Company also has contracts
for the provision of certain financial and administrative services related to
its indemnity insurance and fee-for-service plans. Managed care contracts are
typically for one year terms that renew automatically and the contracts are
terminable by either party on sixty days notice.
The Company's typical contracts with third-party health benefits payors
(insurance companies and HMOs) provide that the Company will arrange and pay for
eye care services that are needed by the payor's members in exchange for a fixed
amount per patient per month or a percentage of the premiums paid on behalf of
the patient, without regard to the volume of services that the patient requires.
Under these arrangements, the Company accepts the risk that the cost and
utilization of services may exceed expectations in exchange for its ability to
profit if cost and utilization are kept below expected levels. The Company can
directly benefit by effectively managing costs and utilizing its relationships
with its Affiliated Providers. Because the Company assures the credentials of
the providers, establishes quality and utilization control systems and
implements payment arrangements with the providers, third-party payors are able
to use their limited resources in other areas where they have greater expertise.
As of March 31, 1997, the Company maintained 16 capitated managed care
contracts and administered 13 indemnity fee-for-service plans for its Affiliated
Providers. While the Company contracts with a number of third-party health
benefit payors, most of the Company's largest managed care contracts are with
certain affiliates of Humana. Revenues derived from these contractual
arrangements with certain Humana affiliates accounted for 60.3% and 16.7% of the
Company's revenues for the year ended December 31, 1996 and the three months
ended March 31, 1997, respectively. On a pro forma basis, revenues derived from
the Humana contracts would have accounted for 17.3% and 14.2% of the Company's
revenues for the year ended December 31, 1996 and the three months ended March
31, 1997, respectively.
GOVERNMENTAL REGULATIONS
General Overview
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly and adversely in the future. In general, regulation of health care
providers and companies is increasing.
There are currently several federal and state initiatives designed to amend
regulations relating to the provision of health care services, the access to
health care, the costs of health care and the manner in which health care
providers are reimbursed for their services. However, it is not possible to
predict whether any such initiatives will be enacted as legislation or, if
enacted, what their form, effective dates or impact on the Company will be.
Every state imposes licensing requirements on ophthalmologists,
optometrists and opticians ("Practitioners") and on their facilities and
services. In addition, many states require regulatory approval, including
certificates of need, before establishing certain types of health care
facilities, offering certain services or making expenditures in excess of
statutory thresholds for health care equipment, facilities or programs. The
execution of a management agreement with a Practitioner group currently does not
require any health care regulatory approval on the part of the Company or the
Practitioner group. However, in connection with the expansion of existing
operations and the entry into new markets, the Company and its associated
Practitioner groups may become subject to additional regulation.
Much of the revenue of the Affiliated Providers is derived from payments
made by government sponsored health care programs (principally Medicare). These
programs are subject to substantial regulation. Any change in reimbursement
regulations, policies, practices, interpretations or statutes that places
material limitations on reimbursement amounts or practices could adversely
affect the operations of the Company.
41
<PAGE> 43
Increasing budgetary pressures at both the federal and state level and the
rapidly escalating costs of health care and reimbursement programs have led, and
may continue to lead, to significant reductions in government reimbursements for
certain medical charges and elimination of coverage for certain individuals
under these programs. Federal legislation could result in a reduction of
Medicare funding. The Company cannot predict at this time whether or when any of
such proposals will be adopted or, if adopted and implemented, what effect such
proposals would have on the Company. There can be no assurance that payments
under governmental programs will remain at levels comparable to present levels.
In addition, funds received under these programs are subject to audit with
respect to the proper billing for physician services and accordingly,
retroactive adjustments of revenue from these programs may occur. See "Risk
Factors -- Government Regulations."
Health Care Regulations
Business arrangements between business associations that provide practice
management services and ophthalmologists and optometrists are regulated
extensively at the state and federal levels, including regulation in the
following areas:
Corporate Practice of Optometry and Ophthalmology. The laws of many
states prohibit corporations that are not owned entirely by eye care
professionals from employing eye care professionals, having control over
clinical decision-making, or engaging in other activities that are deemed
to constitute the practice of optometry and ophthalmology. The Company
contracts with professional associations (which are owned by one or more
licensed optometrists or ophthalmologists), which in turn employ or
contract with other licensed optometrists or ophthalmologists to provide
professional services. The Company performs only non-professional services,
does not represent to the public or its customers that it provides
professional eye care services, and is not exercising influence or control
over the practices of the eye care practitioners employed by the
professional associations.
Fee-Splitting and Anti-kickback Laws.
State Law. Many states prohibit "fee-splitting" by eye care
professionals with any party except other professionals in the same
professional corporation or practice association. In most cases, these laws
have been construed as applying to the paying of a portion of a fee to
another person for referring a patient or otherwise generating business,
and not to prohibit payment of reasonable compensation for facilities and
services (other than the generation of referrals), even if the payment is
based on a percentage of the practice's revenues. In addition, most states
have laws prohibiting paying or receiving any remuneration, direct or
indirect, that is intended to induce referrals for health care products or
services.
Federal Law. Federal law prohibits the offer, payment, solicitation
or receipt of any form of remuneration in return for the referral of
patients covered by federally funded health care programs such as Medicare
and Medicaid, or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service that is covered by
a federal program. For this reason, the Management Agreements provide that
the Company will not engage in direct marketing to potential sources of
business, but will only assist the practices' personnel in these endeavors
by providing training, marketing materials and technical assistance.
Advertising Restrictions. Many states, prohibit eye care
professionals from using advertising which includes any name other than
their own, or from advertising in any manner that is likely to lead a
person to believe that a non eye care professional is engaged in the
delivery of eye care services. The Management Agreements provide that all
advertising shall conform to these requirements.
In addition, the Company's managed care arrangements with health care
service payors on the one hand, and its network of Affiliated Providers on the
other, are subject to federal and state regulations, including the following:
Insurance Licensure. Most states impose strict licensure requirements
on health insurance companies, HMOs, and other companies that engage in the
business of insurance. In most states, these laws do not apply to
discounted fee-for-service arrangements or networks that are paid on a
"capitated" basis, i.e. based on the number of covered persons the network
is required to serve without regard to the cost of
42
<PAGE> 44
service actually rendered, unless the association with which the network
provider is contracting is not a licensed health insurer or HMO. There are
exceptions to these rules in some states. For example, certain states
require a license for a capitated arrangement with any party unless the
risk-bearing association is a professional corporation that employs the eye
care professionals. In the event that the Company is required to become
licensed under these laws, the licensure process can be lengthy and time
consuming and, unless the regulatory authority permits the Company to
continue to operate while the licensure process is progressing, the Company
could experience a material adverse change in its business while the
licensure process is pending. In addition, many of the licensing
requirements mandate strict financial and other requirements which the
Company may not immediately be able to meet. Once licensed, the Company
would be subject to continuing oversight by and reporting to the respective
regulatory agency.
Limited Health Service Plans. Some states permit managed care
networks that assume insurance risk, but only as to a limited class of
health services, to be licensed as limited health service plans, and
thereby avoid the need to be licensed as an insurer or HMO even if its
arrangements are with individual subscribers or self-insured employers. The
Company intends to seek such licensure in those states where it is
available for eye care networks. However, the Company may not be able to
meet such requirements in all cases.
Physician Incentive Plans. Medicare regulations impose certain
disclosure requirements on managed care networks that compensate eye care
providers in a manner that is related to the volume of services provided to
Medicare patients (other than services personally provided by the
provider). If such incentive payments exceed 25 percent of the provider's
potential payments, the network is also required to show that the providers
have certain "stop loss" financial projections and to conduct certain
Medicare enrollee surveys.
"Any Willing Provider" Laws. Some states have adopted, and others are
considering, legislation that requires managed care networks to include any
provider who is willing to abide by the terms of the network's contracts
and/or prohibit termination of providers without cause. Such laws would
limit the ability of the Company to develop effective managed care networks
in such states.
The Company and its affiliated professional associations are subject to a
range of antitrust laws that prohibit anti-competitive conduct, including price
fixing, concerted refusals to deal and divisions of markets. Among other things,
these laws limit the ability of the Company to enter into Management Agreements
with separate practice groups that compete with one another in the same
geographic market. This does not apply to professionals within the same practice
group. In addition, these laws prevent acquisitions of business assets that
would be integrated into existing professional associations if such acquisitions
substantially lessen competition or tend to create a monopoly.
The several laws described above have civil and criminal penalties and have
been subject to limited judicial and regulatory interpretation. They are
enforced by regulatory agencies that are vested with broad discretion in
interpreting their meaning. The Company's agreements and activities have not
been examined by federal or state authorities under these laws and regulations.
For these reasons, there can be no assurance that review of the Company's
business arrangements will not result in determinations that adversely affect
the Company's operations or that certain agreements between the Company and eye
care providers or third party payors will not be held invalid and unenforceable.
In addition, these laws and their interpretation vary from state to state. The
regulatory framework of certain jurisdictions may limit the Company's expansion
into, or ability to continue operations within, such jurisdictions if the
Company is unable to modify its operational structure to conform with such
regulatory framework. Any limitation on the Company's ability to expand could
have an adverse effect on the Company. See "Business -- Governmental
Regulations."
COMPETITION
The health care industry is highly competitive and subject to continual
changes in the method in which services are provided and the manner in which
health care providers are selected and compensated. The Company believes that
private and public reforms in the health care industry emphasizing cost
containment and accountability will result in an increasing shift of eye care
from highly fragmented, individual or small
43
<PAGE> 45
practice providers to larger group practices or other eye care delivery
services. Companies in other health care industry segments, such as managers of
other hospital-based specialties or currently expanding large group practices,
some of which have financial and other resources greater than those of the
Company, may become competitors in providing management to providers of eye care
services. Increased competition could have a material adverse effect on the
Company's financial condition and results of operations. The basis for
competition in the practice management area includes service, pricing, strength
of the Company's delivery network (where applicable), strength of operational
systems, the degree of cost efficiencies and synergies, marketing strength,
managed care expertise, patient access and quality assessments and assurances
programs. The Company also competes with other providers of eye care services
for managed care contracts, many of which have greater financial and other
resources than the Company. These include HMOs, PPOs and private insurers. The
basis for competition in the managed care organization area includes
administrative strength, size and quality of network, marketing abilities,
informational systems and operating efficiencies. The future success of the
Company will be directly related to its ability to expand the managed eye care
delivery network geographically, attract reputable providers, expand the scope
of services offered by associated practices (i.e. not only optical and
optometric, but also ophthalmological), and dedicate resources to an active
sales team focused exclusively on the Company's sales effort.
EMPLOYEES
In most circumstances, at the time of its integration into the Company's
managed operations, each Managed Provider enters into an employment agreement
with his or her respective professional association. The employment agreements
with shareholder professionals are for an initial term of five years and for
non-shareholder professionals are for an initial term of two years. Shareholder
professionals are obligated to work for the full five-year term unless the
professional employment is terminated for reasons such as the professional's
death or disability or the occurrence of certain events outside the
professional's control. The professional employment agreements provide that the
employed professionals will not compete with the professional association during
the term of the agreement and following the termination of the agreement for a
term of two years for a shareholder professional and one year for a
non-shareholder professional in a specified geographical area. At May 31, 1997,
the Company had 308 employees, of which approximately 80 were employed at the
Company's headquarters and 228 were employed by the Company at Managed Provider
practices. The Company believes that its relationship with its employees is
good.
At May 31, 1997, the professional associations employed 57 Managed
Providers, of which 19 were ophthalmologists and 38 were optometrists. An
additional three optometrists and two ophthalmologists will be employed upon
completion of the Pending Acquisitions.
INSURANCE
The Company's business entails an inherent risk of claims of liability. The
optometrists and ophthalmologists with which the Company associates and certain
employees of the Company are involved in the delivery of health care services to
the public and, therefore, are exposed to the risk of professional liability
claims. Claims of this nature, if successful, could result in substantial damage
awards to the claimants that may exceed the limits of any applicable insurance
coverage. Insurance against losses related to claims of this type can be
expensive and varies widely from state to state. The Company is indemnified
under its service agreements for claims against the its Managed Providers
practices and maintains a blanket liability insurance policy for itself.
Successful malpractice claims asserted against the Managed Practices, however,
could have an adverse effect on the Company's profitability. The Company
maintains umbrella general liability insurance on a claims-made basis in the
amounts of $5,000,000 million per incident, and $5,000,000 million in the
aggregate per annum. While the Company believes it has adequate liability
insurance coverage, there can be no assurance that a pending or future claim or
claims will not be successful or, if successful, will not exceed the limits of
available insurance coverage or that such coverage will continue to be available
at acceptable costs and on favorable terms.
44
<PAGE> 46
LITIGATION
There are no material pending legal proceedings other than routine
litigation arising in the ordinary course of business. The Company does not
believe that the results of such litigation, even if the outcome were
unfavorable to the Company, would have a material adverse effect on its
financial position.
SERVICE MARKS
The Company has applied for registration of "Vision 21," "Eye Care for the
21st Century," "A Different Point of View," "LADS," and the Company's design
logo with the United States Patent and Trademark Office in 1997, which
applications are all currently pending.
PROPERTIES
The Company leases 9,902 square feet of office space in Largo, Florida, for
its corporate headquarters. The lease is for a term through September 1998, and
the Company believes that the facility is adequate for its current needs.
The Company leases or subleases the clinic locations it manages pursuant to
the Management Agreements with the Managed Professional Associations. The
Company anticipates that expanded facilities will be needed as the Managed
Professional Associations grow. The Company also expects to enter into leases
and subleases in the future as it acquires the allowable assets of Contract
Providers and enters into Management Agreements.
The Company also leases and subleases the ASC facilities it manages. The
Company does not expect that the current ASCs will need to be expanded. However,
the Company does anticipate that it will enter into leases and subleases as it
acquires additional ASC facilities.
45
<PAGE> 47
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
directors and executive officers, and positions they hold with the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Theodore N. Gillette, O.D................. 43 Chairman of the Board, Chief Executive Officer,
President and Director
Richard L. Sanchez........................ 44 Chief Development Officer, Secretary and Director
Richard T. Welch.......................... 45 Chief Financial Officer, Treasurer and Director
Richard L. Lindstrom, M.D................. 49 Chief Medical Officer and Director
Peter J. Fontaine......................... 43 Director
Herbert U. Pegues, II, M.D................ 47 Director
Bruce S. Maller........................... 43 Director
Jeffrey I. Katz, M.D...................... 51 Director
</TABLE>
THEODORE N. GILLETTE, O.D., CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER,
PRESIDENT AND DIRECTOR. Dr. Gillette has served as Chairman of the Board, Chief
Executive Officer, President, and director of the Company since its inception.
Dr. Gillette has served as President and director of the Company's wholly-owned
subsidiaries, Vision 21 Physician Practice Management Company and Vision 21
Managed Eyecare of Tampa Bay, Inc. since 1984 and 1993, respectively. He
obtained his Doctorate of Optometry from Southern California College of
Optometry in 1979 and his Bachelor of Science from Florida State University in
1975.
RICHARD L. SANCHEZ, CHIEF DEVELOPMENT OFFICER, SECRETARY AND DIRECTOR. Mr.
Sanchez has served as Chief Development Officer, Secretary and director of the
Company since its inception. From 1993 until assuming his positions with the
Company, Mr. Sanchez was Vice President of Marketing and Administration of the
Company's wholly-owned subsidiary, Vision 21 Managed Eyecare of Tampa Bay, Inc.
Prior to November 1992, Mr. Sanchez worked for Exxon Corporation for over 18
years in various management positions including divisional management
responsibility for over 300 employees and $600 million in revenues. Mr. Sanchez
obtained his Bachelor of Science in Chemistry from Florida State University in
1975.
RICHARD T. WELCH, CHIEF FINANCIAL OFFICER, TREASURER AND DIRECTOR. Mr.
Welch has served as Chief Financial Officer, Treasurer and director of the
Company since August 1996. Prior to joining the Company, Mr. Welch served as
Executive Vice President of Finance and Administration and as Vice Chairman of
the Board of Directors of Sports & Recreation, Inc., a public company engaged in
the business of retail sporting goods and equipment sales generating over $500
million in annual revenue, from December 1994 to March 1996. He served as its
Chief Financial Officer and a Director from January 1992 to December 1994. Mr.
Welch is a certified public accountant and he graduated from Louisiana State
University in 1973 with a Bachelor of Science in Management and Accounting.
RICHARD L. LINDSTROM, M.D., CHIEF MEDICAL OFFICER AND DIRECTOR. Dr.
Lindstrom has served as Chief Medical Officer of the Company since September
1996 and has served as a director since January 1997. Since October 1989, Dr.
Lindstrom has maintained a private practice adjacent to the Phillips Eye
Institute in Minneapolis where he serves as the Medical Director for Research
and Teaching. Dr. Lindstrom holds 22 patents in ophthalmology and has given
numerous presentations throughout the world including 13 named lectures. He is
active on multiple educational and advisory boards including chief medical
editor of Ocular Surgery News. He has co-authored two books, published 50
chapters in other books and published over 300 articles in refereed journals.
Dr. Lindstrom graduated from the University of Minnesota Medical School in 1972
followed by a research residency and cornea fellowship at the University of
Minnesota, an Anterior Segment fellowship at Mary Shields Eye Hospital in Dallas
and a third fellowship in Glaucoma/Anterior Segment at University Hospitals in
Salt Lake City.
PETER J. FONTAINE, DIRECTOR. Mr. Fontaine has served as a director of the
Company since July 1996. Mr. Fontaine is currently the Chairman of the Board of
Directors and Chief Executive Officer of Discount Auto
46
<PAGE> 48
Parts, Inc., a public company engaged in the business of retail automotive parts
sales, and he has been employed by Discount Auto Parts, Inc. in various
capacities since 1977. Mr. Fontaine has served on the Board of Directors of
Discount Auto Parts, Inc. since 1996 and as its Chief Executive Officer since
1994. From 1994 to January 1997, Mr. Fontaine also served as its President.
HERBERT U. PEGUES, II, M.D., DIRECTOR. Dr. Pegues has served as a director
of the Company since November 1996. He is currently Medical Director for managed
care at the Miami Children's Hospital, Miami, Florida and administers its
physician hospital organization. He has been the Vice President/Medical Director
for Memorial Sisters of Charity Health Network in Houston, Texas from 1995 to
1996. From 1988 to 1992, Dr. Pegues was the Associate Executive Director of
Medical Affairs for Humana Healthcare Plans in Tampa, Florida and Assistant
Clinical Professor of the Department of Family Medicine at the University of
South Florida College of Medicine. Dr. Pegues graduated from the University of
Illinois College of Medicine in 1975. He received his B.A. from Grinnell College
in Grinnell, Iowa and is a Diplomate, Certified by the American Board of Family
Practice and National Board of Medical Examiners. Dr. Pegues is also a Fellow of
the American Academy of Family Physicians, and is licensed to practice medicine
in Florida.
BRUCE S. MALLER, DIRECTOR. Mr. Maller has served as a director of Vision
Twenty-One since November 1996 and is an ophthalmology practice management
consultant to the Company. He is the founder of, and has been the President of,
the BSM Consulting Group of Incline Village, Nevada since 1978. BSM provides
consulting services predominantly in the fields of ophthalmology and cardiology
to individual physicians and corporate clients such as Allergan, Inc., Boston
Scientific, Columbia/HCA Healthcare, Inc. and Vision Twenty-One. Mr. Maller has
served as a Vice-President of Summit Medical Systems, Inc., the parent company
of BSM since October 1995. Mr. Maller is a frequent lecturer for various medical
societies, including the American Academy of Ophthalmology and the American
Society of Cataract and Refractive Surgery. Mr. Maller also heads BSM Healthcare
Publications, which produces works related to the field of medical practice
management. Mr. Maller received his Bachelor of Arts degree from the University
of Colorado in 1975.
JEFFREY I. KATZ, M.D., DIRECTOR. Dr. Katz has served as a director of the
Company since January 1997. Dr. Katz has operated an ophthalmology practice at
the Eye Institute of Southern Arizona in Tucson since 1984. He also serves as a
clinical associate professor in the Department of Ophthalmology at the
University of Arizona in Tucson and is the past president of the Tucson
Ophthalmologic Society. Dr. Katz graduated from George Washington University
Medical School in 1972. He was chief of ophthalmic surgery at El Dorado Hospital
in Tucson and has served as the Medical Director for the Tucson Laboratory of
the Arizona Lions eye Bank since 1978.
Pursuant to the terms of the Company's Articles of Incorporation and
Bylaws, the Board of Directors has the power to set the number of directors. The
number of directors is presently set at eight members. The directors are divided
into three classes. Each director in a particular class is elected to serve a
three-year term or until his or her successor is duly elected and qualified. The
classes are staggered so that their terms expire in successive years resulting
in the election of only one class of directors each year. The Class I directors
are Mr. Welch and Drs. Pegues and Katz, the Class II directors are Messrs.
Sanchez and Fontaine, and the Class III directors are Drs. Gillette and
Lindstrom and Mr. Maller. The initial terms of the current Class I, Class II and
Class III directors will expire at the annual meeting of the stockholders of the
Company in 1998, 1999 and 2000, respectively. Officers of the Company are
appointed by the Board of Directors and hold office until the first meeting of
directors following the annual meeting of stockholders and until their
successors are appointed, subject to earlier removal by the Board of Directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation (the "Articles") provide that a
Director will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except: (i) for any
breach of duty of loyalty; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of laws; (iii) for
liability under the Florida Business Corporation Act (relating to certain
unlawful dividends, stock repurchases or stock redemptions); or (iv) for any
transaction from which the director derived any improper personal benefit. The
Company's Bylaws provides
47
<PAGE> 49
that the Company will indemnify each director and such of the Company's
officers, employees and agents as the Board of Directors shall determine from
time to time to the fullest extent provided by the Florida Business Corporation
Act.
The Company has entered into indemnification agreements (the
"Indemnification Agreements") with all of its directors and certain of its
officers. Similar Indemnification Agreements may from time to time be entered
into with additional officers of the Company or certain other employees or
agents of the Company. At present, there is no material pending litigation or
proceeding involving a director, officer, employee or agent of the Company where
indemnification is required or permitted, nor is the Company aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification. The Company is also empowered under its Articles to purchase
and maintain insurance or furnish similar protection on behalf of any person who
it is required or permitted to indemnify and the Company has acquired such
insurance in connection with such individuals that the Company believes is
warranted.
DIRECTORS' COMPENSATION
Directors are reimbursed for expenses in connection with attendance at
Board of Director and Committee meetings. Directors who are not officers of the
Company or affiliates of major stockholders are paid $500 per meeting plus
expenses, which will be increased to $1,000 per meeting plus expenses upon the
conclusion of the Offering. In addition, non-employee directors may be awarded
options under the Company's Stock Option Plans. See "-- Stock Option Plans."
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors will establish, effective upon consummation of this
Offering, an Audit Committee, a Compensation Committee, and an Executive
Committee. The members of each Committee are expected to be determined at the
first meeting of the Board of Directors following the completion of this
Offering. At least a majority of the members of the Audit Committee and
Compensation Committee will be non-employee directors.
The functions of the Audit Committee will be to recommend annually to the
Board of Directors the appointment of the independent public accountants of the
Company, discuss and review the scope and the fees of the prospective annual
audit, to review the results thereof with the independent public accountants,
review and approve non-audit services of the independent public accountants,
review compliance with existing major accounting and financial policies of the
Company, review the adequacy of the financial organization of the Company,
review management's procedures and policies relative to the adequacy of the
Company's internal accounting control, and compliance with federal and state
laws relating to accounting practices and review and approve (with the
concurrence of a majority of the disinterested Directors of the Company)
transactions, if any, with affiliated parties.
The functions of the Compensation Committee will be to review and approve
annual salaries and bonuses for all officers, review, approve and recommend to
the Board of Directors the terms and conditions of all employee benefit plans or
changes thereto, to administer the Company's stock option plans, and to carry
out the responsibilities required by rules of the Securities and Exchange
Commission.
The Executive Committee, to the fullest extent allowed by Florida law, and
subject to the powers and authority delegated to the Audit Committee and the
Compensation Committee, will have and may exercise all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Company during intervals between meetings of the Board of Directors.
48
<PAGE> 50
EXECUTIVE COMPENSATION
The following table sets forth information with respect to all compensation
paid or accrued in the fiscal year ended December 31, 1996, for services
rendered in all capacities to the Company by the Chief Executive Officer and the
one other executive officer of the Company who earned in excess of $100,000 in
salary and bonus for 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------
NAME AND PRINCIPAL POSITION YEAR SALARY($)
- --------------------------- ---- ---------
<S> <C> <C>
Theodore N. Gillette, O.D., Chief Executive Officer......... 1996 $189,072
Richard Sanchez, Chief Development Officer.................. 1996 $143,984
</TABLE>
EMPLOYMENT AGREEMENTS
Theodore N. Gillette, O.D. and Richard L. Sanchez have each entered into
Employment Agreements with the Company (the "Employment Agreements"), pursuant
to which they have agreed to serve as the Company's Chief Executive Officer and
Chief Development Officer, respectively. Each Employment Agreement is for a term
of five years ending on September 30, 2001, and is renewable for subsequent
one-year terms by mutual agreement of the parties. Dr. Gillette and Mr. Sanchez
will receive annual base salaries of not less than $220,000 and $180,000,
respectively, which are subject to review by the Compensation Committee of the
Board of Directors at annual intervals and may be adjusted from time to time as
the Compensation Committee deems to be appropriate. Under the Employment
Agreements, Dr. Gillette and Mr. Sanchez have agreed to devote their best
efforts and substantially all of their business time and services to the
business and affairs of the Company. Dr. Gillette and Mr. Sanchez will each be
eligible for annual incentive bonuses, up to 50% of their annual base salary, in
an amount to be determined by the Compensation Committee to the extent that the
Company achieves certain performance measures set by the Committee. Dr. Gillette
and Mr. Sanchez are also entitled to receive stock options or other stock awards
under the Company's Stock Incentive Plan to the extent that the Compensation
Committee determines such awards to be appropriate. Each Employment Agreement
provides that in the event that employment is terminated by the Company other
than (i) for cause, (ii) upon death or disability, or (iii) upon voluntary
termination by the employee, such employee will be entitled to receive from the
Company monthly payments equal to one-twelfth of the employee's annual base
salary for each month during the remaining term of such Employment Agreement,
but not less than twenty-four months. In the event of a change in control (as
defined in the Employment Agreements), each Employment Agreement provides that
if such employee's employment is terminated other than for cause within twelve
months following a change of control of the Company, the Company shall pay such
employee thirty-six monthly payments of one-twelfth of the sum of such
employee's base salary plus his previous year's bonus. Each Employment Agreement
also contains a covenant not to compete with the Company for a period of
twenty-four months following termination of employment.
The Company and Richard T. Welch are parties to an Employment Agreement
(the "Employment Agreement"), pursuant to which Mr. Welch has agreed to serve as
Chief Financial Officer of the Company. The term of the Employment Agreement is
for two years ending on August 31, 1998, and is renewable for subsequent
one-year terms by mutual agreement of the parties. Under the Employment
Agreement, Mr. Welch will receive an annual base salary of not less than
$150,000 which is subject to review by the Compensation Committee of the Board
of Directors at annual intervals and may be adjusted from time to time as the
Compensation Committee deems to be appropriate. Under the Employment Agreement,
Mr. Welch has agreed to devote his best efforts and substantially all of his
business time and services to the business and affairs of the Company. Mr. Welch
will be eligible for annual incentive bonuses, up to 50% of his annual base
salary, in an amount to be determined by the Compensation Committee of the Board
of Directors to the extent that the Company achieves certain performance
measures set by the Committee. Under the Employment Agreement, Mr. Welch
received non-statutory stock options to purchase 80,000 shares of Common Stock
pursuant to the Company's Stock Incentive Plan. The options are exercisable at a
price of $3.11 per share and
49
<PAGE> 51
vest pro rata on an equal basis over a four-year period, except that in the
event of an initial public offering by the Company, Mr. Welch will be permitted
to exercise options as to 64,000 of the shares at such time. Mr. Welch is also
entitled to receive such additional stock options or other stock awards under
the Company's Stock Incentive Plan to the extent the Compensation Committee
determines such awards to be appropriate. The Employment Agreement provides that
in the event that employment is terminated by the Company other than (i) for
cause, (ii) upon death or disability, or (iii) upon voluntary termination by the
employee, such employee shall be entitled to receive from the Company a series
of monthly payments equal to one-twelfth of the employee's annual base salary
for each month during the remaining term of such Employment Agreement, but not
less than twelve months. In the event of a change in control (as defined in the
Employment Agreement), the Employment Agreement provides that if such employee's
employment is terminated other than for cause within twelve months following a
change of control of the Company, the Company shall pay such employee a series
of twelve monthly payments of one-twelfth of the sum of such employee's base
salary plus his previous year's bonus. The Employment Agreement also contains a
covenant not to compete with the Company for a period of twelve months following
termination of employment.
STOCK OPTION PLANS
In July 1996, the Board of Directors adopted, and the stockholders of the
Company approved, the 1996 Stock Incentive Plan (the "Incentive Plan") and the
1996 Affiliated Professionals Stock Plan (the "Professionals Plan," and together
with the Incentive Plan, the "Plans"). The purpose of the Plans is to provide
non-employee directors, officers, key employees, advisors and medical
professionals employed by Affiliated Practices with additional incentives by
increasing their proprietary interest in the Company or tying a portion of their
compensation to increases in the price of the Company's Common Stock. The
aggregate number of shares of Common Stock subject to the Plans is 1,600,000
shares.
The Incentive Plan permits the Company to grant incentive stock options
("ISOs"), as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonqualified stock options ("Nonqualified Options"), stock
appreciation rights ("SARs"), restricted shares of Common Stock ("Restricted
Shares") and performance shares of Common Stock (individually, an "Award" and
collectively, "Awards") to directors, officers, key employees and consultants of
the Company. The Professionals Plan permits the Company to grant Awards of
Nonqualified Stock Options, SARs and Restricted Shares to medical professionals
employed by Affiliated Practices. The various types of Awards are described in
more detail below.
The Incentive Plan is intended to qualify for favorable treatment under
Section 16 of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder
("Rule 16b-3") and Awards under the Incentive Plan are intended to qualify for
treatment as "performance-based compensation" under Section 162(m) of the
Internal Revenue Code ("Section 162(m)"). Following the consummation of this
Offering, the Plans will be administered by the Compensation Committee, which
will be comprised of two or more non-employee directors who are "disinterested"
within the meaning of Rule 16b-3 and Section 162(m) (the "Committee"). The
Committee will have, subject to the terms of the Plans, the sole authority to
grant Awards under the Plans, to construe and interpret the Plans and to make
all other determinations and take any and all actions necessary or advisable for
the administration of the Plans. Prior to the consummation of this Offering, the
Plans have been administered by the Company's full Board of Directors.
Options. Options for the purchase of shares of the Common Stock may be
granted under both Plans. The exercise price for the ISOs granted under the
Incentive Plan may be no less than the fair market value of the Common Stock on
the date of grant (or 110% in the case of ISOs granted to employees owning more
than 10% of the Common Stock). Only employees of the Company are eligible to
receive ISOs. The exercise price for Nonqualified Options granted under the
Plans will generally be the fair market value of the Common Stock on the date of
grant; however, the Compensation Committee may set an exercise price at less
than fair market value if it determines that special circumstances warrant a
lower price. Options will be exercisable during the period specified in each
option agreement and will generally be exercisable in installments pursuant to a
vesting schedule to be designated by the Committee. No Option will remain
exercisable later than ten
50
<PAGE> 52
years after the date of grant (or five years from the date of grant in the case
of ISOs granted to holders of more than 10% of the Common Stock).
SARs. Stock appreciation rights may be granted under both Plans in tandem
with Options. An SAR represents the right to receive from the Company the
difference (the "Spread"), or a percentage thereof not in excess of 100 percent,
between the exercise price of the related Option and the market value of the
Common Stock on the date of exercise of the SAR. SARs may only be exercised at a
time when the related Option is exercisable and the Spread is positive, and the
exercise requires the surrender of the related Option for cancellation. The
amount payable by the Company upon exercise may be paid in cash, Common Stock or
a combination thereof, as determined by the Committee.
Restricted Shares. Restricted Shares may be granted under both Plans. An
award of Restricted Shares involves the immediate issuance by the Company to a
participating employee of ownership of a specific number of shares of Common
Stock in consideration of the performance of services. The employee is entitled
immediately to voting, dividend and other ownership rights in the shares. The
issuance may be made without additional consideration, or for payment of an
amount that is less than the market value of the shares on the date of grant, as
the Committee may determine. Restricted Shares must be subject to a "substantial
risk of forfeiture" for a period to be determined by the Committee. An example
of such forfeiture would be a provision that the employee's Restricted Shares
would be forfeited if he or she ceased to serve the Company as an officer at any
time before the end of a specified period of years. In order to enforce these
forfeiture provisions, the transferability of Restricted Shares will be
prohibited or restricted in a manner and to the extent prescribed by the
Committee for the period during which the forfeiture provisions are to continue.
The Committee may also condition the vesting of the Restricted Shares on the
achievement of specified performance objectives ("Management Objectives").
Performance Shares. Performance Shares may be granted under the Incentive
Plan. A Performance Share is the equivalent of one share of Common Stock. An
Incentive Plan participant may be granted any number of Performance Shares. The
participant will be given one or more Management Objectives to meet within a
specified period (the "Performance Period"). Maximum or minimum level of
acceptable achievement for each Management Objective will be established by the
Committee. If, by the end of the Performance Period, the specified Management
Objectives have been satisfied, the participant will be deemed to have fully
earned the Performance Shares. If the Management Objectives have not been
satisfied in full but predetermined minimum level of acceptable achievement has
been attained or exceeded, the participant will be deemed to have partly earned
the Performance Shares in accordance with a predetermined formula. To the extent
earned, the Performance Shares will be paid to the participant at the time and
in the manner determined by the Committee in cash or in shares of Common Stock
or any combination thereof.
Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of a department or
function within the Company or with respect to which the participant provides
services. The Committee may adjust any Management Objectives and the related
minimum level of acceptable achievement if, in its judgment, transactions or
events have occurred after the date of grant that are unrelated to the
participant's performance and result in distortion of the Management Objectives
or the related minimum level of acceptable achievement.
Notwithstanding the provisions of any agreement relating to an Award, in
the event of a change or threatened "change in control" (as defined in the
Plans) of the Company and in the event of certain mergers and reorganizations of
the Company, the Committee will have the discretion to (i) declare all Options
immediately exercisable, (ii) determine that all or any portion of conditions
associated with a Restricted Share or Performance Share award have been met,
(iii) grant SARs or cash bonus awards to holders of outstanding Options, (iv)
pay cash in exchange for the cancellation of Nonqualified Options, SARs,
Performance Share Awards or Restricted Shares, or (v) make other adjustments or
amendments to the Plans and outstanding Awards and/or substitute new Awards.
The Company anticipates that prior to or upon the consummation of this
Offering it will have outstanding options to purchase a total of approximately
672,667 shares of Common Stock which are generally exercisable
51
<PAGE> 53
for a period of ten years from the date of grant, are subject to three to five
year vesting, and have an exercise price equal to fair market value on the date
of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
To date executive compensation has been determined by the Company's chief
executive officer. Shortly after completion of the Offering, the Company intends
to establish a Compensation Committee of the Board of Directors, a majority of
whom will be independent directors.
52
<PAGE> 54
CERTAIN TRANSACTIONS
The information set forth herein briefly describes transactions over the
past three years between the Company and its directors, officers and 5%
stockholders. These transactions have been approved by the Company's Board of
Directors. Future transactions after the Offering, if any, with affiliated
parties will be approved by a majority of the Company's independent directors
and will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated parties.
As part of a reorganization of the Company in November 1996, the Company
completed an acquisition of all the outstanding stock of Vision 21 Managed
Eyecare of Tampa Bay, Inc. in exchange for a certain number of shares of Common
Stock of the Company. Vision 21 Managed Eyecare of Tampa Bay, Inc. was owned by
Theodore Gillette, Richard Sanchez and Peter Fontaine. Dr. Gillette and Mr.
Sanchez are executive officers and directors of the Company and Mr. Fontaine is
a director of the Company. In addition, in November 1996, the Company completed
an acquisition of all of the outstanding stock of Dr. Gillette & Associates,
Inc. Dr. Gillette & Associates, Inc. was owned by Gillette and Sanchez. In
connection with these transactions, Gillette, Sanchez and Fontaine received an
aggregate of 1,724,574, 600,302 and 360,442 shares of Common Stock,
respectively.
Effective December 1, 1996 the Company acquired all the business assets of
Gillette, Beiler & Associates, #6965 P.A. ("G&A"), a Florida professional
association owned in part by Theodore Gillette, an executive officer and
director of the Company, with nine optometry offices located in Tampa, Port
Richey, Clearwater, St. Petersburg, Palm Harbor, and Seminole, Florida. As
consideration for the acquisition, G&A received 373,971 shares of Common Stock,
of which Dr. Gillette is the beneficial owner of 196,064 shares, and a
promissory note in the amount of $416,103, which bears interest at 8% per annum.
The promissory note will be paid in full from the net proceeds of the Offering.
The Company has an agreement to provide practice management services to
G&A, pursuant to which G&A made payments of $392,206, $423,890 and $538,982 in
1994, 1995 and 1996, respectively. In December 1996, the Company and G&A entered
into a new Management Agreement pursuant to which the Company provides practice
management services for a management fee equal to 27% of the gross revenue of
G&A's eye care practice. Payments earned by the Company under the new Management
Agreement in the three months ended March 31, 1997 were $292,895.
The Company entered into an Agreement with Bruce S. Maller, a director of
the Company, dated May 10, 1996, pursuant to which the Company issued to Maller
135,166 shares of Common Stock for services previously rendered by Mr. Maller to
the Company. In October 1996, the Company finalized a five-year Advisory
Agreement with Mr. Maller (the "Advisory Agreement"), pursuant to which Mr.
Maller agreed to render certain advisory services to the Company, including the
identification and integration of ophthalmology practices and the provision of
assistance to the Company with its strategic planning, growth and development.
In consideration for such services, the Company issued to Mr. Maller 135,165
shares of Common Stock. A decreasing percentage of such shares are subject to
forfeiture in the event the Advisory Agreement is terminated "for cause" prior
to January 1, 2000. The shares issued to Mr. Maller pursuant to the Advisory
Agreement are subject to certain piggyback and demand registration rights. See
"Description of Capital Stock -- Registration Rights."
The Company entered into a Services Agreement with the BSM Consulting Group
("BSM"), a consulting company which employs Mr. Maller, dated as of March 10,
1996 (the "Services Agreement"), pursuant to which BSM agreed to provide
substantial consulting services to assist the Company with its operational and
management development. The Services Agreement is for a term of five years and
the fees payable to BSM for such services are approximately $40,000 per month.
Payments earned by BSM under the Services Agreement were $332,128 and $120,912
in 1996 and the three months ended March 31, 1997, respectively.
The Company borrowed $3.0 million from Mr. Fontaine pursuant to a
Promissory Note dated June 1996 (the "Fontaine Note"). The Fontaine Note accrues
interest at 8% per annum and is due in full upon completion of the Company's
initial public offering, and will be repaid in full from the proceeds of the
initial
53
<PAGE> 55
public offering. In addition, the Company borrowed $200,000 and $500,000 from
Mr. Fontaine in November and December 1996, respectively, for working capital
pursuant to unsecured promissory notes. The unsecured promissory notes each bear
interest at 8.5% per annum and are due in January 1998.
Effective September 9, 1996, the Company entered into a Services Agreement
(the "Services Agreement") with Dr. Richard L. Lindstrom, a director of the
Company, who pursuant to the Services Agreement provides certain consulting and
advisory services primarily related to assisting the Company in the
identification and integration of Affiliated Providers into the Company's
managed eye care delivery network and assistance in the development of
Affiliated Provider practices. In consideration for his services, Dr. Lindstrom
is paid an annual base salary of $60,000 and received 108,132 shares of Common
Stock, of which 40% is non-forfeitable and the remaining 60% is subject to
forfeiture in various amounts if the Services Agreement is terminated by the
Company for cause or by Dr. Lindstrom prior to August 31, 2000. The shares
issued to Dr. Lindstrom pursuant to the Services Agreement are subject to
certain piggyback and demand registration rights. See "Description of Capital
Stock -- Registration Rights."
Effective December 1, 1996, the Company acquired all the business assets of
Lindstrom, Samuelson and Hardten Ophthalmology Associates, P.A. ("Lindstrom
P.A."), in which Dr. Lindstrom owns a majority interest, at a purchase price of
247,108 shares of Common Stock of the Company, of which Lindstrom received
151,732 shares, and a promissory note in the amount of $460,416. The shares are
subject to certain registration rights. See "Description of Capital
Stock -- Registration Rights." In connection with the acquisition, Lindstrom
P.A. and the Company entered into a Management Agreement which provides for a
management fee of 30% of the amounts remaining after certain expenses are paid
as set forth in the Management Agreement. The Company earned fees of $63,283
under the Management Agreement in the three months ended March 31, 1997. The
promissory note bears interest at 8% per annum will be paid in full from the net
proceeds of this Offering.
The Company acquired all of the stock of Midwest Eye Care Alliance, Inc.
("M.E.C.A."), a corporation in which Dr. Lindstrom owned an 8% interest, for a
total purchase price of $700,000, which is payable upon completion of the
Company's initial public offering. The Company also entered into Regional
Services Agreements with the shareholders of M.E.C.A., including Dr. Lindstrom
(collectively the "Coordinators"), effective at the time of an initial public
offering of the Company (collectively the "Regional Agreements"). The Regional
Agreements provide for the Coordinators to render advisory services to the
Company in connection with identifying potential ophthalmology and optometry
practices in the Midwestern region of the United States for acquisition or
affiliation and assisting the Company in negotiating agreements with such
practices in exchange for specific cash compensation that varies among the
Regional Agreements. Dr. Lindstrom will receive a total of $40,000 per year for
each of three years for his advisory services.
Effective December 1, 1996, the Company acquired all the business assets of
Eye Institute of Southern Arizona, P.C. ("Eye Institute"), an Arizona
professional corporation located in Tucson, Arizona and engaged in the provision
of ophthalmology services. Jeffrey I. Katz, M.D., a director of the Company,
owns a 50% interest in Eye Institute. The acquisition was accomplished by a
merger of Eye Institute into the Company's wholly-owned subsidiary, Vision 21 of
Southern Arizona, Inc. As consideration for the acquisition, Dr. Katz received
198,306 shares Common Stock. The shares are subject to certain registration
rights. See "Description of Capital Stock -- Registration Rights." As a result
of the merger of Eye Institute with and into Vision 21 of Southern Arizona,
Inc., Vision 21 of Southern Arizona, Inc. assumed Eye Institute's role as
business manager under a Management Agreement between Eye Institute and Vital
Sight, P.C., a newly-formed Arizona professional corporation to which Eye
Institute had transferred its medical assets prior to the merger. The Management
Agreement provides for a management fee of 35% of the amounts remaining after
certain expenses are paid as set forth in the Management Agreement. The Company
earned fees of $150,937 under the Management Agreement in the three months ended
March 31, 1997. Upon satisfaction of certain conditions in the future, the
Company and the shareholders of Eye Institute will transfer certain ASC assets
from such shareholders' wholly-owned corporation to a new, wholly-owned
corporation which is currently subject to a Management Agreement with Vision
Twenty-One of Southern Arizona, Inc. The parties have agreed to use their best
efforts to satisfy the conditions. Income associated with such ASC line of
business would thereafter become subject to the business management fee. The
obligation to transfer the ASC business
54
<PAGE> 56
shall terminate if the conditions of closing are not met within eighteen months
of the closing date of the merger of Eye Institute into Vision Twenty-One of
Southern Arizona, Inc. As consideration for this transaction, the shareholders
of Eye Institute are entitled, subject to post-closing adjustments, to receive
140,271 shares of Common Stock.
Effective December 1, 1996, the Company acquired all the business assets of
(i) Dr. Smith & Associates, #6950 P.A. ("Smith #6950"), a Florida professional
association, (ii) Dr. Smith & Associates, #6958 P.A. ("Smith #6958"), a Florida
professional association, and (iii) Dr. Smith & Associates, #6966 P.A. ("Smith
#6966"), a Florida professional association. Dr. Paul R. Smith, an executive
officer of the Company, is the sole shareholder of all such professional
associations. The acquisitions were accomplished by the merger of Smith #6950
into the Company and a sale of the business assets of Smith #6958 and Smith
#6966 to the Company. As consideration for the acquisitions, (i) Dr. Smith, the
sole shareholder of Smith #6950 received 32,808 shares of Common Stock, (ii)
Smith #6958 received 68,758 shares of Common Stock and a promissory note in the
amount of $72,421 which bears interest at 8% per annum, and (iii) Smith #6966
received 68,759 shares of Common Stock and a promissory note in the amount of
$72,421 which bears interest at 8% per annum. The shares are subject to certain
registration rights. See "Description of Capital Stock -- Registration Rights."
The Company has agreed to provide practice management services to Smith #6950,
#6958 and #6966. In December 1996, the Company and Smith #6958 and #6966 entered
into new Management Agreements, and the Company assumed Smith #6950's role as
business manager of a new Management Agreement between Smith #6950 and Smith
#6952 (a newly formed professional association to which Smith #6958 had
transferred its optometric assets prior to the merger), pursuant to which the
Company provides practice management services. Payments earned by the Company
pursuant to the new Management Agreements were $80,736 for the three months
ended March 31, 1997.
Effective December 1, 1996, the Company acquired (i) all the business
assets of Daniel B. Feller, M.D., P.C. ("Feller"), an Arizona professional
corporation with two offices in Phoenix, Arizona and one office in Scottsdale,
Arizona, engaged in the provision of ophthalmology services, (ii) all the
business assets of Eye Specialists of Arizona Network, P.C. ("Network"), an
Arizona professional corporation located in Scottsdale, Arizona and engaged in a
managed care business, and (iii) all the business assets of Sharona Optical,
Inc. ("Sharona"), an Arizona corporation located in Scottsdale, Arizona and
engaged in a retail optical business. Dr. Daniel B. Feller, an executive officer
of the Company, is the sole shareholder of Feller, Network and Sharona. Such
acquisitions were accomplished by a merger of Feller into the Company and a sale
of the assets of Network and Sharona to the Company. Sharona also transferred
all of its optical assets to Feller in connection with the acquisitions. As
consideration for the acquisitions, (i) Dr. Feller as the sole shareholder of
Feller received 144,869 shares of Common Stock, (ii) Network received 71,670
shares of Common Stock and a promissory note in the amount of $88,614 which
bears interest at 8% per annum, and (iii) Sharona received 63,983 shares of
Common Stock and a promissory note in the amount of $61,837 which bears interest
at 8% per annum. The shares are subject to certain registration rights. See
"Description of Capital Stock -- Registration Rights." As a result of the merger
of Feller with and into the Company, the Company assumed Feller's role as
Business Manager under a Management Agreement between Feller and Millennium
Vision, P.C., a newly-formed Arizona professional corporation to which Feller
had transferred its medical assets prior to the merger. The Management Agreement
provides for a management fee of 36.7% of the amounts remaining after certain
expenses are paid as set forth in the Management Agreement. The Company earned
fees of $203,360 under the Management Agreement in the three months ended March
31, 1997.
Effective May 1, 1997, the Company acquired all the medical assets of Drs.
Smith, Porter & Associates, P.A. ("Smith P.A."). Dr. Smith is the sole
shareholder of Smith P.A. The acquisition was accomplished by a sale of the
business assets of Smith P.A. by the Company. As consideration for the
acquisition, Smith P.A. received 11,411 shares of Common Stock, $29,065 in cash
and a promissory note in the amount of $18,865. The shares are subject to
certain registration rights. In May 1997, the Company and Smith P.A. entered
into a Management Agreement pursuant to which the Company will provide practice
management services.
55
<PAGE> 57
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of June 1, 1997 and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person or entity known by the Company to be the beneficial owners of more than
5% of the outstanding shares of Common Stock, (ii) each director or executive
officer of the Company who beneficially owns any shares of Common Stock, (iii)
each Selling Stockholder and (iv) all directors and executive officers of the
Company as a group. Except as otherwise indicated, the persons listed below have
sole voting and investment power with respect to all shares of Common Stock
owned by them, except to the extent such power may be shared with a spouse. The
table assumes that the underwriters' over-allotment option is exercised in full.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED AFTER OFFERING
SHARES BENEFICIALLY IF OVER-ALLOTMENT
OWNED PRIOR TO PERCENT BENEFICIALLY OPTIONS ARE
THE OFFERING(2) OWNED AFTER OFFERING IF NUMBER OF SHARES EXERCISED IN FULL(2)
NAME AND ADDRESS ------------------------ OVER-ALLOTMENT OPTIONS SUBJECT TO ------------------------
OF BENEFICIAL OWNER(1) NUMBER PERCENT ARE NOT EXERCISED OVER-ALLOTMENT OPTIONS(3) NUMBER PERCENT
- ---------------------- --------------- ------- ------------------------- ------------------------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND
EXECUTIVE OFFICERS
Gillette Family
Limited
Partnership(4)...... 1,702,494 30.9% 22.4% -- 1,702,494 21.5%
Theodore N. Gillette,
O.D.(5)............. 1,898,558 34.4 24.9 1,898,558 23.9
Sanchez Family Limited
Partnership(6)...... 593,329 10.8 7.8 593,329 7.5
Richard L.
Sanchez(7).......... 593,329 10.8 7.8 -- --
Peter J. Fontaine..... 360,422 6.5 4.7 -- --
Richard L. Lindstrom,
M.D.(8)............. 231,686 4.2 3.0 11,590 220,096 2.8
Bruce S. Maller(9).... 161,355 2.9 2.1 13,523 147,832 1.9
BSM Investments
Ltd................. 108,976 2.0 1.4 -- --
Jeffrey I. Katz,
M.D................. 198,306 3.6 2.6 -- 198,306 2.5
Richard T.
Welch(10)........... 64,000 1.2 1.0 -- 64,000 *
All directors and
executive officers
as a group (8
persons)............ 3,511,868 63.7 46.1 25,113 3,486,755 44.0
OTHER 5% STOCKHOLDERS
Prudential Securities
Group Inc.(11)...... 533,333 8.8 6.5 -- 533,333 6.3
Piper Jaffray
Healthcare Fund II
Limited
Partnership(12)..... 333,333 5.7 4.2 -- 333,333 4.0
OTHER SELLING
STOCKHOLDERS
Robert Kennedy,
O.D.(13)............ 76,895 1.4 1.0 3,847 73,048 1.0
Thomas Samuelson,
M.D.(8)............. 41,185 * * 2,060 39,125 *
David R. Hardten,
M.D.(8)............. 82,369 1.5 1.1 4,121 78,248 1.0
Gregory W. Kraupa,
O.D................. 31,572 * * 1,579 29,993 *
Bradley D. Richter,
O.D................. 31,572 * * 1,579 29,993 *
Jerald Turner,
M.D.(14)............ 129,398 2.4 1.7 6,473 122,925 1.6
William J. Fishkind,
M.D................. 163,858 3.0 2.2 8,197 155,661 1.2
Brock K. Bakewell,
M.D................. 163,858 3.0 2.2 8,197 155,661 1.2
Paul R. Smith, O.D.... 181,736 3.3 2.4 8,521 173,215 2.2
Mark Beiler, O.D...... 36,312 * * 1,817 34,495 *
Mark Salta, O.D....... 23,971 * * 1,199 22,772 *
Daniel Palmisano,
O.D................. 21,054 * * 1,053 20,001 *
Richard L. Short,
D.O................. 128,541 2.3 1.7 6,430 122,111 1.5
ACFS Limited
Partnership......... 29,053 * * 15,511 13,542 *
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 7209 Bryan Dairy Road, Largo, Florida 34647. See
"Management -- Directors, Executive Officers and Key Employees,"
"Management -- Employment Agreements" and "Certain Transactions" for
discussion of any material relationship which any Selling Stockholder has
had with the Company within the past three years.
(2) Based on 5,516,124 shares of Common Stock outstanding prior to this
Offering (excluding 79,805 shares held in escrow in conjunction with
certain acquisitions, the "Contingent Shares") and 7,616,124 shares
56
<PAGE> 58
of Common Stock to be outstanding immediately after the Offering excluding
Contingent Shares (7,931,124 shares to be outstanding if the Company's and
the Selling Shareholder's over-allotment options to purchase from the
Company and the Selling Shareholders up to an additional 315,000 shares of
Common Stock granted to the several underwriters are exercised in full,
excluding Contingent Shares). Pursuant to the rules of the Securities and
Exchange Commission (the "Commission"), certain shares of Common Stock
which a person has the right to acquire within 60 days of the date hereof
pursuant to the exercise of stock options are deemed to be outstanding for
the purpose of computing the percentage ownership of such person but are
not deemed outstanding for the purpose of computing the percentage
ownership of any other person.
(3) Excludes 219,303 shares covered by over-allotment options granted to the
several underwriters by the Company.
(4) Shares are owned by the Gillette Family Limited Partnership, a Nevada
Limited Partnership, in which Dr. Theodore Gillette exercises voting
control.
(5) Represents (a) 1,702,494 shares owned by the Gillette Family Limited
Partnership over which Dr. Theodore Gillette has voting control as the sole
shareholder of the corporate general partners (b) 9,077 shares owned by
Gillette, Beiler & Associates, P.A. and (c) 186,987 shares owned
individually. See "Certain Transactions."
(6) Shares are owned by the Sanchez Family Limited Partnership, a Nevada
Limited Partnership in which Richard L. Sanchez exercises voting control.
(7) Represents 593,329 shares owned by the Sanchez Family Limited Partnership
over which Richard L. Sanchez has voting control.
(8) Excludes an aggregate of 56,356 shares held in escrow in connection with
the Company's acquisition of the business assets of Lindstrom, Samuelson,
Hardten Ophthalmology, P.A., for Messrs. Lindstrom, Samuelson and Hardten
of 28,178, 9,393 and 18,785 respectively.
(9) Includes 108,976 owned by BSM Investment, Ltd., over which Bruce Maller has
voting control.
(10) Represents shares issuable pursuant to options to purchase an aggregate of
80,000 shares, of which 64,000 shares vest and are fully exercisable at the
time of the Offering.
(11) Represents shares issuable pursuant to currently exercisable warrants.
(12) Represents shares issuable pursuant to warrants exercisable at the time of
completion of the Offering.
(13) Excludes 6,209 shares held in escrow in connection with the Company's
acquisition of the business assets of J&R Kennedy, O.D., P.A.
(14) Excludes 17,240 shares held in escrow in connection with the Company's
acquisition of the business assets of Jerald B. Turner, M.D., P.A.
57
<PAGE> 59
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, $.001 par value per share (the "Common Stock"), and (ii)
10,000,000 shares of preferred stock, $.001 par value per share (the "Preferred
Stock"). As of June 1, 1997, an aggregate of 5,516,124 shares of Common Stock
were outstanding and held of record by 28 stockholders and no shares of
Preferred Stock were outstanding. Copies of the Articles of Incorporation and
Bylaws have been filed as exhibits to the Registration Statement and are
incorporated by reference herein.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to the prior rights of the
holders of Preferred Stock, holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors from funds legally
available therefor, and to share ratably in the assets of the Company legally
available for distribution to the stockholders in the event of liquidation or
dissolution. The Common Stock has no preemptive rights and no subscription or
redemption privileges. The Common Stock does not have cumulative voting rights,
which means the holder or holders of more than half of the shares voting for the
election of directors can elect all the directors then being elected. See
"Principal and Selling Shareholders." All the outstanding shares of Common Stock
are, and the shares being offered hereby will be, when issued and paid for,
fully paid and not liable for further call or assessment.
WARRANTS
In December 1996, the Company issued to certain unrelated parties warrants
exchangeable for an aggregate maximum of 208,333 shares of Common Stock at an
exchange price ranging from $6.00 to $7.11 per share, or in a cashless exchange
for a reduced number of shares pursuant to a formula. The warrants are
exchangeable at any time up through the earlier of December 19, 2003 or five
years from the date of any initial public offering by the Company.
In February 1997, the Company issued to Piper Jaffray Healthcare Fund II
Limited Partnership ("Piper Jaffray") a warrant exchangeable for an aggregate
maximum of 333,333 shares of Common Stock at an exchange price ranging from
$6.00 to $7.11, or in a cashless exchange for a reduced number of shares
pursuant to a formula. The warrants are exchangeable at any time up through the
earlier of December 19, 2003 or five years from the date of any initial public
offering by the Company.
In April 1997, the Company entered into a credit facility in the aggregate
amount of $5.0 million with Prudential Securities Group Inc. ("Prudential"),
pursuant to a Note and Warrant Purchase Agreement amended in June 1997 (the
"Amended and Restated Note and Warrant Purchase Agreement"), the Company issued
to Prudential a warrant (the "Warrant") exchangeable for up to an aggregate of
633,333 shares of Common Stock in three separate tranches as follows: (Tranche
A) up to 533,333 shares at any time during the period from the earlier to occur
of (i) an event of default (as defined in the Amended Agreement), (ii) an
initial public offering by the Company or (iii) October 10, 1997 to October 10,
2002, at an exercise price per share equal to 80% of the Market Price (as
defined in the Amended and Restated Note and Warrant Purchase Agreement),
provided however, the exercise price shall be reduced to the greater of 50% of
the Market Price and $6.00 per share, if an initial public offering shall not
have occurred by January 1, 1998 or an Event of Default or Note Termination Date
shall have occurred, provided further however, that in no event shall the
exercise price be greater than $7.11 per share; (Tranche B) up to 50,000 shares,
if and only if the principal amount of the outstanding note payable by the
Company to Prudential (the "Prudential Note"), together with accrued interest
thereon and all other amounts payable under the Amended and Restated Note and
Warrant Purchase Agreement in respect of the Prudential Note, shall not have
been paid in full on or prior to October 10, 1997, in which case such Warrant
may be exercised during the period from January 1, 1998 until October 10, 2002
at an exercise price equal to the greater of $6.00 per share and 50% of the
Market
58
<PAGE> 60
Price; and (Tranche C) up to 50,000 shares, if and only if the principal amount
of the outstanding note, together with accrued interest thereon and all other
amounts payable under the Amended and Restated Note and Warrant Purchase
Agreement in respect of the outstanding note shall not have been paid in full on
or prior to January 10, 1998, in which case such Warrant may be exercised during
the period from January 10, 1998 until January 10, 2003 at an exercise price
equal to the higher of $6.00 per share and 50% of the Market Price. See
"Underwriting." See "Underwriting," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 11 to Notes to
Consolidated Financial Statements.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock.
The Preferred Stock may be issued from time to time in one or more series, and
the Board of Directors is authorized to fix the dividend rights, dividend rates,
any conversion or exchange rights, any voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
the liquidation preferences and any other rights, preferences, privileges and
restrictions of any series of Preferred Stock and the number of shares
constituting such series and the designation thereof. The Company has no present
plans to issue any shares of Preferred Stock.
Depending upon the rights of such Preferred Stock, the issuance of
Preferred Stock could have an adverse effect on holders of Common Stock by
delaying or preventing a change in control of the Company, making removal of the
present management of the Company more difficult or resulting in restrictions
upon the payment of dividends and other distributions to the holders of Common
Stock.
CERTAIN FLORIDA LEGISLATION
The Company is subject to (i) the Florida Control Share Act, which
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority vote of the corporation's disinterested shareholders, and
(ii) the Florida Fair Price Act, which generally requires supermajority approval
by disinterested directors or shareholders of certain specified transactions
between a corporation and holders of more than 10% of the outstanding shares of
the corporation (or their affiliates).
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS
Certain provisions of the Articles of Incorporation and the Bylaws of the
Company could have an anti-takeover effect. These provisions are intended to
enhance the likelihood of continuity and stability in the composition of the
Board of Directors of the Company and in the policies formulated by the Board of
Directors and to discourage certain types of transactions, described below,
which may involve an actual or threatened change of control of the Company. The
provisions are designed to reduce the vulnerability of the Company to an
unsolicited proposal for a takeover of the Company that does not contemplate the
acquisition of all of its outstanding shares or an unsolicited proposal for the
restructuring or sale of all or part of the Company. The provisions are also
intended to discourage certain tactics that may be used in proxy fights. The
Board of Directors believes that, as a general rule, such takeover proposals
would not be in the best interests of the Company and its stockholders.
Classified Board of Directors. The Articles of Incorporation provide for
the Board of Directors to be divided into three classes of directors serving
staggered three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year.
The Board of Directors believes that a classified Board of Directors will
help to assure the continuity and stability of the Board of Directors and the
business strategies and policies of the Company as determined by the Board of
Directors, because the likelihood of continuity and stability in the composition
of the Company's Board of Directors and in the policies formulated by the Board
will be enhanced by staggered three-year terms.
59
<PAGE> 61
The classified board provision could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its stockholders. In addition, the classified board provision could delay
stockholders who do not agree with the policies of the Board of Directors from
removing a majority of the Board for two years, unless they can show cause and
obtain the requisite vote. See "Number of Directors; Removal" below.
Special Meetings of Stockholders. The Articles of Incorporation provide
that no business may be brought up by a stockholder at a meeting of stockholders
except in accordance with certain provisions set forth in the Articles. Such
provisions require a minimum amount of notice to the Company of any such
business and certain disclosures relating to the business intended to be brought
up.
Amendment of Certain Provisions of the Articles of Incorporation. The
Articles of Incorporation requires the affirmative vote of the holders of at
least 80% of the votes entitled to be cast by the holders of all then
outstanding shares of voting stock in order to amend the Articles' provisions
relating to (i) the classified board, (ii) the method of bringing up business at
stockholders' meetings, (iii) the limitation on the liability of directors, (iv)
indemnification of officers and directors, and (v) the required vote to amend
the foregoing provisions. These voting requirements will make it more difficult
for stockholders to make changes in the Articles which would be designed to
facilitate the exercise of control over the Company. In addition, the
requirement for approval by at least an 80% stockholder vote will enable the
holders of a minority of the voting securities of the Company to prevent the
holders of a majority or more of such securities from amending such provisions
of the Articles.
Number of Directors; Removal. The Articles of Incorporation provide that
the Board of Directors will consist of between two and fifteen members, the
exact number to be fixed from time to time by resolution adopted by a majority
of the directors then in office. The Company currently has eight directors and
no vacancies. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, the Articles provide that directors of the Company may
be removed only for cause and only by the affirmative vote of holders of a
majority of the outstanding shares of voting stock. This provision will preclude
a stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with its own nominees.
REGISTRATION RIGHTS
The Company has granted holders of 2,317,177 shares of Common Stock
received in connection with the Company's acquisitions of the allowable assets
of certain optometric and ophthalmology practices certain piggyback and demand
registration rights pursuant to registration rights agreements. In general, each
holder has piggyback registration rights with respect to a maximum of 60% (30%
of which may be registered pursuant to an initial public offering) of such
holder's shares in the event the Company proposes to file a registration
statement under the Securities Act of 1933 for the purposes of effecting an
underwritten public offering of shares of the Company's Common Stock. Each
holder also has demand registration rights, which are effective one year after
completion of an initial public offering, to obligate the Company to file up to
two registration statements covering shares that were not registered in a prior
registration statement up to the 60% maximum. These rights expire two years from
the date of completion of an initial public offering and are subject to certain
conditions and limitations, including the right of the Company to limit the
number of shares included in the registration statement to the amount
recommended by the managing underwriter. The Company is obligated to pay all
costs and expenses of the registration statement except for underwriting
discounts, fees and commissions.
The Company has granted certain piggyback and demand registration rights to
Bruce Maller and Richard Lindstrom with respect to a total of 378,463 shares of
Common Stock. Following an initial public offering of Common Stock of the
Company, in the event the Company proposes to file a registration statement
under the Securities Act for purposes of effecting a public offering of the
Company's Common Stock, Maller and Lindstrom will be entitled to include up to
20% of their shares in the registration statement. If Maller and Lindstrom are
unable to sell 20% of their shares pursuant to such piggyback registration
rights, they may
60
<PAGE> 62
require the Company, on one occasion, to file a registration statement under the
Securities Act registering such number of shares as is necessary to permit them
to sell the full 20%. These rights expire upon the expiration of their
respective advisory and services agreements with the Company and are subject to
certain conditions and limitations, including the right of the Company to limit
the number of shares included in the registration statement to the amount
recommended by the managing underwriter. The Company is obligated to pay all
costs and expenses of the registration statement except for underwriting
discounts, fees and commissions.
The Company has granted certain piggyback and demand registration rights to
Prudential, Piper Jaffray and certain unrelated parties (the "Warrant Holders")
with respect to a maximum total of 1,175,000 shares of Common Stock underlying
the warrants issued to the Warrant Holders. In the event the warrants are
exchanged for shares, the Warrant Holders have piggyback registration rights
with respect to the shares in the event the Company proposes to file a
registration statement under the Securities Act for purposes of effecting a
public offering of shares of the Common Stock. Each of the Warrant Holders also
have demand registration rights to obligate the Company at any time after six
months from the date of any public offering, on one occasion, to use its best
efforts to file a registration statement covering any or all shares not
registered in a prior registration statement. These rights are subject to
certain conditions and limitations, including the right of the Company to limit
the number of shares in the registration to the amount recommended by the
managing underwriter. The Company is obligated to pay all costs and expenses of
the registration statement except for underwriting discounts, fees and
commissions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
61
<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 7,616,124 shares of
Common Stock outstanding. Of these shares, the 2,100,000 shares offered hereby
will be freely tradeable without restriction or further registration under the
Securities Act (2,415,000 if the Underwriters' over-allotment options are
exercised in full) unless purchased by "affiliates" of the Company as that term
is defined in Rule 144 under the Securities Act. The remaining 5,516,124 shares
outstanding are "Restricted Securities" as that term is defined in Rule 144 and
fall into three categories: (i) 2,820,484 shares held by "affiliates" who have
already held their shares for more than one year, (ii) 1,223,479 shares held by
affiliates who have not held their shares for more than one year and (iii)
1,472,161 shares held by non-affiliates who have not held their shares for more
than one year. In addition, 1,600,000 shares of Common Stock are reserved under
the Plans for exercise of stock options granted by the Company, of which options
to purchase approximately 672,667 shares have been granted (the "Option
Shares"). See "Management -- Stock Option Plans." Finally, 1,175,000 shares of
Common Stock are reserved for issuance in the event the warrants issued to
Prudential, Piper Jaffray and certain unrelated parties are exercised (the
"Warrant Shares"). See "Description of Capital Stock -- Warrants" and
"Underwriting."
The Restricted Securities may not be sold unless they are registered under
the Securities Act or are sold pursuant to an exemption from registration, such
as the exemption provided by Rule 144. Rule 144 imposes certain restrictions and
limitations on resale. In general, under Rule 144 as currently in effect, any
affiliate of the Company or any person (or persons whose shares are aggregated
in accordance with the Rule), who has beneficially owned Restricted Securities
for at least one year would be entitled to sell, within any three-month period a
number of such shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (approximately 76,161 shares after the
Offering), or the reported average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain manner of sale restrictions and notice requirements and
to the availability of current public information concerning the Company. A
person (or persons whose shares are aggregated) who is not an "affiliate" of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned such shares for at least two years, is currently entitled to
sell such shares under Rule 144(k) without regard to the availability of current
public information, volume limitations, manner of sales provisions or notice
requirements. Beginning 90 days after the date of this Prospectus, 2,820,484
Restricted Securities held by affiliates will be eligible for sale in the public
market pursuant to Rule 144, but are subject to certain "lock-up" agreements
described below and beginning September 9, 1997; December 31, 1997; January 15,
1998; and May 1, 1998, respectively, 43,252; 375,983; 592,788; and 11,411
Restricted Securities held by affiliates will be eligible for sale in the public
market pursuant to Rule 144 unless otherwise registered pursuant to certain
registration rights agreements, but are subject to certain lock-up and other
contractual arrangements described below. Beginning on December 31, 1997;
January 15, 1998; April 1, 1998; and May 1, 1998, respectively, 275,860;
898,610; 128,541; and 169,150 Restricted Securities held by non-affiliates will
be eligible for sale on the public market pursuant to Rule 144 unless otherwise
registered pursuant to certain registration rights agreements, but are subject
to certain lock-up and other contractual agreements related to Rule 144
described below.
The Company and certain of its officers and directors which include
affiliates and the Selling Stockholders holding Restricted Securities,
have executed agreements pursuant to which each has agreed that they will not,
directly or indirectly, offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, grant of any option to
purchase or other sale or disposition) of any shares of Common Stock or any
other securities convertible into, or exercisable or exchangeable for, Common
Stock or other capital stock of the Company or any right to purchase or acquire
Common Stock or other capital stock of the Company, for a period of 180 days
after the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, except for
bona fide gifts or transfers effected by such stockholders other than on any
securities exchange or in the over-the-counter market to donees or transferees
that agree to be bound by similar agreements and except for sales made by the
Selling Stockholders pursuant to options granted to the Underwriters to purchase
an additional 315,000 shares to cover over-allotment
62
<PAGE> 64
options, if any. Prudential Securities Incorporated may, in its sole discretion,
at any time and without notice, release all or any portion of the shares of
Common Stock subject to such agreements. In addition, certain non-affiliates of
the Company holding 1,472,161 Restricted Securities have entered into
contractual 180-day lock-up agreements with the Company similar to the above
agreements which prohibit the direct or indirect disposition of shares without
the prior written consent of the Company. Such non-affiliates have also
contractually agreed with the Company to be bound by the same Rule 144
restrictions placed on affiliates of the Company.
The Option Shares are subject to all the limitations on resale imposed by
Rule 701. In general, shares subject to Rule 701 are subject to the resale
restrictions of Rule 144. However, with respect to resales by non-affiliates, 90
days after the date of this Prospectus, the Option Shares may be resold without
conformance with Rule 144 except for its manner of sale limitation. With respect
to resale of Option Shares by affiliates, 90 days after the date of this
Prospectus, all Rule 144 limitations continue to apply except the one-year
holding period. Additionally, the Company intends to file one or more
registration statements under the Securities Act to register all shares of
Common Stock subject to then outstanding stock options and Common Stock issuable
pursuant to the Plans. The Company expects to file these registration statements
promptly following the closing of the Offering, and such registration statements
are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets, subject to lock-up agreements, to the extent applicable. See
"Management." The Warrant Shares are also subject to registration rights
agreements requiring the Company to register such shares under certain
circumstances and otherwise will be eligible for resale subject to all of the
limitations on resale imposed by Rule 144.
63
<PAGE> 65
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, and Wheat, First Securities, Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the Underwriting Agreement, to purchase from
the Company the number of shares of Common Stock set forth below opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated..........................
Wheat, First Securities, Inc................................
---------
Total................................................ 2,100,000
=========
</TABLE>
The Company and the Selling Stockholders are obligated to sell, and the
Underwriters are obligated to purchase, all the shares of Common Stock offered
hereby if any are purchased.
The Underwriters, through their Representatives, have advised the Company
and the Selling Stockholders that they propose to offer the Common Stock
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of
$ per share to certain other dealers. After the initial public
offering, the offering price and the concessions may be changed by the
Representatives.
The Company and the Selling Stockholders have granted the Underwriters
options, exercisable for 30 days from the date of this Prospectus, to purchase
up to 315,000 additional shares of Common Stock at the initial public offering
price, less underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The Underwriters may exercise such options solely for
the purpose of covering over-allotments incurred in the sale of the shares of
Common Stock offered hereby. To the extent such options are exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table bears to
.
The Company's officers and directors, who in the aggregate will
beneficially own approximately 3,515,000 shares of Common Stock upon the
completion of the Offering (assuming the Underwriters' over-allotment options
are exercised in full) and the Company, the Selling Stockholders and certain
other stockholders of the Company, have agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock or any
securities convertible into, or exercisable or exchangeable for, any share of
Common Stock or other capital stock of the Company or any right to purchase or
acquire Common Stock or other capital stock of the Company, for a period of 180
days after the date of this Prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters, other than
pursuant to the exercise of currently outstanding stock options and except for
bona fide gifts or transfers effected by such stockholders other than on any
securities exchange or in the over-the-counter market to donees or transferees
that agree to execute and be bound by such agreements except for sales made by
the Selling Stockholders pursuant to options granted to the Underwriters to
purchase an additional 315,000 shares to cover over-allotments, if any.
Prudential Securities Incorporated may, in its sole discretion, at any time and
without prior notice, release all or any portion of the shares of Common Stock
subject to such agreement.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.
64
<PAGE> 66
The Representatives have informed the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company and the
Representatives. Among the factors to be considered in making such determination
will be prevailing market conditions, the Company's financial and operating
history and condition, its prospects and the prospects of the industry in
general, the management of the Company, and the market prices of securities for
companies in businesses similar to that of the Company.
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act of 1934,
pursuant to which such persons may bid for or purchase Common Stock for the
purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more Common Stock
in connection with the Offering than they are committed to purchase from the
Company and in such case may purchase Common Stock in the open market following
completion of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
315,000 shares of Common Stock, by exercising the Underwriters' over-allotment
options referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or any selling group member participating in the Offering) for the account of
the other Underwriters, the selling concession with respect to Common stock that
is distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph are required, and, if they are
undertaken, they may be discontinued at any time.
In June 1997, Prudential Securities Group Inc. ("Prudential"), an affiliate
of Prudential Securities Incorporated, loaned an aggregate of $4.7 million to
the Company. The loan is represented by a senior secured note that bears
interest at 10% per annum, payable semiannually, and is due at the earlier of
January 1, 1998 or upon completion of an initial public offering. In connection
with the loan, Prudential received a detachable warrant to purchase an aggregate
of 633,333 shares of Common Stock at an exercise price ranging from $6.00 per
share to 80% of the price of the Common Stock in an initial public offering. See
"Description of Capital Stock -- Warrants."
Under the Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"), because more than ten percent of the net proceeds from the
Offering are intended to be used to repay the loan made by Prudential, the
public offering price can be no higher than that recommended by a "qualified
independent underwriter" meeting certain standards. In accordance with the
requirement, Wheat, First Securities, Inc. will serve in such role and will
recommend a price in compliance with the requirements of the NASD Conduct Rules.
Wheat, First Securities, Inc., in its role as qualified independent underwriter,
will perform a due diligence investigation and has reviewed and participated in
the preparation of this Prospectus and the registration statement of which this
Prospectus forms a part. In accordance with the NASD Conduct Rules, no NASD
member participating in the distribution is permitted to confirm sales to
accounts over which it exercises discretionary authority without prior specific
written consent.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company and certain of the
Selling Stockholders by Shumaker, Loop & Kendrick, LLP, Tampa, Florida and for
the Underwriters by King & Spalding, Atlanta, Georgia.
65
<PAGE> 67
EXPERTS
The financial statements of the following entities, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent certified public accountants, to the extent indicated in their
reports thereon also appearing elsewhere herein and the Registration Statement:
- Vision Twenty-One, Inc. and Subsidiaries
- Northwest Eye Specialists, P.L.L.C.
- Cambridge Eye Clinic, P.A. -- John W. Lahr, Optometrist, P.A. and
Eyeglass Express Optical Lab, Inc.
- J & R Kennedy, O.D., P.A. and Roseville Opticians, Inc.
- Lindstrom, Samuelson & Hardten Ophthalmology Associates, P.A. and Vision
Correction Centers, Inc.
- Jerald B. Turner, M.D., P.A.
- Eye Institute of Southern Arizona, P.C.
- Optometric Eye Care Centers, P.A.
- Dr. Smith and Associates, P.A. #6950, Dr. Smith and Associates, P.A.
#6958, and Dr. Smith and Associates, P.A. #6966
- Daniel B. Feller, M.D., P.C., d/b/a Paradise Valley Eye Specialists; Eye
Specialists of Arizona Network, P.C.; and Sharona Optical, Inc.
- Gillette, Beiler & Associates, P.A.
Such financial statements have been included herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1, together with all exhibits and schedules thereto, the "Registration
Statement," including amendments thereto, under the Securities Act with respect
to the Common Stock offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and reference is hereby
made to the Registration Statement and related exhibits and schedules for
further information with respect to the Company and the Common Stock offered
hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and in each such instance reference is
made to the copy of such document filed as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits and schedules forming a part thereof
can be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549, and
should also be available for inspection and copying at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Registration Statement may also be obtained
through the Commission's Internet address at "http://www.sec.gov".
The Company intends to furnish to its stockholders annual reports,
containing audited financial statements and a report thereon by the Company's
independent public accountants, and quarterly reports for the first three fiscal
quarters of each fiscal year, containing certain unaudited interim financial
information.
66
<PAGE> 68
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Basis of Presentation....................................... F-4
Unaudited Pro Forma Consolidated Statements of
Operations -- Year Ended December 31, 1996................ F-5
Unaudited Pro Forma Consolidated Statements of
Operations -- Three-Month Period Ended March 31, 1997..... F-6
Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1997.................................................. F-7
Notes to Unaudited Pro Forma Consolidated Financial
Information............................................... F-8
FINANCIAL STATEMENTS OF VISION TWENTY-ONE, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants.......... F-9
Consolidated Balance Sheets as of December 31, 1995 and 1996
and March 31, 1997 (Unaudited)............................ F-10
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and the Three-Month
Periods Ended March 31, 1996 and 1997 (Unaudited)......... F-11
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1994, 1995 and 1996 and
the Three-Month Period Ended March 31, 1997 (Unaudited)... F-12
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and the Three-Month
Periods Ended March 31, 1996 and 1997 (Unaudited)......... F-14
Notes to Consolidated Financial Statements.................. F-15
FINANCIAL STATEMENTS OF EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
Report of Independent Certified Public Accountants.......... F-27
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-28
Statements of Operations for the Year Ended December 31,
1995 and Eleven-Month Period Ended November 30, 1996...... F-29
Statements of Stockholders' Equity (Deficit) for the Year
Ended December 31, 1995 and Eleven-Month Period Ended
November 30, 1996......................................... F-30
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-31
Notes to Financial Statements............................... F-32
</TABLE>
F-1
<PAGE> 69
FINANCIAL STATEMENTS OF
DANIEL B. FELLER, M.D., P.C., D/B/A
PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......... F-36
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-37
Combined Statements of Income for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-38
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and the Eleven-Month Period Ended
November 30, 1996......................................... F-39
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-40
Notes to Combined Financial Statements...................... F-41
FINANCIAL STATEMENTS OF NORTHWEST EYE SPECIALISTS, P.L.L.C.
Report of Independent Certified Public Accountants.......... F-47
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-48
Statements of Income for the Year Ended December 31, 1995
and for the Eleven-Month Period Ended November 30, 1996... F-49
Statements of Partners' Equity for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-50
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-51
Notes to Financial Statements............................... F-52
FINANCIAL STATEMENTS OF LINDSTROM, SAMUELSON & HARDTEN
OPHTHALMOLOGY ASSOCIATES, P.A. AND
VISION CORRECTION CENTERS, INC.
Report of Independent Certified Public Accountants.......... F-56
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-57
Combined Statements of Operations for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-58
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended November 30, 1996................................... F-59
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-60
Notes to Combined Financial Statements...................... F-61
FINANCIAL STATEMENTS OF CAMBRIDGE EYE CLINIC, P.A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
Report of Independent Certified Public Accountants.......... F-66
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-67
Combined Statements of Operations for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-68
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended December 31, 1996................................... F-69
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-70
Notes to Combined Financial Statements...................... F-71
FINANCIAL STATEMENTS OF OPTOMETRIC EYE CARE CENTERS, P.A.
Report of Independent Certified Public Accountants.......... F-77
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-78
Statements of Income for the Year Ended December 31, 1995
and for the Eleven-Month Period Ended November 30, 1996... F-79
</TABLE>
F-2
<PAGE> 70
Statements of Stockholders' Equity for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-80
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-81
Notes to Financial Statements............................... F-82
FINANCIAL STATEMENTS OF JERALD B. TURNER, M.D., P.A.
Report of Independent Certified Public Accountants.......... F-86
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-87
Statements of Income for the Year Ended December 31, 1995
and for the Eleven-Month Period Ended November 30, 1996... F-88
Statements of Stockholder's Equity for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-89
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-90
Notes to Financial Statements............................... F-91
FINANCIAL STATEMENTS OF GILLETTE, BEILER & ASSOCIATES, P.A.
Report of Independent Certified Public Accountants.......... F-94
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-95
Statements of Operations for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-96
Statements of Stockholders' Deficit for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-97
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-98
Notes to Financial Statements............................... F-99
FINANCIAL STATEMENTS OF J&R KENNEDY, O.D., P.A.
AND ROSEVILLE OPTICIANS, INC.
Report of Independent Certified Public Accountants.......... F-103
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-104
Combined Statements of Income for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-105
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended November 30, 1996................................... F-106
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-107
Notes to Combined Financial Statements...................... F-108
FINANCIAL STATEMENTS OF DR. SMITH AND ASSOCIATES, P.A.
#6950, DR. SMITH AND ASSOCIATES,
P.A. #6998, AND DR. SMITH AND
ASSOCIATES P.A. #6966
Report of Independent Certified Public Accountants.......... F-113
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-114
Combined Statements of Income for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-115
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended November 30, 1996................................... F-116
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-117
Notes to Combined Financial Statements...................... F-118
F-3
<PAGE> 71
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
BASIS OF PRESENTATION
Effective December 1, 1996, Vision Twenty-One, Inc. (the "Company")
acquired substantially all of the assets, primarily consisting of accounts
receivable, leases, contracts, equipment and other tangible and intangible
assets (the "business assets") and assumed certain liabilities of 10
ophthalmology and optometry practices located in Minnesota, Arizona and Florida
(the "1996 Acquisitions"). In conjunction with the 1996 Acquisitions, the
Company entered into various business management agreements (the "Management
Agreements") with the professional associations operating those practices. In
March 1997, the Company acquired the business assets of an ophthalmology
practice located in Florida (the "Pinellas Acquisition"). In conjunction with
the Pinellas Acquisition, the Company entered into a Management Agreement with
the professional association operating that practice. Effective May 1997, the
Company acquired the business assets of two eye care practices located in
Arizona and Florida and entered into a Management Agreement with each of the two
professional associations operating that practice (the "Recent Acquisitions").
The Company anticipates that in the near future it will acquire the business
assets of an ASC located in Arizona, and will enter into a Management Agreement
with the entity operating the ASC (the "ASC Agreement"). The 1996 Acquisitions,
the Pinellas Acquisition, the Recent Acquisitions, and the ASC Agreement are
collectively referred to as the "Acquisitions." Each of the Acquisitions has
been, or is expected to be, accounted for under the purchase method of
accounting.
The following unaudited pro forma consolidated financial statements are
based on the historical consolidated financial statements of the Company,
adjusted to give effect to the transactions described below. The unaudited pro
forma consolidated statements of operations of the Company for the year ended
December 31, 1996 give effect to the following transactions as if they had
occurred on January 1, 1996: (i) the 1996 Acquisitions, (ii) the Pinellas
Acquisition, (iii) the Recent Acquisitions, (iv) the ASC Agreement, and (v) the
Offering and the application of the estimated net proceeds therefrom. The
unaudited pro forma consolidated statements of operations of the Company for the
three-month period ended March 31, 1997 give effect to the following
transactions as if they had occurred on January 1, 1997: (i) the Pinellas
Acquisition (ii) the Recent Acquisitions, (iii) the ASC Agreement, and (iv) the
Offering and the application of the estimated net proceeds therefrom. The
unaudited pro forma consolidated balance sheet of the Company as of March 31,
1997 gives effect to the Recent Acquisitions and the ASC Agreement at that date
and the consummation of the Offering and the application of the estimated net
proceeds therefrom, as described under "Use of Proceeds.".
The unaudited pro forma consolidated financial statements are based on the
historical financial statements of the Company and the professional entities
which owned the business assets which were the subject of the Acquisitions and
give effect to the Acquisitions and the Offering and the assumptions and
adjustments described in the notes thereto. The unaudited pro forma consolidated
financial information does not purport to indicate what the results of
operations or financial conditions would have been if the Acquisitions and the
Offering had been effected on the dates indicated or to project future results
of operations or financial condition of the Company. Such pro forma financial
information should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto.
F-4
<PAGE> 72
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ACQUISITION PRO FORMA OFFERING CONSOLIDATED
COMPANY ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AFTER OFFERING
----------- ----------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Managed care............. $ 7,315,196 $ 1,268,000(1) $ 8,583,196 $ 8,583,196
Practice management
fees.................. 1,942,843 22,437,000(2) 24,379,843 24,379,843
Other revenue............ 305,654 3,000(2) 308,654 308,654
----------- ----------- ----------- -----------
9,563,693 23,708,000 33,271,693 33,271,693
Operating expenses:
Medical claims........... 9,128,659 1,140,000(1) 10,268,659 10,268,659
Practice management
expenses.............. 1,244,173 18,543,000(2) 19,787,173 19,787,173
Salaries, wages and
benefits.............. 1,889,395 38,000(1) 1,927,395 1,927,395
Business development..... 1,926,895 -- 1,926,895 1,926,895
General and
administrative........ 1,208,678 166,000(1) 1,374,678 1,374,678
Depreciation and
amortization.......... 126,046 1,047,000(3) 1,173,046 1,173,046
----------- ----------- ----------- -----------
15,523,846 20,934,000 36,457,846 36,457,846
----------- ----------- ----------- -----------
Loss from operations....... (5,960,153) 2,774,000 (3,186,153) (3,186,153)
Interest expense........... 159,484 204,000(4) 363,484 $(359,000)(5) 4,484
----------- ----------- ----------- --------- -----------
Loss before income taxes... (6,119,637) 2,570,000 (3,549,637) (359,000) (3,190,637)
Income taxes............... -- -- -- -- --
----------- ----------- ----------- --------- -----------
Net loss................... $(6,119,637) $ 2,570,000 $(3,549,637) $(359,000) $(3,190,637)
=========== =========== =========== ========= ===========
Net loss per common
share.................... $ (1.00) $ (.57) $ (0.45)(6)
=========== =========== ===========
Weighted average number of
common shares
outstanding.............. 6,136,210 6,276,411 7,072,751(6)
=========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-5
<PAGE> 73
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
THREE-MONTH PERIOD ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ACQUISITION PRO FORMA OFFERING CONSOLIDATED
COMPANY ADJUSTMENTS CONSOLIDATED ADJUSTMENTS AFTER ADJUSTMENT
---------- ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Managed care.............. $2,762,978 $ -- $2,762,978 $2,762,978
Practice management
fees................... 4,838,478 1,354,000(2) 6,192,478 6,192,478
Other revenue............. 116,889 -- 116,889 116,889
---------- ---------- ---------- ----------
7,718,345 1,354,000 9,072,345 9,072,345
Operating expenses:
Medical claims............ 2,338,071 -- 2,338,071 2,338,071
Practice management
expenses............... 3,931,452 1,148,000(2) 5,079,452 5,079,452
Salaries, wages and
benefits............... 1,045,535 -- 1,045,535 1,045,535
General and
administrative......... 413,897 -- 413,897 413,897
Depreciation and
amortization........... 210,041 40,000(3) 250,041 250,041
---------- ---------- ---------- ----------
7,938,996 1,188,000 9,126,996 9,126,996
---------- ---------- ---------- ----------
Loss from operations........ (220,651) 166,000 (54,651) (54,651)
Interest expense............ 227,107 -- 227,107 $(221,000)(5) 6,107
---------- ---------- ---------- --------- ----------
Loss before income taxes.... (447,758) 166,000 (281,758) (221,000) (60,758)
Income taxes................ -- -- -- -- --
---------- ---------- ---------- --------- ----------
Net loss.................... $ (447,758) $ 166,000 $ (281,758) $(221,000) $ (60,758)
========== ========== ========== ========= ==========
Net loss per common share... $ (0.07) $ (0.04) $ (0.01)(6)
========== ========== ==========
Weighted average number of
common shares
outstanding............... 6,136,210 6,276,411 7,072,751(6)
========== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-6
<PAGE> 74
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
HISTORICAL ACQUISITION PRO FORMA OFFERING AFTER
COMPANY ADJUSTMENT CONSOLIDATED ADJUSTMENTS OFFERING
----------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $ 1,072,275 $ -- $ 1,072,275 $11,870,869(8) $12,943,144
Accounts receivable.......... 2,052,738 -- 2,052,738 2,052,738
Other receivables............ 748,293 -- 748,293 748,293
Prepaid expenses and other
current assets............. 192,385 -- 192,385 192,385
----------- ---------- ----------- ----------- -----------
Total current
assets............. 4,065,691 -- 4,065,691 11,870,869 15,936,560
Fixed assets, net.............. 2,130,420 -- 2,130,420 2,130,420
Intangible assets.............. 13,361,977 2,640,000(7) 16,001,977 16,001,977
Deferred offering costs........ 332,792 -- 332,792 (332,792)(8) --
Other assets................... 98,762 -- 98,762 98,762
----------- ---------- ----------- ----------- -----------
Total assets.......... $19,989,642 $2,640,000 $22,629,642 $11,538,077 $34,167,719
=========== ========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............. $ 308,015 $ -- $ 308,015 $ 308,015
Accrued expenses............. 1,417,929 -- 1,417,929 1,417,929
Accrued acquisition
expenses................... 1,441,849 -- 1,441,849 $(1,441,849)(8) --
Accrued compensation......... 938,414 -- 938,414 938,414
Due to Managed Professional
Associations............... 276,346 -- 276,346 276,346
Current portion of long-term
debt....................... 4,361,577 -- 4,361,577 (3,619,290)(8) 742,287
Current portion of
obligations under capital
leases..................... 53,838 -- 53,838 53,838
Medical claims payable....... 1,425,962 -- 1,425,962 1,425,962
----------- ---------- ----------- ----------- -----------
Total current
liabilities........ 10,223,930 -- 10,223,930 (5,061,139) 5,162,791
Deferred rent payable.......... 277,079 -- 277,079 277,079
Obligations under capital
leases....................... 100,321 -- 100,321 100,321
Long-term debt, less current
portion...................... 5,993,510 -- 5,993,510 (5,936,784)(8) 56,726
Stockholders' equity:
Common stock................. 5,336 321(7) 5,657 2,100(8) 7,757
Additional paid-in capital... 11,920,467 2,639,679(7) 14,560,146 22,533,900(8) 37,094,046
Deferred compensation........ (489,960) -- (489,960) (489,960)
Accumulated deficit.......... (8,041,041) -- (8,041,041) (8,041,041)
----------- ---------- ----------- ----------- -----------
Total stockholders'
equity............. 3,394,802 -- 6,034,802 22,536,000 28,570,802
----------- ---------- ----------- ----------- -----------
Total liabilities and
stockholders'
equity............. $19,989,642 $2,640,000 $22,629,642 $11,538,077 $34,167,719
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-7
<PAGE> 75
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(1) These adjustments to managed care revenue, medical claims and salaries,
wages and benefits, and general and administrative expenses reflect the results
of the managed care business of one of the managed professional entities
included in the 1996 Acquisitions.
(2) The practice management fees and practice management expenses for the
year ended December 31, 1996 reflect the pro forma additional practice
management fee revenue that would have been earned through the management of the
related managed professional entities under the Management Agreements if the
1996 Acquisitions (which were effective on December 1, 1996), the Pinellas
Acquisition, the Recent Acquisitions and the ASC Agreement had occurred on
January 1, 1996, less approximately $479,000 earned by the Company on a
historical basis through a management agreement with managed professional
entities included in the 1996 Acquisitions. The practice management fees and
practice management expenses for the three-month period ended March 31, 1997
reflect the pro forma additional practice management fee revenue that would have
been earned through the management of the related managed professional entities
under the Management Agreements if the Pinellas Acquisition, the Recent
Acquisitions, and the ASC Agreement had occurred on January 1, 1997. This
revenue represents reimbursement of practice management expenses incurred by the
Company, including depreciation of fixed assets. In addition, the Company
receives a percentage (ranging from 24 to 37 percent) of the related managed
professional entities net earnings before interest, taxes and shareholder
physician expenses, as determined under the related Management Agreements.
(3) Depreciation and amortization reflect depreciation of the related
managed professional entities' fixed assets acquired over their estimated useful
life and amortization of intangible assets over a weighted average of 31 years
for the periods presented.
(4) The adjustment to interest expense reflects the additional interest on
the notes issued and the debt assumed in conjunction with the 1996 Acquisitions
as if the 1996 Acquisitions occurred on January 1, 1996.
(5) The adjustment reflects the savings on interest expense due to the
repayment of debt discussed in note (8) below.
(6) To reflect the pro forma net loss assuming an increase in the weighted
average number of outstanding shares to the extent necessary to repay the
existing indebtedness as shown in pro forma adjustment (8), representing an
increase of 796,340 shares.
(7) The adjustment reflects the Recent Acquisitions and the ASC Agreement,
which will be accounted for as purchases. The fair value of the net assets and
Management Agreements associated with the Recent Acquisitions and the ASC
Agreement is expected to approximate $2,640,000 and will be financed through the
issuance of 320,762 shares of the Company's common stock (see Note 11 of the
notes to the consolidated financial statements). The acquisition adjustment
assumes the fixed assets are immaterial.
(8) The adjustments reflect the net proceeds from the sale of 2,100,000
shares of Common Stock in the Offering at an assumed initial public offering
price of $12.00 per share, estimated to be approximately $22.5 million (after
deducting underwriting discounts and commissions and estimated offering
expenses) and the repayment of an aggregate of $9.6 million of outstanding
indebtedness. See "Use of Proceeds."
F-8
<PAGE> 76
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Vision Twenty-One, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Vision
Twenty-One, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Vision Twenty-One, Inc. and subsidiaries at December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Tampa, Florida
March 22, 1997,
except for Note 11, as to which the date is
June 6, 1997
ERNST & YOUNG LLP
F-9
<PAGE> 77
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 42,272 $ 67,353 $ 1,072,275
Accounts receivable, net of allowance for doubtful
accounts of $685,000 and $714,000 in 1996 and 1997,
respectively....................................... -- 1,968,587 2,052,738
Other receivables..................................... -- 185,263 748,293
Prepaid expenses and other current assets............. 999 192,789 192,385
----------- ----------- -----------
Total current assets.......................... 43,271 2,413,992 4,065,691
Fixed assets, net....................................... 98,726 1,941,259 2,130,420
Intangible assets, net of accumulated amortization of
$29,125 and $118,976 in 1996 and 1997, respectively... -- 11,022,396 13,361,977
Deferred offering costs................................. -- 287,792 332,792
Other assets............................................ 23,222 46,792 98,762
----------- ----------- -----------
Total assets.................................. $ 165,219 $15,712,231 $19,989,642
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................................... $ 99,931 $ 529,427 $ 308,015
Accrued expenses...................................... 1,617 946,519 1,417,929
Accrued acquisition expenses.......................... -- 1,362,012 1,441,849
Accrued compensation.................................. 55,872 546,740 938,414
Due to Managed Professional Associations.............. 27,741 -- 276,346
Note payable to related party......................... 250,000 -- --
Current portion of long-term debt ($2,624,959 to
related parties in 1997)........................... 51,127 48,249 4,361,577
Current portion of obligations under capital leases... -- 43,849 53,838
Medical claims payable................................ 1,056,141 1,793,861 1,425,962
----------- ----------- -----------
Total current liabilities..................... 1,542,429 5,270,657 10,223,930
Deferred rent payable................................... -- 263,006 277,079
Obligations under capital leases........................ -- 71,870 100,321
Long-term debt, less current portion ($9,288, $5,983,098
and $3,000,000 to related parties in 1995, 1996 and
1997, respectively)................................... 61,840 7,570,974 5,993,510
Stockholders' equity (deficit):
Preferred stock, $.001 par value; no shares authorized
in 1995 and 10,000,000 shares authorized in 1996
and 1997; no shares issued......................... -- -- --
Common stock, $.001 par value; 50,000,000 shares
authorized; 2,324,876 (1995), 3,715,625 (1996) and
5,335,563 (1997) shares issued and outstanding..... 2,325 3,716 5,336
Additional paid-in capital............................ 32,271 4,736,361 11,920,467
Common stock to be issued (1,491,397 shares in
1996).............................................. -- 5,905,965 --
Deferred compensation................................. -- (517,035) (489,960)
Accumulated deficit................................... (1,473,646) (7,593,283) (8,041,041)
----------- ----------- -----------
Total stockholders' equity (deficit).......... (1,439,050) 2,535,724 3,394,802
----------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)................................... $ 165,219 $15,712,231 $19,989,642
=========== =========== ===========
</TABLE>
See accompanying notes.
F-10
<PAGE> 78
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -----------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Managed care..................... $ 668,590 $ 2,446,010 $ 7,315,196 $1,936,590 $2,762,978
Practice management fees
($392,206, $423,890 and
$479,004 from a related party
in 1994, 1995 and 1996,
respectively)................. 392,206 423,890 1,942,843 139,729 4,838,478
Other revenue.................... 131,098 211,746 305,654 24,015 116,889
---------- ----------- ----------- ---------- ----------
1,191,894 3,081,646 9,563,693 2,100,334 7,718,345
Operating expenses:
Medical claims................... 551,408 2,934,180 9,128,659 2,462,602 2,338,071
Practice management expenses..... -- -- 1,244,173 -- 3,931,452
Salaries, wages and benefits..... 537,864 903,966 1,889,395 299,571 1,045,535
Business development............. -- -- 1,926,895 -- --
General and administrative
(including $53,000 to related
parties for rent in 1996)..... 237,702 443,374 1,208,678 152,989 413,897
Depreciation and amortization.... 13,052 18,005 126,046 7,679 210,041
---------- ----------- ----------- ---------- ----------
1,340,026 4,299,525 15,523,846 2,922,841 7,938,996
---------- ----------- ----------- ---------- ----------
Loss from operations............... (148,132) (1,217,879) (5,960,153) (822,507) (220,651)
Interest expense................... 4,444 8,557 159,484 2,291 227,107
---------- ----------- ----------- ---------- ----------
Loss before income taxes........... (152,576) (1,226,436) (6,119,637) (824,798) (447,758)
Income taxes....................... -- -- -- -- --
---------- ----------- ----------- ---------- ----------
Net loss........................... $ (152,576) $(1,226,436) $(6,119,637) $ (824,798) $ (447,758)
========== =========== =========== ========== ==========
Net loss per common share.......... $ (0.02) $ (0.20) $ (1.00) (0.13) (0.07)
========== =========== =========== ========== ==========
Weighted average number of common
shares outstanding............... 6,136,210 6,136,210 6,136,210 6,136,210 6,136,210
========== =========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-11
<PAGE> 79
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON TOTAL
COMMON STOCK ADDITIONAL STOCK STOCKHOLDERS'
------------------ PAID-IN TO BE DEFERRED ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL ISSUED COMPENSATION DEFICIT (DEFICIT)
--------- ------ ----------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994........... 2,324,876 $2,325 $ 54,185 -- $ -- $ (94,634) $ (38,124)
Net loss........................... -- -- -- -- -- (152,576) (152,576)
--------- ------ ----------- ---------- --------- ----------- -----------
BALANCE AT DECEMBER 31, 1994......... 2,324,876 2,325 54,185 -- -- (247,210) (190,700)
Net loss........................... -- -- -- -- -- (1,226,436) (1,226,436)
Capital distribution............... -- -- (21,914) -- -- -- (21,914)
--------- ------ ----------- ---------- --------- ----------- -----------
BALANCE AT DECEMBER 31, 1995......... 2,324,876 2,325 32,271 -- -- (1,473,646) (1,439,050)
Sale of common stock............... 360,442 360 999,640 -- -- -- 1,000,000
Issuance of shares of common stock
for business combinations........ 651,842 652 2,580,645 -- -- -- 2,581,297
1,491,397 shares of common stock to
be issued for business
combinations..................... -- -- -- 5,905,965 -- -- 5,905,965
Issuance of detachable stock
purchase warrants................ -- -- 125,000 -- -- -- 125,000
Issuance of shares of common stock
for prior service................ 144,705 145 401,410 -- -- -- 401,555
Issuance of shares of common stock
for advisory agreement........... 125,627 126 348,488 -- (348,614) -- --
Issuance of shares of common stock
for services agreement........... 108,133 108 299,960 -- (180,041) -- 120,027
Amortization of deferred
compensation..................... -- -- -- -- 11,620 -- 11,620
Net loss........................... -- -- -- -- -- (6,119,637) (6,119,637)
Capital distribution............... -- -- (51,053) -- -- -- (51,053)
--------- ------ ----------- ---------- --------- ----------- -----------
BALANCE AT DECEMBER 31, 1996......... 3,715,625 3,716 4,736,361 5,905,965 (517,035) (7,593,283) 2,535,724
Unaudited:
Issuance of shares of common stock
for business combinations........ 1,619,938 1,620 6,960,956 (5,905,965) -- -- 1,056,611
Issuance of detachable stock
purchase warrants................ -- -- 203,500 -- -- -- 203,500
Compensatory stock options
accounted for under SFAS 123..... -- -- 19,650 -- -- -- 19,650
Amortization of deferred
compensation..................... -- -- -- -- 27,075 -- 27,075
Net loss........................... -- -- -- -- -- (447,758) (447,758)
--------- ------ ----------- ---------- --------- ----------- -----------
BALANCE AT MARCH 31, 1997
(Unaudited)........................ 5,335,563 $5,336 $11,920,467 -- $(489,960) $(8,041,041) $ 3,394,802
========= ====== =========== ========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-12
<PAGE> 80
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................. $(152,576) $(1,226,436) $(6,119,637) $(824,798) $ (447,758)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization....... 13,052 18,005 126,046 7,679 210,041
Noncash compensation expense........ -- -- 521,582 -- 19,650
Amortization of deferred
compensation...................... -- -- 11,620 -- 27,075
Interest accretion.................. -- -- -- -- 15,284
Changes in operating assets and
liabilities, net of effects from
business combinations:
Accounts receivable, net.......... 13,827 -- (298,328) -- 208,596
Other receivables................. -- -- (185,263) -- (556,767)
Prepaid expenses and other current
assets.......................... 308 516 (22,766) 999 9,881
Other assets...................... -- -- (32,984) -- (51,970)
Accounts payable.................. 5 87,141 429,496 (39,399) (312,091)
Accrued expenses.................. 170 614 119,955 21,039 485,483
Accrued acquisition expenses...... -- -- 522,963 -- (58,223)
Accrued compensation.............. 10,525 43,138 48,342 28,198 267,465
Medical claims payable............ 127,539 928,602 737,720 839,971 (367,899)
Due to Managed Professional
Associations.................... 17,557 10,184 (27,741) 34,081 276,346
--------- ----------- ----------- --------- ----------
Net cash provided by (used
in) operating activities... 30,407 (138,236) (4,168,995) 67,770 (274,887)
INVESTING ACTIVITIES
Purchases of furniture and equipment,
net................................. (13,783) (68,138) (443,577) (23,575) (210,939)
Payments for capitalized acquisition
and offering costs.................. -- (20,240) (1,138,829) -- (1,423,129)
--------- ----------- ----------- --------- ----------
Net cash used in investing
activities................. (13,783) (88,378) (1,582,406) (23,575) (1,634,068)
FINANCING ACTIVITIES
Proceeds from notes payable........... -- 270,737 3,700,000 -- --
Payments on notes payable............. -- (5,183) -- -- --
Net proceeds from issuance of senior
notes and warrants.................. -- -- 1,250,000 -- 2,000,000
Proceeds from bank loan............... 11,700 44,859 -- 100,891 --
Borrowings on line of credit.......... -- -- 1,489,707 -- 1,694,331
Repayments on line of credit.......... -- -- (1,305,443) -- --
Payments on long-term debt and lease
obligations......................... (15,451) (32,694) (56,729) (9,661) (780,454)
Proceeds from sale of common stock.... -- -- 750,000 -- --
Capital distribution.................. -- (21,914) (51,053) -- --
--------- ----------- ----------- --------- ----------
Net cash provided by (used
in) financing activities... (3,751) 255,805 5,776,482 91,230 2,913,877
--------- ----------- ----------- --------- ----------
</TABLE>
F-13
<PAGE> 81
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -----------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase in cash...................... $ 12,873 $ 29,191 $ 25,081 $ 135,425 $1,004,922
Cash and cash equivalents at beginning
of year............................. 208 13,081 42,272 42,272 67,353
--------- ----------- ----------- --------- ----------
Cash and cash equivalents at end of
year................................ $ 13,081 $ 42,272 $ 67,353 $ 177,697 $1,072,275
========= =========== =========== ========= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for
interest............................ $ 4,000 $ 9,000 $ 17,000 $ 4,900 $ 48,000
========= =========== =========== ========= ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Common stock issued upon conversion of
a note payable...................... $ -- $ -- $ 250,000 $ -- $ --
========= =========== =========== ========= ==========
</TABLE>
See Note 2 regarding affiliations with practices financed through the issuance
of common stock and notes payable.
See accompanying notes.
F-14
<PAGE> 82
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF BUSINESS
Vision Twenty-One, Inc. and Subsidiaries (Vision Twenty-One or the Company)
is a Florida corporation formed in May 1996 as a holding company. The Company's
principal subsidiaries include Vision 21 Physician Practice Management Company
(MSO) and Vision 21 Managed Eyecare of Tampa Bay, Inc. (MCO). The MSO provides
business management services for eye care professionals and related businesses.
The MCO is a managed care organization which contracts with third-party health
benefits payors to provide eye care services through a network of associated
optometry and ophthalmology practices, retail optical companies and ambulatory
surgical centers. Most of the managed care contracts are for one year terms
which automatically renew and the contracts are terminable by either party on
sixty days notice. Revenues from one payor constituted approximately 95%, 94%
and 79% of managed care revenues and 53%, 75% and 60% of total revenues for the
years ended December 31, 1994, 1995 and 1996, respectively. Any adverse
development in the Company's relationship with this payor would have a material
adverse effect on the Company's results of operations and financial condition.
The MSO and MCO were formerly operated as separate corporations with common
ownership. During 1996, the Company acquired the MSO and MCO through an exchange
of shares. This transaction was accounted for as a reorganization of companies
under common control in a manner similar to that used in a pooling of interests
transaction. As a result, the accompanying financial statements have been
prepared to reflect the accounts of the Company as if the reorganization had
occurred as of the beginning of the earliest period presented.
2. AFFILIATIONS WITH PRACTICES
Effective December 1, 1996, the Company acquired substantially all of the
assets and assumed certain liabilities of 10 ophthalmology and optometry
practices (the Managed Professional Associations) located in Minnesota, Arizona
and Florida. The acquisitions have been accounted for under the purchase method
of accounting. In conjunction with these acquisitions, the Company entered into
various business management agreements (Management Agreements) with the Managed
Professional Associations and the Managed Professional Associations'
stockholders (collectively referred to as the 1996 Acquisitions). Under the
Management Agreements, the Company provides management, marketing and
administrative services to the Managed Professional Associations in return for a
management fee. The Management Agreements have a 40-year life and are cancelable
only for breach of its provisions or insolvency. The Managed Professional
Associations employ ophthalmologists and optometrists and provide all eye care
services to patients.
A summary of the 1996 Acquisitions and a preliminary allocation of the
purchase price, which is subject to revision on further investigation, are as
follows:
<TABLE>
<S> <C>
Net assets acquired:
Current and other assets.................................. $ 1,850,108
Furniture and equipment................................... 1,495,877
Business management agreements............................ 11,051,521
Liabilities assumed....................................... (2,274,959)
-----------
Net assets acquired............................... $12,122,547
===========
Consideration for net assets acquired:
Capitalized acquisition costs............................. $ 1,710,326
Long-term notes payable issued............................ 1,924,959
Common stock issued and to be issued...................... 8,487,262
-----------
Total consideration............................... $12,122,547
===========
</TABLE>
F-15
<PAGE> 83
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Vision Twenty-One issued and will issue common stock in connection with the
1996 Acquisitions (2,143,239 shares) which was valued at $3.96 per share at a
minority level based on an independent valuation. An additional 79,805 shares of
common stock are held in escrow. These shares will be due the owners of the
Managed Professional Associations if various financial goals are met in the
future. The shares have been accounted for as contingent considerations and,
accordingly, have not been included in the purchase price allocation.
As part of the purchase price allocation, no consideration has been
allocated to employment and noncompete agreements between the Company and the
Managed Professional Associations' stockholders because the Company believes
these agreements have no material value.
During 1996, the Company incurred $1,710,326 of acquisition costs which
were capitalized and allocated to the assets acquired and Management Agreements
entered into, including $839,049 which is included in accrued acquisition
expenses in the accompanying consolidated balance sheets.
The following unaudited pro forma information presents the Company's
results of operations with pro forma adjustments for 1995 as if the 1996
Acquisitions had been consummated as of January 1, 1995; for 1996 as if the 1996
Acquisitions and an acquisition completed on March 1, 1997 (Note 11) had been
consummated as of January 1, 1996; and for the three-month period ended March
31, 1997 as if the March 1, 1997 acquisition had been consummated as of January
1, 1997. This pro forma information does not purport to be indicative of what
would have occurred had the acquisitions been made as of those dates or of
results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, THREE-MONTH
------------------------- PERIOD ENDED
1995 1996 MARCH 31, 1997
----------- ----------- --------------
<S> <C> <C> <C>
Pro forma information (unaudited):
Total revenues....................................... $18,983,325 $29,258,689 $8,169,260
Net income (loss).................................... $ 947,374 $(4,087,641) $ (413,758)
Net income (loss) per common share................... $ 0.15 $ (0.67) $ (0.07)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany transactions have been
eliminated. The Company does not own any interests in or control the activities
of the Managed Professional Associations. Accordingly, the financial statements
of the Managed Professional Associations are not consolidated with those of the
Company.
UNAUDITED QUARTERLY FINANCIAL STATEMENTS
The quarterly financial statements as of March 31, 1997 and for the
three-month periods ended March 31, 1996 and 1997 do not provide all disclosures
included in the annual financial statements. These quarterly statements should
be read in conjunction with the annual audited financial statements and the
footnotes thereto. Results for the 1997 quarterly period are not necessarily
indicative of the results for the year ending December 31, 1997. However, the
accompanying quarterly financial statements reflect all adjustments which are,
in the opinion of management, of a normal and recurring nature necessary for a
fair presentation of the financial position and results of operations of the
Company.
F-16
<PAGE> 84
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
REVENUE RECOGNITION
Managed Care
Managed care revenues are derived from monthly capitation payments from
health benefits payors which contract with the Company for the delivery of eye
care services. The Company records this revenue at contractually agreed-upon
rates.
Practice Management Fees
Prior to December 1, 1996, practice management fee revenue was earned
through contractual arrangements between the Company and several optometry
practices under common control. This revenue totaled $392,206, $423,890 and
$479,004 for the years ended December 31, 1994, 1995 and 1996, respectively.
Subsequent to December 1, 1996, practice management fee revenue was earned
through management of the Managed Professional Associations under the Management
Agreements. This revenue represents reimbursement of practice management
expenses incurred by the Company, including depreciation and amortization
expense of $54,164 for the year ended December 31, 1996. In addition, the
Company receives a percentage (ranging from 24 to 37 percent) of the Managed
Professional Associations' net earnings before interest, taxes, and shareholder
physician expenses, as determined under the related Management Agreements. For
the year ended December 31, 1996 and the three-month period ended March 31,
1997, this revenue was as follows:
<TABLE>
<CAPTION>
THREE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 MARCH 31, 1997
----------------- --------------
(UNAUDITED)
<S> <C> <C>
Medical service revenues of Managed Professional
Associations.......................................... $1,667,025 $5,782,475
Less amounts retained by physician shareholders of
Managed Professional Associations..................... (203,186) (943,997)
---------- ----------
Management fees under Management Agreements with Managed
Professional Associations............................. $1,463,839 $4,838,478
========== ==========
</TABLE>
Other Revenues
Other revenues consist of fees earned through consulting and other
contractual arrangements.
MEDICAL CLAIMS PAYABLE
In accordance with the capitation contracts entered into with certain
health benefits payors, the MCO is responsible for payment of providers' claims.
Medical claims payable represent provider claims reported to the MCO and an
estimate of provider claims incurred but not reported (IBNR).
The Company and its actuary estimate the amount of IBNR using standard
actuarial methodologies based upon the average interval between the date
services are rendered and the date claims are reported and other factors
considered relevant by the Company.
Prior to December 1, 1996, certain medical claims were paid to several
optometry practices under common control. Expense related to these transactions
totaled approximately $81,000, $299,000 and $249,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
F-17
<PAGE> 85
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of all current assets and current liabilities
approximates their fair value because of their short-term nature. The fair value
of long-term debt approximates its carrying value based on current rates offered
to the Company for debt of similar maturities.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due from the Managed Professional
Associations.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the various classes of
assets, which range from three to seven years. Leasehold improvements are
amortized using the straight-line method over the shorter of the term of lease
or the estimated useful life of the improvements. Routine maintenance and
repairs are charged to expense as incurred, while betterments and renewals are
capitalized.
DEFERRED OFFERING COSTS
Deferred offering costs consist primarily of costs deferred in connection
with the Company's anticipated initial public offering. These costs will be
charged against the offering proceeds upon successful completion. If the
offering is not successfully completed, these deferred costs will be charged to
expense.
TRANSACTIONS AND BUSINESS DEVELOPMENT COSTS
Direct legal, accounting and other costs associated with successful
acquisitions are capitalized as part of the related purchase price allocation.
External professional costs associated with unsuccessful acquisitions, including
start-up consulting services (Note 10) are expensed and are shown as business
development expense in the accompanying consolidated statements of operations.
INTANGIBLE ASSETS
Intangible assets consist of the Management Agreements with the Managed
Professional Associations. The Management Agreements have 40-year terms and are
being amortized over their estimated useful lives ranging from 20 to 40 years,
with a weighted average life of 31 years at December 31, 1996. In determining
the useful life of a Management Agreement, the Company considers the operating
history and other characteristics of each practice. The primary consideration is
the degree to which a practice has demonstrated its ability to extend its
existence indefinitely. In making this determination, the Company considers (i)
the number of physicians recruited into the practice, (ii) the number of staff
including physicians, (iii) the number of locations, and (iv) the complexity of
the procedures being performed, including disease treatment and control.
The Company anticipates that the Emerging Issues Task Force of the
Financial Accounting Standards Board will be evaluating certain matters relating
to the physician practice management industry, which the Company expects to
include a review of accounting for business combinations. The Company is unable
to predict the impact, if any, that this review may have on the Company's
acquisition strategy, allocation of purchase price related to acquisitions, and
amortization life assigned to intangible assets.
Amortization expense with respect to intangible assets was $29,125 and
$89,851 (unaudited) for the year ended December 31, 1996 and the three-month
period ended March 31, 1997, respectively.
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (SFAS
F-18
<PAGE> 86
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
121). In accordance with SFAS 121, the Company reviews the carrying value of its
intangible assets at least quarterly on an entity-by-entity basis to determine
if facts and circumstances exist which would suggest that the intangible assets
may be impaired or that the amortization period needs to be modified. Among the
factors the Company considers in making the evaluation are changes in the
Managed Professional Associations' market position, reputation, profitability
and geographical penetration. If indicators are present which may indicate
impairments, the Company will prepare a projection of the undiscounted cash
flows of the specific practice and determine if the intangible assets are
recoverable based on these undiscounted cash flows. If impairment is indicated,
then an adjustment will be made to reduce the carrying amount of the intangible
assets to fair value.
CONCENTRATIONS OF CREDIT RISK
The Company does not believe that there are any credit risks associated
with receivables due from governmental agencies. Any concentration of credit
risk from other payors of the Managed Professional Associations is limited by
the number of patients and payors. The Company and the Managed Professional
Associations do not require any form of collateral from their patients or
third-party payors.
The Company places cash and cash equivalents with high-quality financial
institutions. At times, the Company maintains cash balances in excess of amounts
insured by the Federal Deposit Insurance Corporation (FDIC).
NET LOSS PER COMMON SHARE
Net loss per common share amounts in the consolidated statements of
operations are based upon the weighted average number of common shares
outstanding in each period and the guidance in a Staff Accounting Bulletin (SAB)
of the Securities and Exchange Commission. According to the SAB, stock, options
and warrants issued within a one-year period prior to the filing of an initial
public offering and at prices less than the proposed public offering price must
be reflected as outstanding for all reported periods.
In February 1997, the FASB issued Statement No. 128 (SFAS 128), Earnings
Per Share, which establishes new standards for computing and presenting earnings
per share. SFAS 128 is effective for financial statements issued for periods
after December 15, 1997, including interim periods. Management has not yet
determined whether the implementation of SFAS 128 will have any impact on the
Company's per share amounts.
COMMON STOCK TO BE ISSUED
Common stock to be issued represents stock to be issued in connection with
certain of the 1996 Acquisitions consummated on December 1, 1996. The stock was
issued in January 1997.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). In 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), which is effective for fiscal years
beginning after December 15, 1995. Under SFAS 123, the Company may elect to
recognize stock-based compensation expense based on the fair value of the awards
or continue to account for stock-based compensation under APB 25, and disclose
in the financial statements the effects of SFAS 123 as if the recognition
provisions were adopted.
The Company accounts for any stock-based compensation arrangements not
specifically addressed by APB 25 under the fair value provisions of SFAS 123.
The amounts for 1995 and 1996 are immaterial. The pro forma disclosures required
by SFAS 123 are provided for all stock-based compensation which are accounted
for under APB 25 (Note 10).
F-19
<PAGE> 87
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
The Company has applied the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109), which requires an
asset and liability approach for financial accounting and reporting. Deferred
income tax assets and liabilities are determined based upon differences between
the financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and lives that will be in effect when the
differences are expected to reverse.
4. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
DESCRIPTION 1995 1996
- ----------- -------- ----------
<S> <C> <C>
Office furniture and equipment.............................. $189,973 $1,828,855
Leased equipment............................................ -- 119,825
Leasehold improvements...................................... 6,264 169,335
-------- ----------
196,237 2,118,015
Less accumulated depreciation and amortization.............. (97,511) (176,756)
-------- ----------
$ 98,726 $1,941,259
======== ==========
</TABLE>
Depreciation and amortization of fixed assets totaled approximately
$13,000, $18,000 and $97,000 in 1994, 1995 and 1996, respectively.
5. NOTE PAYABLE TO RELATED PARTY
Note payable to related party consists of the following as of December 31:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Note payable to a stockholder, due October 1, 1996, with
interest at 10% per annum. In 1996, the note was exchanged
for shares of the Company's common stock.................. $250,000 $ --
======== ========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured notes payable to a stockholder, interest
and principal due on January 1, 1998, with
interest at 8.5% per annum....................... $ -- $ 700,000 $ 700,000
Notes payable under $300,000 line of credit, due on
demand, bearing interest at prime plus 1% (9.5%
at December 31, 1995 and 9.25% at December 31,
1996). Interest due monthly. The notes are
collateralized by accounts receivable and were
refinanced with a bank in 1997 (Note 11)......... -- 252,124 --
</TABLE>
F-20
<PAGE> 88
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1995 1996 1997
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured note payable to a stockholder, due on
demand, with interest at 9% per annum. Interest
due monthly. The note was refinanced with a bank
in 1997 (Note 11)................................ $ -- $ 293,262 $ --
Unsecured note payable to a stockholder with
interest at 8% per annum. Interest and principal
due upon completion of an initial public
offering......................................... -- 3,000,000 3,000,000
Unsecured notes payable to stockholders, interest
at 8%. Principal and interest due the earlier of
15 business days after closing of an initial
public offering or March 1, 1998................. -- 1,924,959 1,924,959
Notes payable to a stockholder due in monthly
installments through 1999, with interest at 9.75%
The notes are collateralized by equipment, and
were refinanced with a bank in 1997 (Note 11).... 9,288 64,877 --
10% senior subordinated notes, interest due
semiannually at an effective rate of 13.5%. The
notes are unsecured and mature on the earlier of
a first liquidity event (initial public offering)
or December 19, 1999 (Notes 10 and 11)........... -- 1,125,000 2,936,784
Notes payable to a bank under $2 million revolving
line of credit, due on demand, bearing interest
at prime plus 1%. Interest due monthly. The notes
are collateralized by substantially all assets of
the Company (Note 11)............................ -- -- 1,694,331
Notes payable to banks due in monthly installments
through 2000, with interest ranging from 7% to
14% per annum. The notes are collateralized by
certain equipment, and were refinanced with a
bank in 1997 (Note 11)........................... 54,693 143,570 --
Notes payable to a corporation due in monthly
installments through 2000, with interest ranging
from the rate of prime plus .5% to prime plus 2%
(8.75% to 10.25% at December 31, 1996). The notes
are collateralized by equipment.................. 48,986 23,731 23,731
Notes payable to a bank and corporations due in
monthly installments through 2000, with interest
ranging from the rate of 8% to 8.75% per annum.
The notes are collateralized by certain
equipment........................................ -- 91,700 75,282
---------- ---------- ----------
112,967 7,619,223 10,355,087
Less current portion............................... (51,127) (48,249) (4,361,577)
---------- ---------- ----------
$ 61,840 $7,570,974 $5,993,510
========== ========== ==========
</TABLE>
F-21
<PAGE> 89
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1996, the aggregate principal maturities of long-term
debt, without giving effect to an initial public offering and assuming the $3
million unsecured note payable to stockholder is repaid in 1998, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 48,249
1998........................................................ 6,403,721
1999........................................................ 1,156,812
2000........................................................ 10,441
----------
$7,619,223
==========
</TABLE>
7. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under noncancelable capital leases (with an
initial or remaining term in excess of one year). Future minimum lease
commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
- ------------------------
<S> <C>
1997...................................................... $ 54,413
1998...................................................... 50,195
1999...................................................... 31,604
2000...................................................... 14,706
2001...................................................... 1,364
--------
Total minimum lease payments................................ 152,282
Less amount representing interest........................... (36,563)
--------
Present value of minimum lease payments..................... $115,719
========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases its headquarters, store locations and certain office
equipment under noncancelable operating lease arrangements which expire at
various dates, most with options for renewal. Certain locations are leased from
stockholders of the Managed Professional Associations. As of December 31, 1996,
future minimum lease payments under noncancelable operating leases with original
terms of more than one year are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 1,624,776
1998........................................................ 1,620,771
1999........................................................ 1,440,429
2000........................................................ 1,278,998
2001........................................................ 1,167,241
Thereafter.................................................. 8,730,469
-----------
Total....................................................... $15,862,684
===========
</TABLE>
Rent expense in 1994, 1995 and 1996 was approximately $61,000, $76,000 and
$280,000, respectively. Rent expense related to locations leased from
stockholders of the Managed Professional Associations was approximately $53,000
during 1996.
Malpractice
The Company and the Managed Professional Associations are insured with
respect to medical malpractice risks primarily on a claims-made basis.
Management is aware of a claim pending against one of the
F-22
<PAGE> 90
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Managed Professional Associations. The claim, which alleges medical malpractice,
is currently in the discovery stage and no trial date has been set. The Managed
Professional Association, through its insurer, plans to vigorously contest the
case. In the opinion of Management, this litigation will not have a material
adverse effect on the financial condition of the Company.
Losses resulting from unreported claims cannot be estimated by management
and therefore, an accrual has not been included in the accompanying consolidated
financial statements.
9. INCOME TAXES
The Company did not have a current or deferred tax provision or benefit for
the years ended December 31, 1994, 1995 and 1996 due to its net losses.
At December 31, 1995 and 1996, the Company had temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts measured by income tax reporting purposes. The Company also has net
operating loss (NOL) carryforwards available to offset future taxable income.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
ASSET (LIABILITY)
-----------------------
TEMPORARY DIFFERENCES/CARRYFORWARDS 1995 1996
- ----------------------------------- --------- -----------
<S> <C> <C>
Cash to accrual adjustments................................. $ 47,489 $ 469,859
Net operating losses........................................ 67,249 1,735,723
Other....................................................... -- 220,418
--------- -----------
Total deferred tax assets......................... 114,738 2,426,000
Identifiable intangible assets not deductible for tax
purposes.................................................. -- (1,190,582)
Other deferred tax liabilities.............................. (3,859) (278,282)
Valuation allowance......................................... (110,879) (957,136)
--------- -----------
Net deferred taxes................................ $ -- $ --
========= ===========
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a full valuation allowance at December 31, 1995 and 1996 is
warranted.
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Income tax benefit at the statutory rate............ $(51,876) $(416,987) $(2,080,676)
Permanent differences............................... 59,197 78,078 7,888
S-Corporation (income) loss......................... (7,435) 248,185 924,203
State taxes, net of federal benefit................. (12) (9,686) (122,628)
Change in valuation allowance....................... 126 100,410 1,271,213
-------- --------- -----------
Income taxes........................................ $ -- $ -- $ --
======== ========= ===========
</TABLE>
The Company has net operating loss carryforwards of approximately
$4,612,000 at December 31, 1996 that expire in various amounts from 2008 to
2011. These net operating loss carryforwards will be subject to the "ownership
change" rules of Section 382 of the Internal Revenue Code of 1986 and may be
limited as to their future use if there are changes in ownership exceeding 50%.
F-23
<PAGE> 91
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCKHOLDERS' EQUITY
Issuance of Stock
The Company entered into an agreement in 1993 to issue common stock in
exchange for cash. The related shares of common stock were not physically issued
until June 30, 1996. For financial reporting purposes, the Company has presented
these shares of common stock as if they had been issued in 1993.
Stock Option Plans
In July 1996, the Board of Directors adopted, and the stockholders of the
Company approved, two stock option plans: the Stock Incentive Plan (the
Incentive Plan) and the Affiliated Professionals Stock Plan (the Professionals
Plan and together with the Incentive Plan, the Plans). The purpose of the Plans
is to provide directors, officers, key employees, advisors and professionals
employed by the Managed Professional Associations with additional incentives by
increasing their proprietary interest in the Company or tying a portion of their
compensation to increases in the price of the Company's common stock. The
aggregate number of shares of common stock reserve for issuance related to the
Incentive Plan and the Professionals Plan is 1,000,000 shares and 600,000
shares, respectively. During 1996, the Company granted 562,000 stock options
under the provisions of the Plans with exercise prices equal to the estimated
fair market value of the Company's stock on the date of grant of $3.11 to $7.11.
The options vest over three to four-year periods.
A summary of the Plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1997
------------ ---------
<S> <C> <C>
Options outstanding......................................... 562,000 620,667
Options exercisable......................................... -- --
</TABLE>
The weighted average fair value of options granted during 1996 was $1.91.
The weighted average remaining contractual life of those options is 3.4 years.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for 1996: risk-free interest
rate of 6.0%; a dividend yield of zero; volatility factors of the expected
market price of the Company's common stock based on industry trends; and a
weighted-average expected life of the options of 3.4 years. In addition, for pro
forma purposes, the estimated fair value of the options is amortized to expense
over the options' vesting period. Based on these assumptions, the pro forma net
loss and net loss per common share for the year ended December 31, 1996 would be
approximately $(6,235,000) and $(1.02), respectively.
Stock Compensation
In May 1996, the Company granted 144,705 shares of common stock to a
consultant as compensation for prior service (the Grant). In October 1996, the
Company entered into advisory and services agreements (the Agreements) with the
consultant and its chief medical officer whereby they would be entitled to
233,760 shares of common stock as compensation over the term of the Agreements.
The Company recorded issuance of the common stock at its fair value on the dates
of the Agreements and Grant. The expense is recognized in 1996 for the Grant and
over the related terms for the Agreements. For the year ended December 31, 1996,
the Company recognized expense of approximately $401,000 and $132,000, related
to the Grant and Agreements, respectively.
F-24
<PAGE> 92
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants
During December 1996, the Company issued $1.25 million, 10% senior
subordinated notes (the Senior Notes) along with detachable warrants. The
warrants allow the holders to purchase 208,333 shares, subject to certain
adjustments, of the Company's common stock upon payment of $6 per share, subject
to certain adjustments. The Company has allocated $125,000 of the proceeds to
the warrants, representing their estimated fair value at the date of issuance.
The Senior Notes are limited in aggregate principal amount to $1.25 million and
mature on the earlier of a first liquidity event or December 19, 1999. The
Senior Notes bear stated interest at the rate of 10% per annum payable
semiannually in arrears on June 19 and December 19, with an effective interest
rate of 13.5% (Note 11).
11. SUBSEQUENT EVENTS
On February 7, 1997, the Company obtained a $2 million revolving line of
credit (LOC) from a commercial bank with interest at the rate of prime plus 1%.
Borrowings under the LOC are due on demand and are collateralized by
substantially all assets of the Company. A stockholder is also a guarantor of
the LOC. The proceeds from the LOC were used to refinance certain outstanding
debt as of December 31, 1996 and to provide additional working capital.
On February 28, 1997, the Company issued a $2 million, 10% senior
subordinated note with a detachable warrant to purchase 333,333 shares, subject
to certain adjustments, of the Company's common stock upon payment of $6 per
share, subject to certain adjustments. The Company allocated $200,000 of the
proceeds to the warrant, representing its estimated fair value at the date of
the transaction. The warrant expires on December 19, 2003. The note is due upon
the earlier of a first liquidity event (initial public offering) or December 19,
1999. The effective interest rate on the note is 13.5% and the proceeds will be
used to provide additional working capital.
On April 11, 1997, the Company entered into a $4.68 million credit facility
bearing interest at 10%. The Company entered into a binding commitment letter on
June 6, 1997 to amend the terms of the credit facility. The terms of the binding
commitment letter require the Company to use $2 million of the proceeds from the
credit facility to repay the $2 million revolving line of credit referred to
above, with assignment of the related collateral to the new lender. The
remaining proceeds will be used to provide additional working capital. The terms
of the binding commitment letter require the Company to sell to the lender a
warrant to purchase up to 633,333 shares of common stock. The exercise price for
the shares under the warrant will range from $6.00 per share to 80% of the
market price of the Company's common stock. The warrant will expire as follows:
(1) 583,333 shares on October 10, 2002, and (2) 50,000 shares on January 10,
2003. In addition to the exercise price, the lender will pay the Company
$320,000 for the warrant. The terms of the binding commitment letter extend the
maturity of the credit facility to the earlier of January 1, 1998 or an initial
public offering. The credit facility places certain restrictions on the
Company's ability to pay dividends in the future.
The Company has acquired three additional eye care practices during 1997,
and has entered into a binding agreement to acquire an ambulatory surgery
facility. The Company also intends to enter into business management agreements
with these entities. The acquisitions have been and will be accounted for as
purchases. The fair value of the net assets and business management agreements
associated with these entities is expected to approximate $3.3 million (subject
to certain adjustments), and will be financed through the issuance of 449,303
shares of the Company's common stock (subject to certain adjustments). The
Vision Twenty-One common stock to be issued in connection with these
acquisitions will be valued at $3.96 to $8.86 per share.
F-25
<PAGE> 93
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1997, the Company agreed to acquire all of the outstanding common
stock of a medical consulting company for $700,000 in cash. This acquisition is
scheduled to close upon the Company's completion of an initial public offering.
On June 6, 1997, the Company's Board of Directors approved a 1-for-1.5
reverse stock split pursuant to the Company's initial public offering of common
stock. All share and per share amounts in the accompanying financial statements
have been restated to retroactively reflect the reverse split.
F-26
<PAGE> 94
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Stockholders
Eye Institute of Southern Arizona, P.C.
We have audited the accompanying balance sheets of Eye Institute of
Southern Arizona, P.C. (the Company) as of December 31, 1995 and November 30,
1996, and the related statements of operations, stockholders' equity (deficit),
and cash flows for the year ended December 31, 1995 and the eleven-month period
ended November 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eye Institute of Southern
Arizona, P.C. at December 31, 1995 and November 30, 1996, and the results of its
operations and its cash flows for the year ended December 31, 1995 and the
eleven-month period ended November 30, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
January 15, 1997
F-27
<PAGE> 95
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,494 $ 49,943
Patient accounts receivable, net of allowances for
contractual adjustments and uncollectible accounts of
$612,000 and $466,000 at December 31, 1995 and November
30, 1996, respectively................................. 383,887 438,549
Due from related parties.................................. -- 8,032
Other receivables......................................... 94,023 39,113
Prepaid expenses.......................................... 14,354 14,818
---------- ----------
Total current assets.............................. 494,758 550,455
Deferred tax asset.......................................... 48,672 128,068
Property, equipment and improvements, net................... 1,552,728 1,463,539
---------- ----------
Total assets...................................... $2,096,158 $2,142,062
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 21,462 $ 42,844
Accrued compensation...................................... 180,022 141,449
Other current liabilities................................. 115,365 56,484
Due to related parties.................................... 57,985 --
Deferred tax liability.................................... 48,672 128,068
Current portion of capital lease obligation............... 50,884 55,107
---------- ----------
Total current liabilities......................... 474,390 423,952
Capital lease obligation, net of current portion............ 1,998,256 1,947,389
Stockholders' equity (deficit):
Common stock, $5 par value: 100,000 shares authorized;
2,000 shares issued and outstanding.................... 10,000 10,000
Deficiency in retained earnings........................... (386,488) (239,279)
---------- ----------
Total stockholders' equity (deficit).............. (376,488) (229,279)
---------- ----------
Total liabilities and stockholders' equity
(deficit)....................................... $2,096,158 $2,142,062
========== ==========
</TABLE>
See accompanying notes.
F-28
<PAGE> 96
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $3,649,990 $2,747,555
Premium revenue........................................... -- 69,401
Other..................................................... 355,644 338,774
---------- ----------
Total revenues.................................... 4,005,634 3,155,730
Expenses:
Salaries and benefits -- physicians....................... 2,522,538 1,658,590
Salaries and benefits -- other............................ 726,974 630,409
General and administrative................................ 358,936 298,254
Building and equipment rent............................... 175,918 168,424
Interest expense.......................................... 166,084 152,371
Depreciation and amortization............................. 112,175 100,473
---------- ----------
Total expenses.................................... 4,062,625 3,008,521
---------- ----------
Net income (loss)................................. $ (56,991) $ 147,209
========== ==========
</TABLE>
See accompanying notes.
F-29
<PAGE> 97
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK DEFICIENCY IN STOCKHOLDERS'
---------------- RETAINED EQUITY
SHARES AMOUNT EARNINGS (DEFICIT)
------ ------- ------------- -------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995............................ 2,000 $10,000 $(329,497) $(319,497)
Net loss............................................ -- -- (56,991) (56,991)
----- ------- --------- ---------
BALANCE AT DECEMBER 31, 1995.......................... 2,000 10,000 (386,488) (376,488)
Net income.......................................... -- -- 147,209 147,209
----- ------- --------- ---------
BALANCE AT NOVEMBER 30, 1996.......................... 2,000 $10,000 $(239,279) $(229,279)
===== ======= ========= =========
</TABLE>
See accompanying notes.
F-30
<PAGE> 98
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (56,991) $147,209
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................. 112,175 100,473
Changes in operating assets and liabilities:
Patient accounts receivable, net....................... (122,887) (54,662)
Due from related parties............................... 23,951 (8,032)
Other receivables...................................... (74,157) 54,910
Prepaid expenses....................................... 2,627 (464)
Accounts payable, accrued compensation and other
current liabilities................................... 46,505 (76,072)
Due to related parties................................. 42,152 (57,985)
--------- --------
Net cash provided by (used in) operating
activities...................................... (26,625) 105,377
INVESTING ACTIVITIES
Purchases of property and equipment......................... (24,783) (11,284)
--------- --------
Net cash used in investing activities....................... (24,783) (11,284)
FINANCING ACTIVITIES
Repayment of capital lease obligations...................... (46,984) (46,644)
--------- --------
Net cash used in financing activities....................... (46,984) (46,644)
--------- --------
Increase (decrease) in cash................................. (98,392) 47,449
Cash, beginning of period................................... 100,886 2,494
--------- --------
Cash, end of period......................................... $ 2,494 $ 49,943
========= ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 165,691 $148,741
========= ========
Cash paid for income taxes.................................. $ 40,168 $ --
========= ========
</TABLE>
See accompanying notes.
F-31
<PAGE> 99
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Eye Institute of Southern Arizona, P.C., an Arizona Professional Company
(the Company), operates a professional medical practice in Tucson, Arizona,
specializing in general ophthalmology.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. The Company's
building is held under a capital lease agreement. Depreciation and amortization,
including amortization of assets held under capital lease agreements, are
computed using the straight-line method, with useful lives generally ranging
from 5 to 31 years. Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are capitalized.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates less
allowances for contractual adjustments for patients covered by Medicare, the
Arizona Health Care Cost Containment System (AHCCCS) and various other discount
arrangements. Payments received under these programs and arrangements, which
generally are based on predetermined rates, are generally less than the
Company's customary charges, and the differences are recorded as contractual
adjustments at the time the related service is rendered.
The Company has contracted, effective August 1, 1996, with CIGNA as a
qualified provider of general ophthalmology services. The Company receives a
monthly capitation payment for all plan members in its assigned geographic area.
The premium revenue is paid pursuant to CIGNA HealthCare of Arizona guidelines
and administered on their behalf by Connecticut General Life Insurance Company.
On December 1, 1996, the Company contracted with FHP as a qualified
provider of general ophthalmology services. The Company will receive a monthly
capitation payment for all plan members in its assigned geographic area. The
premium revenue will be paid pursuant to FHP guidelines and administered on
their behalf by the Eye Specialists of Arizona Network.
The following table summarizes the percent of patient service revenues by
payor class:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Medicare................................................... 35% 38%
FHP and CIGNA.............................................. 36 31
Other (including self-pay)................................. 29 31
--- ---
100% 100%
=== ===
</TABLE>
Laws and regulations governing the Medicare and AHCCCS programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrong doing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties and exclusion
from the Medicare and AHCCCS programs.
F-32
<PAGE> 100
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS 109). Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash approximates its fair value because of its
short-term maturity. The fair value of the Company's capital lease obligation
cannot be determined due to its related party nature.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. RELATED PARTY TRANSACTIONS
Kuskat Investment Company (Kuskat) owns certain real property and surgical
equipment which the Company leases. Kuskat is owned by the two shareholders of
the Company. Rent expense for property owned by Kuskat totaled approximately
$176,000 and $168,000 for the year ended December 31, 1995 and the eleven-month
period ended November 30, 1996, respectively.
Due (to) from related parties consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Due to stockholders......................................... $(29,290) $(21,375)
Due (to) from Kuskat........................................ (43,025) 22,757
Employee advances........................................... 14,330 6,650
-------- --------
$(57,985) $ 8,032
======== ========
</TABLE>
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Building under capital lease................................ $ 2,450,000 $ 2,450,000
Leasehold improvements...................................... 53,005 53,005
Medical equipment........................................... 75,184 76,775
Office equipment............................................ 36,967 45,515
Automobiles................................................. 66,964 66,964
Computer equipment.......................................... 44,251 44,251
Other....................................................... 16,005 16,619
----------- -----------
2,742,376 2,753,129
Accumulated depreciation and amortization................... (1,189,648) (1,289,590)
----------- -----------
$ 1,552,728 $ 1,463,539
=========== ===========
</TABLE>
F-33
<PAGE> 101
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASE COMMITMENTS
The Company leases office space and medical equipment under capital and
operating leases.
Future minimum lease commitments under a related party capital lease and
noncancelable operating leases (with terms of one year or more) consist of the
following at November 30, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASES
----------- ---------
<S> <C> <C>
Month ending December 31, 1996.............................. $ 17,748 $ 13,265
Year ending December 31:
1997...................................................... 212,976 159,180
1998...................................................... 212,976 159,180
1999...................................................... 212,976 145,915
2000...................................................... 212,976 --
2001...................................................... 212,976 --
Thereafter................................................ 2,644,291 --
----------- --------
Total minimum lease payments................................ 3,726,919 $477,540
========
Less amount representing interest........................... (1,724,423)
-----------
Present value of minimum lease payments..................... $ 2,002,496
===========
</TABLE>
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Noncurrent:
Contribution carryforward................................. $ 663 $ 663
Net operating loss carryforward........................... 48,675 71,622
Lease capitalized for financial reporting purposes........ 207,771 196,746
Accumulated depreciation.................................. 59,474 62,615
-------- --------
316,583 331,646
Valuation allowance......................................... 267,911 203,578
-------- --------
Total deferred tax assets......................... $ 48,672 $128,068
======== ========
DEFERRED TAX LIABILITIES
Current:
Accrual to cash adjustment................................ $ 48,672 $128,068
-------- --------
Total deferred tax liabilities.................... $ 48,672 $128,068
======== ========
</TABLE>
F-34
<PAGE> 102
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Income taxes at the statutory rate.......................... $(19,377) $ 50,051
Permanent differences....................................... 8,892 3,494
State taxes, net of federal benefit......................... (1,832) 9,355
Change in valuation allowance............................... 12,598 (64,333)
Personal service corporation status......................... (281) 1,433
-------- --------
$ -- $ --
======== ========
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a $267,911 and $203,578 valuation allowance at December 31, 1995
and November 30, 1996, respectively, is necessary to reduce the deferred tax
assets to the amount that will more likely than not be realized. The change in
the valuation allowance for the current year is $(64,333). At November 30, 1996
and December 31, 1995, the Company has available net operating loss
carryforwards of approximately $174,000 and $119,000, respectively, which expire
in the years 2010 and 2011, respectively.
6. MALPRACTICE INSURANCE
The Company carries claims-made malpractice insurance for each of its
physicians. This insurance provides coverage of $3 million per incident, with a
$5 million annual limit. In addition, the Company has an umbrella policy which
provides coverage of $3 million per claim, with a $5 million annual limit.
Management is not aware of any reported claims pending against the Company.
Losses resulting from unreported claims cannot be estimated by management and,
therefore, are not included in the accompanying financial statements.
7. RETIREMENT PLAN
The Company maintains an employee savings plan under Section 401(k) of the
Internal Revenue Code. The plan covers substantially all employees. Management
has elected to not make matching or discretionary contributions to the plan.
8. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 595,000 shares of Vision common stock. In connection therewith,
the Company entered into a 40-year business management agreement with Vision,
whereby Vision will provide substantially all nonmedical services to the
Company.
The financial statements of the Company have been prepared as supplemental
information about the association to which Vision will provide management
services following consummation of the acquisition. The Company previously
operated as a separate independent association. The historical financial
position, results of operations and cash flows do not reflect any adjustments
relating to the acquisition.
F-35
<PAGE> 103
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Daniel B. Feller, M.D., P.C., d/b/a
Paradise Valley Eye Specialists;
Eye Specialists of Arizona Network, P.C.; and
Sharona Optical, Inc.
We have audited the accompanying combined balance sheets of Daniel B.
Feller, M.D., P.C., d/b/a Paradise Valley Eye Specialists; Eye Specialists of
Arizona Network, P.C.; and Sharona Optical, Inc. (collectively referred to as
the Company), as of December 31, 1995 and November 30, 1996, and the related
combined statements of income, stockholders' equity, and cash flows for the year
ended December 31, 1995 and the eleven-month period ended November 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Daniel B. Feller,
M.D., P.C., d/b/a Paradise Valley Eye Specialists; Eye Specialists of Arizona
Network, P.C.; and Sharona Optical, Inc. at December 31, 1995 and November 30,
1996, and the combined results of their operations and their cash flows for the
year ended December 31, 1995 and the eleven-month period ended November 30, 1996
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
January 17, 1997
F-36
<PAGE> 104
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 32,543 $ 36,711
Patient accounts receivable, net.......................... 110,452 80,081
Inventory................................................. 60,768 62,450
Prepaid expenses and other................................ 7,808 6,929
-------- --------
Total current assets.............................. 211,571 186,171
Property and equipment, net................................. 314,307 242,204
Deposits.................................................... 10,363 10,363
-------- --------
Total assets...................................... $536,241 $438,738
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 23,033 $ 70,260
Accrued salaries and benefits............................. 36,017 30,015
Notes payable and current portion of long-term debt....... 36,560 32,786
Current portion of obligations under capital leases....... 10,385 11,097
Deferred tax liability...................................... 23,632 11,468
-------- --------
Total current liabilities......................... 129,627 155,626
Deferred tax liability...................................... 27,377 23,039
Loan payable -- stockholder................................. -- 4,648
Long-term debt, less current portion........................ 97,412 58,914
Obligations under capital leases, less current portion...... 35,264 25,060
Stockholders' equity:
Common stock, $1 par value: PVES -- 100,000 shares
authorized, 500 shares issued and outstanding;
ESAN -- 10,000 shares authorized, issued and
outstanding; Sharona Optical -- 500,000 shares
authorized, 5,000 shares issued and outstanding........ 15,500 15,500
Retained earnings......................................... 231,061 155,951
-------- --------
Total stockholders' equity........................ 246,561 171,451
-------- --------
Total liabilities and stockholders' equity........ $536,241 $438,738
======== ========
</TABLE>
See accompanying notes.
F-37
<PAGE> 105
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $1,136,324 $ 888,289
Capitation revenues....................................... 1,433,085 1,272,761
Retail income............................................. 300,110 380,715
Rental income............................................. 19,700 16,550
Interest income........................................... 1,990 4,075
---------- ----------
Total revenues.................................... 2,891,209 2,562,390
Expenses:
Cost of sales............................................. 131,388 167,630
Salaries and benefits -- physicians....................... 743,957 530,226
Salaries and benefits -- all other........................ 745,425 760,307
Professional fees......................................... 383,478 381,707
Medical supplies.......................................... 108,964 46,210
General and administrative................................ 266,992 249,929
Building and equipment rent............................... 322,411 278,973
Depreciation and amortization............................. 76,596 82,340
Insurance................................................. 39,139 29,678
Interest.................................................. 12,945 12,525
---------- ----------
Total expenses.................................... 2,831,295 2,539,525
---------- ----------
Income before income taxes.................................. 59,914 22,865
Income tax expense (benefit)................................ (10,098) (16,502)
---------- ----------
Net income........................................ $ 70,012 $ 39,367
========== ==========
</TABLE>
See accompanying notes.
F-38
<PAGE> 106
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------- RETAINED STOCKHOLDERS'
NUMBER AMOUNT EARNINGS EQUITY
------ ------- --------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995........................ 15,500 $15,500 $ 233,049 $ 248,549
Distributions to stockholders................. -- -- (72,000) (72,000)
Net income.................................... -- -- 70,012 70,012
------ ------- --------- ---------
BALANCE, DECEMBER 31, 1995...................... 15,500 15,500 231,061 246,561
Distributions to stockholders................. -- -- (114,477) (114,477)
Net income.................................... -- -- 39,367 39,367
------ ------- --------- ---------
BALANCE, NOVEMBER 30, 1996...................... 15,500 $15,500 $ 155,951 $ 171,451
====== ======= ========= =========
</TABLE>
See accompanying notes.
F-39
<PAGE> 107
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 70,012 $ 39,367
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 76,596 82,340
Loss on disposal of fixed assets.......................... -- 6,963
Provision for doubtful accounts........................... 1,000 --
Deferred income taxes..................................... (10,098) (16,502)
Changes in assets and liabilities:
Patient accounts receivable............................ 64,857 30,371
Inventory.............................................. (4,768) (1,682)
Prepaid expenses and other............................. 5,721 879
Accounts payable....................................... 7,493 47,227
Accrued salaries and benefits.......................... 4,729 (6,002)
Loan payable--stockholder.............................. -- 4,648
--------- ---------
Net cash provided by operating activities......... 215,542 187,609
INVESTING ACTIVITIES
Purchases of property and equipment......................... (128,337) (17,200)
--------- ---------
Net cash used in investing activities............. (128,337) (17,200)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt.................... 33,689 21,250
Payments of long-term debt.................................. (34,561) (63,522)
Principal payments of capital leases........................ (8,546) (9,492)
Distributions to stockholders............................... (72,000) (114,477)
--------- ---------
Net cash used in financing activities............. (81,418) (166,241)
--------- ---------
Net increase in cash........................................ 5,787 4,168
Cash at beginning of period................................. 26,756 32,543
--------- ---------
Cash at end of period............................. $ 32,543 $ 36,711
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 12,945 $ 12,525
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
Purchase of property and equipment through issuance of
capital lease obligations................................. $ 19,950 $ --
========= =========
</TABLE>
See accompanying notes.
F-40
<PAGE> 108
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Daniel B. Feller, M.D., P.C. d/b/a Paradise Valley Eye Specialists (PVES),
a professional corporation, operates a professional medical practice
specializing in optometry and general ophthalmology. Eye Specialists of Arizona
Network, P.C. (ESAN), a professional corporation with common ownership, was
formed in 1994 to negotiate capitated contracts with managed care companies.
Sharona Optical, Inc., a C-corporation, operates a retail store which sells
sunglasses and eyeglass frames. All three of the corporations operate in the
Phoenix area, and are hereinafter collectively referred to as the Company. All
significant intercompany transactions have been eliminated.
INVENTORIES
Inventories are stated at cost.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method, with the assets' useful lives estimated at five to
seven years.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Medical equipment........................................... $ 312,785 $ 335,500
Office equipment............................................ 186,718 191,158
Computer equipment.......................................... 99,140 104,873
Automobile.................................................. 34,494 --
--------- ---------
633,137 631,531
Less accumulated depreciation and amortization.............. (318,830) (389,327)
--------- ---------
$ 314,307 $ 242,204
========= =========
</TABLE>
Included in medical equipment as of December 31, 1995 and November 30, 1996
are assets acquired through capital leases with original costs of approximately
$57,000.
Amortization expense related to capital leases is included in depreciation
and amortization in the combined statements of income.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and accounts receivable are reflected in the
financial statements at fair value because of the short-term maturity of these
instruments.
F-41
<PAGE> 109
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amount and approximate fair values of the Company's long-term
debt and obligations under capital leases at December 31, 1995 and November 30,
1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
-------------------- --------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
$179,621 $183,516 $127,857 $143,161
======== ======== ======== ========
</TABLE>
Fair value is based on quoted market rates for debt with similar terms.
PATIENT SERVICE REVENUES
Revenues are based on established billing rates less allowances and
discounts for patients covered by Medicare, the Arizona Health Care Cost
Containment System (AHCCCS) and various other discount arrangements. Payments
received under these programs and arrangements, which are based on either
predetermined rates or the cost of services, are generally less than the
Company's customary charges. Revenues are recorded net of such contractual
adjustments or policy discounts.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, the Company's net patient revenues derived from Medicare and
AHCCCS were approximately 15 percent. The Company does not believe that there
are any credit risks associated with receivables due from governmental agencies.
Concentration of credit risk from other payors is limited by the number of
patients and payors.
The Company has arrangements with third-party payors under capitated
medical services contracts. Under these contracts, the Company receives fixed,
monthly fees from the third-party payors for each covered life in exchange for
assuming responsibility for the provision of specified medical services.
Laws and regulations governing the Medicare and AHCCCS programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrong doing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties and exclusion
from the Medicare and AHCCCS programs.
INCOME TAXES
Income taxes for PVES have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
ESAN and Sharona Optical, Inc. have elected to have their income taxed as S
corporations under the federal Internal Revenue Code. As a result, in lieu of
corporate income tax, ESAN and Sharona Optical, Inc.'s taxable income is passed
through to the stockholders of ESAN and Sharona Optical, Inc. and taxed at the
individual level. Accordingly, no provision or liability for federal income tax
has been reflected in these combined financial statements for ESAN and Sharona
Optical, Inc.
F-42
<PAGE> 110
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
USE OF ESTIMATES
The preparation of the combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Promissory note bearing interest at prime plus .5% (9.25%
and 8.75% at December 31, 1995 and November 30, 1996,
respectively), payable in equal installments of $1,564,
principal and interest, through April 2000, collateralized
by office equipment....................................... $ 82,875 $ 65,674
Note payable with interest at 8%, payable in monthly
installments of $1,564, principal and interest, through
October 1999.............................................. 21,418 17,095
Promissory note bearing interest at prime plus .5% (9.25% at
December 31, 1995), payable in equal installments of $573,
principal and interest, paid in full October 1996......... 23,490 --
Note payable with interest at 8.25%, payable in monthly
installments of $2,731, principal and interest, through
February 1997............................................. -- 8,082
Installment loan from vendor for medical equipment.......... 6,189 849
-------- --------
133,972 91,700
Less current portion........................................ (36,560) (32,786)
-------- --------
Notes payable and long-term debt............................ $ 97,412 $ 58,914
======== ========
</TABLE>
As of November 30, 1996, maturities of notes payable and long-term debt is
as follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 5,498
Year ending December 31:
1997...................................................... 29,295
1998...................................................... 24,313
1999...................................................... 24,776
2000...................................................... 7,818
-------
$91,700
=======
</TABLE>
F-43
<PAGE> 111
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. LEASE COMMITMENTS
Future minimum lease commitments under noncancelable operating and capital
leases (with an initial or remaining term in excess of one year) at November 30,
1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ----------
<S> <C> <C>
Month ending December 31, 1996.............................. $ 1,150 $ 17,947
Year ending December 31:
1997........................................................ 13,803 216,838
1998........................................................ 13,803 203,929
1999........................................................ 10,242 169,728
2000........................................................ 2,716 159,106
2001........................................................ -- 162,108
Thereafter.................................................. -- 229,653
------- ----------
Total minimum lease obligations............................. 41,714 $1,159,309
==========
Less amount representing interest........................... (5,557)
-------
Present value of minimum lease payments (including current
portion of $11,097)....................................... $36,157
=======
</TABLE>
4. MALPRACTICE INSURANCE
The Company carries claims-made malpractice insurance for each of its
physicians. This insurance provides coverage of $1,000,000 per incident, with a
$2,000,000 annual limit. In addition, the Company has an umbrella policy which
provides coverage of $5,000,000 per claim, with a $5,000,000 annual limit.
Management is not aware of any reported claims pending against the Company.
Losses resulting from unreported claims cannot be estimated by management and,
therefore, are not included in the accompanying combined financial statements.
5. RELATED PARTY TRANSACTIONS
The Company leases a medical building from a stockholder. Total lease
payments were approximately $167,000 for the eleven-month period ended November
30, 1996 and $122,000 for the year ended December 31, 1995. The Company also
leased a medical building from an employee with total lease payments
approximating $29,000 for the eleven-month period ended November 30, 1996 and
$36,000 for the year ended December 31, 1995.
The Company received rental income of approximately $17,000 for the
eleven-month period ended November 30, 1996 from a medical building sublease
arrangement with an affiliated physician. Future minimum rentals to be received
under this sublease arrangement total approximately $156,000 at November 30,
1996.
The Company paid a stockholder approximately $311,000 for the eleven-month
period ended November 30, 1996 and $448,000 for the year ended December 31, 1995
as compensation for services provided to the Company.
F-44
<PAGE> 112
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
PVES' deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Noncurrent:
Tax credit carryforward................................... $ 5,286 $ 5,286
Net operating loss carryforward........................... 2,576 5,851
-------- --------
Total deferred tax assets......................... 7,862 11,137
DEFERRED TAX LIABILITIES
Current:
Accrual to cash........................................... 23,632 11,468
Noncurrent:
Capital lease............................................. 4,810 8,688
Depreciation expense...................................... 30,429 25,488
-------- --------
35,239 34,176
-------- --------
Total deferred tax liabilities.................... 58,871 45,644
-------- --------
Net deferred tax assets........................... $(51,009) $(34,507)
======== ========
</TABLE>
Components of the income tax provision (benefit) which relates only to PVES
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 NOVEMBER 30, 1996
----------------------------- -----------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Federal.................. $ -- $ (9,038) $ (9,038) $ -- $(12,866) $(12,866)
State.................... -- (1,060) (1,060) -- (3,636) (3,636)
------- -------- -------- ------- -------- --------
$ -- $(10,098) $(10,098) $ -- $(16,502) $(16,502)
======= ======== ======== ======= ======== ========
</TABLE>
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Income taxes at the statutory rate........................ $ 20,371 $ 7,774
Permanent differences..................................... 356 356
S corporation income...................................... (24,732) (21,865)
State taxes, net of federal benefit....................... (700) (2,400)
Tax credit................................................ (5,286) --
Personal service corporation status....................... (107) (367)
-------- --------
$(10,098) $(16,502)
======== ========
</TABLE>
At December 31, 1995 and November 30, 1996, PVES has available net
operating loss carryforwards of approximately $6,000 (which expires in 2010) and
$14,000 (which expires in 2011), respectively.
F-45
<PAGE> 113
DANIEL B. FELLER, M.D., P.C.,
D/B/A PARADISE VALLEY EYE SPECIALISTS;
EYE SPECIALISTS OF ARIZONA NETWORK, P.C.;
AND SHARONA OPTICAL, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of Daniel B.
Feller, M.D., P.C., d/b/a Paradise Valley Eye Specialists, Eye Specialists of
Arizona Network, P.C., and Sharona Optical, Inc. were acquired by Vision
Twenty-One, Inc. (Vision) in exchange for approximately 421,000 shares of Vision
common stock and notes of approximately $150,000. In connection therewith, the
Company entered into a 40-year business management agreement with Vision,
whereby Vision will provide substantially all nonmedical services to the
practice.
The combined financial statements of Daniel B. Feller, M.D., P.C., d/b/a
Paradise Valley Eye Specialists; Eye Specialists of Arizona Network, P.C.; and
Sharona Optical, Inc. have been prepared as supplemental information about the
association to which Vision will provide management services following
consummation of the acquisition. The Company previously operated as a separate
independent association. The historical financial position, results of
operations and cash flows do not reflect any adjustments relating to the
acquisition.
F-46
<PAGE> 114
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Northwest Eye Specialists, P.L.L.C.
We have audited the accompanying balance sheets of Northwest Eye
Specialists, P.L.L.C. (the Company) as of December 31, 1995 and November 30,
1996, and the related statements of income, partners' equity, and cash flows for
the year ended December 31, 1995 and the eleven-month period ended November 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Northwest Eye Specialists,
P.L.L.C. at December 31, 1995 and November 30, 1996, and the results of its
operations and its cash flows for the year ended December 31, 1995 and the
eleven-month period ended November 30, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
January 15, 1997
F-47
<PAGE> 115
NORTHWEST EYE SPECIALISTS, P.L.L.C.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $135,148 $122,445
Patient accounts receivable, net of allowances for
uncollectible accounts of approximately $49,000 and
$96,000 at December 31, 1995 and November 30, 1996,
respectively........................................... 195,209 349,974
Due from related parties.................................. 32,420 32,107
Prepaid expenses.......................................... 24,963 40,384
Inventories............................................... -- 65,476
-------- --------
Total current assets.............................. 387,740 610,386
Property, equipment and improvements, net................... 105,841 141,201
Other assets................................................ 27,072 27,072
-------- --------
Total assets...................................... $520,653 $778,659
======== ========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 53,832 $250,386
Accrued compensation...................................... 34,421 72,452
Accrued distributions to physicians....................... -- 101,260
Other accrued liabilities................................. 8,727 8,018
Profit sharing payable.................................... 51,162 30,000
Due to related parties.................................... 7,082 7,082
Short-term borrowings..................................... -- 45,000
Current maturities of obligations under capital leases.... 7,962 8,341
-------- --------
Total current liabilities......................... 163,186 522,539
Obligations under capital leases, net of current portion.... 19,742 12,337
Partners' equity............................................ 337,725 243,783
-------- --------
Total liabilities and partners' equity............ $520,653 $778,659
======== ========
</TABLE>
See accompanying notes.
F-48
<PAGE> 116
NORTHWEST EYE SPECIALISTS, P.L.L.C.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $2,302,823 $2,160,519
Sales of optical goods.................................... -- 250,901
Other..................................................... 42,399 2,964
---------- ----------
Total revenues.................................... 2,345,222 2,414,384
Expenses:
Salaries, wages and benefits.............................. 559,124 620,435
Cost of optical goods sold................................ -- 94,901
Medical supplies.......................................... 177,681 156,962
General and administrative................................ 430,894 571,594
Insurance................................................. 190,045 146,808
Building and equipment rent............................... 120,000 140,657
Depreciation and amortization............................. 26,372 27,688
Consulting fee to physician............................... -- 11,000
Interest.................................................. 50,817 5,353
---------- ----------
Total expenses.................................... 1,554,933 1,775,398
---------- ----------
Net income........................................ $ 790,289 $ 638,986
========== ==========
</TABLE>
See accompanying notes.
F-49
<PAGE> 117
NORTHWEST EYE SPECIALISTS, P.L.L.C.
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Partners' equity, beginning of period....................... $ 278,895 $ 337,725
Net income................................................ 790,289 638,986
Cash contributions from partners.......................... 75,321 --
In-kind capital contributions from partner................ 120,000 151,657
Distributions to partners................................. (926,780) (884,585)
--------- ---------
Partners' equity, end of period............................. $ 337,725 $ 243,783
========= =========
</TABLE>
See accompanying notes.
F-50
<PAGE> 118
NORTHWEST EYE SPECIALISTS, P.L.L.C.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 790,289 $ 638,986
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 26,372 27,688
In-kind capital contributions from partner................ 120,000 151,657
Changes in operating assets and liabilities:
Patient accounts receivable, net....................... (25,534) (154,765)
Due from related parties............................... (3,025) 313
Prepaid expenses....................................... (17,529) (15,421)
Inventories............................................ -- (65,476)
Accounts payable, accrued expenses and other........... 17,350 313,974
--------- ---------
Net cash provided by operating activities......... 907,923 896,956
INVESTING ACTIVITIES
Cash contributions from partners............................ 75,321 --
Purchases of property and equipment......................... (66,650) (63,048)
--------- ---------
Net cash provided by (used in) investing activities......... 8,671 (63,048)
FINANCING ACTIVITIES
Proceeds from short-term borrowings......................... -- 45,000
Principal payments on capital leases........................ (7,041) (7,026)
Distributions to partners................................... (926,780) (884,585)
--------- ---------
Net cash used in financing activities....................... (933,821) (846,611)
--------- ---------
Decrease in cash............................................ (17,227) (12,703)
Cash at beginning of period................................. 152,375 135,148
--------- ---------
Cash at end of period....................................... $ 135,148 $ 122,445
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 48,013 $ 5,353
========= =========
</TABLE>
See accompanying notes.
F-51
<PAGE> 119
NORTHWEST EYE SPECIALISTS, P.L.L.C.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Northwest Eye Specialists, P.L.L.C. (the Company), an Arizona Professional
Company, operates a professional medical practice in Tucson, Arizona,
specializing in general ophthalmology and surgery. Per the operating agreement
dated June 1, 1993, the Company will cease to exist upon the occurrence of
certain events or on December 31, 2050. Each member's liability for the debts
and obligation of the Company shall be limited as set forth in the Arizona
Limited Liability Company Act, Section 29-651.
INVENTORIES
Inventories consist primarily of optical lenses, contact lenses and
eyeglass frames (collectively, "optical goods"). Inventories are stated at the
lower of cost or market, with cost determined on a specific-identification
basis.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation,
including amortization of assets held under capital lease obligations, is
computed using the straight-line method, with the assets' useful lives ranging
from 5 to 39 years. Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are capitalized.
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Medical equipment........................................... $ 57,827 $ 74,611
Office equipment............................................ 38,120 42,954
Optical shop equipment...................................... 15,000 19,158
Medical equipment held under capital leases................. 39,924 39,924
Leasehold improvements...................................... 7,121 44,393
-------- --------
157,992 221,040
Less accumulated depreciation and amortization.............. (52,151) (79,839)
-------- --------
$105,841 $141,201
======== ========
</TABLE>
Amortization expense related to capital leases is included in depreciation
and amortization in the accompanying statements of income.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare, Arizona
Health Care Cost Containment System (AHCCCS) and various other discount
arrangements. Payments received under these programs and arrangements, which are
based on predetermined rates, are generally less than the Company's established
billing rates and the differences are recorded as contractual adjustments at the
time the related service is rendered.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, approximately 53% and 52%, respectively, of the Company's net
patient service revenues were derived from the Medicare and AHCCCS programs. The
Company does not believe that there are any credit risks associated with
receivables due from governmental agencies. Concentration of credit risk from
other payors is
F-52
<PAGE> 120
NORTHWEST EYE SPECIALISTS, P.L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
limited by the number of patients and payors. The Company does not require any
form of collateral from its patients or third-party payors.
Laws and regulations governing the Medicare and AHCCCS programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations of potential wrong doing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties and exclusion
from the Medicare and AHCCCS programs.
INCOME TAXES
The Company was organized as an Arizona Limited Liability Company and is
taxed as a partnership for federal and state income tax purposes. As a result,
in lieu of corporate income taxes, the Company's taxable income is passed
through to the partners of the Company and taxed at the individual taxpayer
level in accordance with their ownership interests. As a result, the
accompanying financial statements include no provision for income taxes for the
Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash reflects its fair value because of the
short-term maturity of that financial instrument. It is not practicable to
estimate the fair value of the Company's capital lease obligation because the
Company's incremental borrowing rate cannot reasonably be determined.
2. RELATED PARTY TRANSACTIONS
The Company leases its operating facilities and certain equipment from a
partner of the Company. Expenses under such leases amounted to approximately
$120,000 and $141,000 for the year ended December 31, 1995 and the eleven-month
period ended November 30, 1996, respectively. Such amounts are recognized as
in-kind capital contributions from partner because no payment was made to the
partner.
The Company recognized expense of $11,000 for the eleven-month period ended
November 30, 1996 under a consulting agreement with a partner of the Company.
Such amount is recognized as in-kind capital contributions from partner because
no payment was made to the partner.
The Company reimbursed a partner in 1995 for interest on a loan relating to
the Company's facility. Such interest expense reimbursement was approximately
$51,000 for the year ended December 31, 1995. Although the partner incurred
interest on the loan in 1996, the Company did not reimburse the partner for such
interest in 1996.
F-53
<PAGE> 121
NORTHWEST EYE SPECIALISTS, P.L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LEASE COMMITMENTS
At November 30, 1996, approximate future minimum rental commitments under
noncancelable operating leases (with an initial or remaining term in excess of
one year) and a capital lease are as follows (including related party leases):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASE
---------- -------
<S> <C> <C>
Month ending December 31, 1996.............................. $ 10,984 $ 820
Year ending December 31:
1997...................................................... 133,955 9,845
1998...................................................... 134,492 9,845
1999...................................................... 121,820 2,461
2000...................................................... 120,000 --
Thereafter................................................ 6,000,000 --
---------- -------
Total minimum lease obligations............................. $6,521,251 22,971
==========
Less amount representing interest........................... (2,293)
-------
Present value of minimum lease obligations.................. $20,678
=======
</TABLE>
4. RETIREMENT PLAN
The Company maintains an employee savings and profit sharing plan under
Section 401(k) of the Internal Revenue Code. The plan covers substantially all
employees. Under the plan, the Company may make discretionary contributions
subject to various limits. Total Company expense related to the plan was
approximately $52,000 and $44,000 for the year ended December 31, 1995 and for
the eleven-month period ended November 30, 1996, respectively.
5. MALPRACTICE INSURANCE
The Company carries separate occurrence based malpractice insurance
policies for each of its two physicians. This insurance provides separate
per-occurrence coverage of $2,000,000 and $3,000,000, respectively, for the two
physicians with an aggregate limit of $4,000,000 and $5,000,000, respectively.
Management is not aware of any reported claims pending against the Company.
Losses resulting from unreported claims cannot be estimated by management and,
therefore, are not included in the accompanying financial statements.
6. SHORT-TERM BORROWINGS
Short-term borrowings represent a bank revolving line of credit of $75,000
for working capital needs, of which $30,000 is available at November 30, 1996.
The maturity date is June 16, 1997. Interest payments are due monthly with
interest accruing at the bank's prime rate (9.25% at November 30, 1996). The
revolving line of credit is collateralized by the Company's receivables and
guaranteed by the partners.
7. COMMITMENTS AND CONTINGENCIES
Other assets include an investment in an unrelated limited liability
investment company with a book value of $27,072 at December 31, 1995 and
November 30, 1996. Under the investment agreement, the investment company may
require additional capital contributions from the Company not to exceed $50,000
in the aggregate. Additional capital contributions of approximately $3,000 have
been made through November 30, 1996.
F-54
<PAGE> 122
NORTHWEST EYE SPECIALISTS, P.L.L.C.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. OTHER REVENUE
Through December 31, 1995, an unrelated organization operated an optical
shop on the Company's premises. Other revenue for the year ended December 31,
1995 includes approximately $41,000 received by the Company related to the
optical shop arrangement with such unrelated organization.
9. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 492,000 shares of Vision common stock and notes of approximately
$396,000. In connection therewith, the Company entered into a 40-year business
management agreement with Vision, whereby Vision will provide substantially all
nonmedical services to the practice.
The financial statements of the Company have been prepared as supplemental
information about the associations to which Vision will provide management
services following consummation of the acquisition. The Company previously
operated as a separate independent association. The historical financial
position, results of operations and cash flows do not reflect any adjustments
relating to the acquisition.
F-55
<PAGE> 123
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Lindstrom, Samuelson & Hardten Ophthalmology Associates, P.A.
and Vision Correction Centers, Inc.
We have audited the accompanying combined balance sheets of Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A. and Vision Correction
Centers, Inc. as of December 31, 1995 and November 30, 1996, and the related
combined statements of operations, stockholders' equity, and cash flows for the
year ended December 31, 1995 and the eleven-month period ended November 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A. and Vision Correction
Centers, Inc. at December 31, 1995 and November 30, 1996, and the combined
results of their operations and their cash flows for the year ended December 31,
1995 and the eleven-month period ended November 30, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
January 14, 1997
F-56
<PAGE> 124
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A. AND
VISION CORRECTION CENTERS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 353 $177,637
Patient accounts receivable, net of allowance for doubtful
accounts of approximately $51,000 and $48,000 at
December 31, 1995 and November 30, 1996,
respectively........................................... 305,103 290,272
Other receivables......................................... 5,000 11,706
Prepaid expenses.......................................... 12,473 3,932
-------- --------
Total current assets.............................. 322,929 483,547
Property, equipment and improvements, net................... 584,653 455,448
Other assets................................................ 51,912 36,771
-------- --------
Total assets...................................... $959,494 $975,766
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $125,531 $257,421
Due to related party...................................... -- 84,825
Revolving credit note payable............................. -- 60,000
Current portion of long-term debt......................... 53,713 46,439
Current portion of obligations under capital leases....... 81,419 111,817
-------- --------
Total current liabilities......................... 260,663 560,502
Long-term debt.............................................. 106,938 65,079
Obligations under capital leases, net of current portion.... 388,299 316,473
Stockholders' equity:
Common stock, $1 par value: 100 shares authorized, issued
and outstanding........................................ 100 100
Retained earnings......................................... 203,494 33,612
-------- --------
Total stockholders' equity........................ 203,594 33,712
-------- --------
Total liabilities and stockholders' equity........ $959,494 $975,766
======== ========
</TABLE>
See accompanying notes.
F-57
<PAGE> 125
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A. AND
VISION CORRECTION CENTERS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $2,679,914 $3,404,975
Other..................................................... 61,171 57,991
---------- ----------
Total revenues.................................... 2,741,085 3,462,966
Expenses:
Compensation to physician stockholders.................... 884,903 947,780
Salaries, wages and benefits.............................. 585,386 746,251
Advertising............................................... 239,904 240,848
Professional fees -- related party........................ -- 591,455
Professional fees -- other................................ 197,680 164,794
General and administrative................................ 263,856 332,598
Medical supplies.......................................... 82,429 118,665
Insurance................................................. 73,697 31,496
Building and equipment rent............................... 162,534 171,980
Depreciation and amortization............................. 257,730 235,047
Interest.................................................. 79,674 51,934
---------- ----------
Total expenses.................................... 2,827,793 3,632,848
---------- ----------
Net loss.......................................... $ (86,708) $ (169,882)
========== ==========
</TABLE>
See accompanying notes.
F-58
<PAGE> 126
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A. AND
VISION CORRECTION CENTERS, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED STOCKHOLDERS'
NUMBER AMOUNT EARNINGS EQUITY
------ ------ --------- -------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............................... 100 $100 $ 290,202 $ 290,302
Net loss............................................. -- -- (86,708) (86,708)
--- ---- --------- ---------
BALANCE, DECEMBER 31, 1995............................. 100 100 203,494 203,594
Net loss............................................. -- -- (169,882) (169,882)
--- ---- --------- ---------
BALANCE, NOVEMBER 30, 1996............................. 100 $100 $ 33,612 $ 33,712
=== ==== ========= =========
</TABLE>
See accompanying notes.
F-59
<PAGE> 127
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A. AND
VISION CORRECTION CENTERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (86,708) $(169,882)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 257,730 235,047
(Gain) loss on disposal of fixed assets................... (8,477) 1,096
Changes in assets and liabilities:
Patient accounts receivable, net....................... (20,851) 14,831
Other receivables...................................... 6,000 (6,706)
Prepaid expenses....................................... (1,298) 8,541
Accounts payable and accrued expenses.................. 16,867 116,807
Due to related party................................... -- 84,825
--------- ---------
Net cash provided by operating activities......... 163,263 284,559
INVESTING ACTIVITIES
Purchases of property and equipment......................... (55,947) (47,884)
(Increase) decrease in other assets......................... (1,089) 4,700
--------- ---------
Net cash used in investing activities....................... (57,036) (43,184)
FINANCING ACTIVITIES
Proceeds from issuance of revolving credit note payable..... -- 80,000
Payment of revolving credit note payable.................... -- (20,000)
Payment of long-term debt................................... (83,898) (49,133)
Principal payments on capital leases........................ (60,035) (74,958)
--------- ---------
Net cash used in financing activities....................... (143,933) (64,091)
--------- ---------
(Decrease) increase in cash................................. (37,706) 177,284
Cash at beginning of period................................. 38,059 353
--------- ---------
Cash at end of period....................................... $ 353 $ 177,637
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 72,954 $ 56,000
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITY
Capital lease obligations incurred to acquire equipment..... $ 45,889 $ 33,530
========= =========
Loan and vendor accounts payable incurred to acquire
equipment................................................. $ 24,856 $ 15,083
========= =========
</TABLE>
See accompanying notes.
F-60
<PAGE> 128
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A.
AND VISION CORRECTION CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Lindstrom, Samuelson & Hardten Ophthalmology Associates, P.A. (Practice), a
Minnesota corporation, operates a professional medical practice, specializing in
general ophthalmology and surgery. Vision Correction Centers, Inc. (VCC), a
Minnesota corporation with common ownership with the Practice, was formed in
1994 to provide ophthalmic surgery services. Both corporations operate in the
greater Minneapolis and St. Paul area, and are hereinafter collectively referred
to as the Company. During 1995, VCC transferred all of its assets and
liabilities to the Practice and ceased all operations. All significant
intercompany transactions have been eliminated.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation is
computed using straight-line and accelerated methods, with the assets' useful
lives estimated at five to seven years. Routine maintenance and repairs are
charged to expense as incurred, while costs of betterments and renewals are
capitalized.
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Medical equipment........................................... $ 991,724 $1,043,715
Office furniture and equipment.............................. 147,760 181,938
Computer software........................................... 25,021 25,521
Leasehold improvements...................................... 35,752 37,170
---------- ----------
1,200,257 1,288,344
Less accumulated depreciation and amortization.............. (615,604) (832,896)
---------- ----------
$ 584,653 $ 455,448
========== ==========
</TABLE>
Included in medical equipment as of December 31, 1995 and November 30, 1996
are assets acquired through capital leases with original costs of approximately
$558,000. Included in office furniture and equipment as of November 30, 1996 are
assets acquired through capital leases with original costs of approximately
$15,000.
Amortization expense related to capital leases is included in depreciation
and amortization in the combined statements of operations.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and revolving credit note payable reported in
the combined financial statements reflects their fair value because of the
short-term maturity of those financial instruments. It is not practicable to
estimate the fair value of the Company's long-term debt and obligations under
capital leases because the Company's incremental borrowing rate cannot
reasonably be determined.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which are based on predetermined rates, are generally
less
F-61
<PAGE> 129
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A.
AND VISION CORRECTION CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
than the Company's established billing rates and the differences are recorded as
contractual adjustments at the time the related service is rendered.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, approximately 23% and 19%, respectively, of the Company's net
patient service revenues were derived from the Medicare and Medicaid programs.
The Company does not believe that there are any credit risks associated with
receivables due from governmental agencies. Concentration of credit risk from
other payors is limited by the number of patients and payors. The Company does
not require any form of collateral from its patients or third-party payors.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential wrong
doing. While no such regulatory inquires have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
ADVERTISING COSTS
The Company expenses advertising costs as incurred.
INCOME TAXES
Income taxes for VCC have been provided using the liability method in
accordance with Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
The Practice is taxed under the provisions of Subchapter S of the Internal
Revenue Code, which generally provides that in lieu of corporate taxes, the
stockholders shall be taxed on the Practice's taxable income in accordance with
their ownership interests. As a result, the accompanying combined financial
statements include no provision for income taxes for the Practice.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
OTHER ASSETS
The Company purchased a physician practice in 1994. Costs of approximately
$43,000 and $32,000 (net of accumulated amortization of approximately $14,000
and $25,000) as of December 31, 1995 and November 30, 1996, respectively, are
included in other assets in the combined financial statements. The costs are
being amortized over five years and the related expense is included in
depreciation and amortization in the combined statements of operations.
F-62
<PAGE> 130
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A.
AND VISION CORRECTION CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Bank term loan bearing interest at prime plus 1% (9.75% and
9.25% at December 31, 1995 and November 30, 1996,
respectively), payable in equal installments of $3,000
(principal and interest) through December 1998............. $100,475 $ 75,219
Note payable with interest imputed at 10%, payable in
monthly installments of $1,200 (principal and interest)
through September 1999..................................... 44,876 36,299
Installment loan from vendor for medical equipment......... 15,300 --
-------- --------
160,651 111,518
Less current portion....................................... (53,713) (46,439)
-------- --------
$106,938 $ 65,079
======== ========
</TABLE>
The term loan is collateralized by substantially all of the assets of the
Company.
As of November 30, 1996, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 4,222
Year ending December 31:
1997...................................................... 46,239
1998...................................................... 50,693
1999...................................................... 10,364
--------
$111,518
========
</TABLE>
3. LEASE COMMITMENTS
Future minimum lease commitments under noncancelable operating and capital
leases (with an initial or remaining term in excess of one year) at November 30,
1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Month ending December 31, 1996.............................. $ 21,757 $ 15,277
Year ending December 31:
1997...................................................... 160,267 186,950
1998...................................................... 183,857 194,322
1999...................................................... 120,395 201,654
2000...................................................... 11,990 208,986
2001...................................................... 1,364 106,326
-------- --------
Total minimum lease payments................................ 499,630 $913,515
========
Less amount representing interest........................... (71,340)
--------
Present value of minimum lease payments..................... $428,290
========
</TABLE>
F-63
<PAGE> 131
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A.
AND VISION CORRECTION CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES
At December 31, 1995, VCC had no deferred tax assets or liabilities as the
result of the sale of its assets to the Practice. This sale resulted in income
during 1995 for tax purposes.
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Income taxes at the statutory rate.......................... $(29,481)
Permanent differences....................................... 28,573
S-corporation income........................................ 14,448
State taxes, net of federal benefit......................... 2,576
Benefit of graduated rates.................................. (6,825)
Change in valuation allowance............................... (9,291)
--------
$ --
========
</TABLE>
The change in the valuation allowance for the year ended December 31, 1995
was $9,291.
5. MALPRACTICE INSURANCE
The Company carries claims-made malpractice insurance for each of its
physicians. This insurance provides coverage of $5,000,000 per incident, with a
$5,000,000 annual limit. In addition, the Company has an umbrella policy which
provides coverage of $2,000,000 per claim, with a $4,000,000 annual limit.
Management is not aware of any reported claims pending against the Company.
Losses resulting from unreported claims cannot be estimated by management and,
therefore, are not included in the accompanying combined financial statements.
6. RETIREMENT PLAN
The Company maintains an employee savings and profit sharing plan under
Section 401(k) of the Internal Revenue Code. The plan covers substantially all
employees. Under the plan, the Company may make discretionary contributions
subject to various limits. Total Company expense related to this plan was
approximately $42,000 for the year ended December 31, 1995 and for the
eleven-month period ended November 30, 1996.
7. COMMITMENTS
The Company has employment agreements with each of the three
physician-stockholders which provide for, among other things, base pay and
incentive compensation based on the Company's net income. Additionally, the
Company has a deferred compensation agreement with each physician-stockholder
which provides for compensation in the event of voluntary or involuntary
termination. In connection with the transaction described in Note 9, each of the
aforementioned agreements was terminated.
The Company has a revolving credit note payable of $100,000 due on demand,
bearing interest at a rate of prime plus 0.5% (8.75% at November 30, 1996). As
of November 30, 1996, the Company had $60,000 outstanding on this revolving
credit note payable.
8. RELATED PARTY TRANSACTIONS
During the eleven-month period ended November 30, 1996, the Company
incurred costs of approximately $591,000 for the use of laser equipment owned by
Laser Vision Centers, Inc. (LVC). As of
F-64
<PAGE> 132
LINDSTROM, SAMUELSON & HARDTEN OPHTHALMOLOGY ASSOCIATES, P.A.
AND VISION CORRECTION CENTERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
November 30, 1996, $84,825 was payable to LVC and is included in due to related
party in the combined balance sheets. The majority stockholder of the Company is
a shareholder and director of LVC.
Subsequent to November 30, 1996, the Company executed a letter of intent
with LVC whereby the Company will sell certain equipment and assets with a net
book value of approximately $225,000. The letter of intent also states that the
Company will enter into a management service agreement with LVC for the
performance of various management services related to refractive surgery.
9. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 371,000 shares of Vision common stock and notes of approximately
$460,000. In connection therewith, the Company entered into a 40-year business
management agreement with Vision, whereby Vision will provide substantially all
nonmedical services to the practice.
The combined financial statements of the Company have been prepared as
supplemental information about the associations to which Vision will provide
management services following consummation of the acquisition. The Company
previously operated as a separate independent association. The historical
financial position, results of operations and cash flows do not reflect any
adjustments relating to the acquisition.
F-65
<PAGE> 133
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Cambridge Eye Clinic, P.A. --
John W. Lahr, Optometrist, P.A. and
Eyeglass Express Optical Lab, Inc.
We have audited the accompanying combined balance sheets of Cambridge Eye
Clinic, P. A. -- John W. Lahr, Optometrist, P.A. and Eyeglass Express Optical
Lab, Inc. as of December 31, 1995 and November 30, 1996, and the related
combined statements of operations, stockholders' equity, and cash flows for the
year ended December 31, 1995 and the eleven-month period ended November 30,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Cambridge Eye
Clinic, P. A. -- John W. Lahr, Optometrist, P.A. and Eyeglass Express Optical
Lab, Inc. at December 31, 1995 and November 30, 1996, and the combined results
of their operations and their cash flows for the year ended December 31, 1995
and the eleven-month period ended November 30, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
January 10, 1997
F-66
<PAGE> 134
CAMBRIDGE EYE CLINIC, P. A.--
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 45,061 $ 83,302
Patient accounts receivable, net of allowances for
uncollectible accounts of approximately $37,000 and
$25,000 at December 31, 1995 and November 30, 1996,
respectively........................................... 191,680 129,517
Other receivables......................................... 3,374 15,668
Inventories............................................... 207,968 210,701
Prepaid expenses.......................................... 11,381 11,581
-------- --------
Total current assets.............................. 459,464 450,769
Deferred tax assets......................................... 31,433 33,237
Other assets................................................ 600 462
Property, equipment and improvements, net................. 149,518 101,922
-------- --------
Total assets...................................... $641,015 $586,390
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 65,151 $141,222
Note payable to stockholder............................... 5,946 5,946
Demand notes payable...................................... 5,363 1,857
Current maturities of long-term debt...................... 24,795 22,330
Deferred tax liabilities.................................. 141,368 89,277
-------- --------
Total current liabilities......................... 242,623 260,632
Long-term debt, net of current portion...................... 155,480 161,557
Stockholders' equity:
Common stock, no par value: 2,500 shares authorized; 1,250
shares issued and outstanding.......................... -- --
Additional paid-in capital................................ 42,389 42,389
Note receivable from stock sales.......................... (12,850) --
Retained earnings......................................... 213,373 148,840
Treasury stock at cost (750 shares)....................... -- (27,028)
-------- --------
Total stockholders' equity........................ 242,912 164,201
-------- --------
Total liabilities and stockholders' equity........ $641,015 $586,390
======== ========
</TABLE>
See accompanying notes.
F-67
<PAGE> 135
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $ 537,834 $ 527,068
Sales of optical goods.................................... 900,826 749,783
Other income.............................................. 2,080 2,724
---------- ----------
Total revenues.................................... 1,440,740 1,279,575
Expenses:
Compensation to physician stockholder..................... 65,175 62,306
Salaries, wages and benefits.............................. 582,086 639,931
Cost of optical goods sold................................ 348,984 316,115
General and administrative................................ 182,769 177,697
Insurance................................................. 15,791 6,891
Building and equipment rent............................... 136,965 125,894
Depreciation.............................................. 60,878 42,458
Interest.................................................. 21,759 16,931
Other..................................................... 6,503 3,107
---------- ----------
Total expenses.................................... 1,420,910 1,391,330
---------- ----------
Income (loss) before income taxes........................... 19,830 (111,755)
Income tax expense (benefit)................................ 7,984 (47,222)
---------- ----------
Net income (loss)........................................... $ 11,846 $ (64,533)
========== ==========
</TABLE>
See accompanying notes.
F-68
<PAGE> 136
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTE
NO-PAR ADDITIONAL RECEIVABLE TOTAL
COMMON PAID-IN FROM RETAINED TREASURY STOCKHOLDERS'
STOCK SHARES CAPITAL STOCK SALES EARNINGS STOCK EQUITY
------------ ---------- ----------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995..... 1,250 $42,389 $(12,850) $201,527 $ -- $231,066
Net income................... -- -- -- 11,846 -- 11,846
----- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995... 1,250 42,389 (12,850) 213,373 -- 242,912
Net loss..................... -- -- -- (64,533) -- (64,533)
Payment on note receivable
from stock sales.......... -- -- 12,850 -- -- 12,850
Purchase of treasury stock at
cost...................... -- -- -- -- (27,028) (27,028)
----- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996... 1,250 $42,389 $ -- $148,840 $(27,028) $164,201
===== ======= ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-69
<PAGE> 137
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 11,846 $(64,533)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation.............................................. 60,878 42,458
Loss on disposal of property, equipment and
improvements........................................... -- 2,774
Provision for deferred taxes.............................. 3,715 (53,895)
Changes in assets and liabilities:
Patient accounts receivable, net....................... 16,921 62,163
Other receivables...................................... 10,135 (12,294)
Inventories............................................ (7,968) (2,733)
Prepaid expenses....................................... (11,381) (200)
Other assets........................................... (320) 138
Accounts payable and accrued expenses.................. (28,483) 76,071
-------- --------
Net cash provided by operating activities......... 55,343 49,949
INVESTING ACTIVITIES
Proceeds from collection on notes receivable from stock
sales..................................................... -- 12,850
Proceeds from sale of property, plant and equipment....... -- 2,364
Purchases of property, equipment and improvements......... (42,350) --
-------- --------
Net cash (used in) provided by investing
activities...................................... (42,350) 15,214
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 20,000 21,500
Repayment of long-term debt and demand notes payable........ (62,696) (21,394)
Purchase of treasury stock.................................. -- (27,028)
Proceeds from issuance of note payable to stockholder....... 5,946 --
-------- --------
Net cash used in financing activities............. (36,750) (26,922)
-------- --------
(Decrease) increase in cash................................. (23,757) 38,241
Cash at beginning of period................................. 68,818 45,061
-------- --------
Cash at end of period....................................... $ 45,061 $ 83,302
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 21,202 $ 16,931
======== ========
Cash paid during the year for income taxes.................. $ -- $ 6,673
======== ========
</TABLE>
See accompanying notes.
F-70
<PAGE> 138
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Cambridge Eye Clinic, P. A. -- John W. Lahr, Optometrist, P.A. (the Clinic)
is a Minnesota corporation which operates professional medical practices,
specializing in general ophthalmology and optometry. The Clinic's service area
is Cambridge, Minnesota, and surrounding communities in North Branch, Mora,
Sandstone and Pine City, Minnesota.
The combined financial statements include the accounts of Cambridge Eye
Clinic, P. A. -- John W. Lahr, Optometrist, P.A. and Eyeglass Express Optical
Lab, Inc., which are companies under common ownership and are collectively
referred to herein as the "Company." All intercompany accounts and transactions
have been eliminated from these combined financial statements.
CASH EQUIVALENTS
The Company considers all liquid investments with an original maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories consist primarily of optical lenses, contact lenses and
eyeglass frames (collectively, "optical goods"). Inventories are stated at the
lower of cost or market, with cost determined on a specific-identification
basis.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation is
computed using accelerated methods, with the assets' useful lives estimated at
19 years for leasehold improvements and three to seven years for the other asset
categories. Routine maintenance and repairs are charged to expense as incurred,
while costs of betterments and renewals are capitalized.
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which generally are based on predetermined rates, are
generally less than the Company's customary charges, and the differences are
recorded as contractual adjustments at the time the related service is rendered.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, approximately 35% of the Company's net patient service
revenues were derived from services rendered to Medicare and Medicaid patients.
The Company does not believe that there are any credit risks associated with
F-71
<PAGE> 139
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
receivables due from governmental agencies. Concentration of credit risk from
other third-party payors is limited by the number of patients and payors. The
Company does not require any form of collateral from its patients or third-party
payors.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential wrong
doing. While no such regulatory inquiries have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expenses
amounted to $26,182 for the year ended December 31, 1995 and $21,740 for the
eleven-month period ended November 30, 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents reported in the combined
financial statements reflects its fair value because of the short-term nature of
that financial instrument. It is not practicable to estimate the fair value of
the Company's long-term debt because the Company's incremental borrowing rate
cannot reasonably be determined.
2. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Equipment................................................... $ 504,616 $ 504,616
Leasehold improvements...................................... 19,088 19,088
Furniture and fixtures...................................... 102,544 102,544
Vehicles.................................................... 18,051 --
Other....................................................... 15,547 15,547
--------- ---------
659,846 641,795
Less accumulated depreciation............................... (510,328) (539,873)
--------- ---------
$ 149,518 $ 101,922
========= =========
</TABLE>
F-72
<PAGE> 140
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
10% note payable due in 180 monthly installments of $526
principal and interest through January 2000............... $ 20,760 $ 16,705
8% note payable due in 120 monthly installments of $89
principal and interest through July 1996.................. 2,182 --
8.25% note payable due in 173 monthly installments of $1,050
principal and interest through May 2003................... 69,366 62,840
Bank term loan payable due in 102 monthly installments of
$143 principal and interest at 1% over the Wall Street
Journal's prime rate, through September 2, 1996........... 1,501 --
Line of credit secured by the Clinic's receivables,
equipment and inventory, payable in monthly installments.
A final payment of the unpaid principal balance plus
accrued interest is due and payable December 1, 2001. The
interest rate is 2.75% over the Wall Street Journal's
prime rate................................................ 86,466 104,342
-------- --------
180,275 183,887
Less current portion........................................ (24,795) (22,330)
-------- --------
$155,480 $161,557
======== ========
</TABLE>
Maturities under the long-term debt agreements described above are as
follows:
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
Month ending December 31, 1996.............................. $ 1,860
Year ending December 31:
1997...................................................... 22,370
1998...................................................... 35,254
1999...................................................... 39,307
2000...................................................... 36,113
2001...................................................... 33,704
Thereafter................................................ 15,279
--------
$183,887
========
</TABLE>
4. LEASE COMMITMENTS
Rent expense relating primarily to operating leases for office space is
classified as building and equipment rent in the accompanying combined
statements of operations.
F-73
<PAGE> 141
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease commitments under noncancelable operating leases (with
an initial or remaining term in excess of one year) at November 30, 1996 are as
follows (including related party leases):
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 3,458
Year ending December 31:
1997...................................................... 41,494
1998...................................................... 41,494
1999...................................................... 41,494
2000...................................................... 41,494
2001...................................................... 41,494
Thereafter................................................ 65,699
--------
Total minimum lease obligations................... $276,627
========
</TABLE>
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Noncurrent:
Net operating loss carryforward........................... $ 31,433 $33,237
-------- -------
Total deferred tax assets......................... 31,433 33,237
DEFERRED TAX LIABILITIES
Current:
Accrual to cash........................................... 141,368 89,277
-------- -------
Net deferred tax liabilities...................... $109,935 $56,040
======== =======
</TABLE>
Components of the income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN-MONTH PERIOD ENDED
DECEMBER 31, 1995 NOVEMBER 30, 1996
--------------------------- -----------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Federal................................... $2,476 $2,835 $5,311 $3,871 $(41,129) $(37,258)
State..................................... 1,793 880 2,673 2,802 (12,766) (9,964)
------ ------ ------ ------ -------- --------
$4,269 $3,715 $7,984 $6,673 $(53,895) $(47,222)
====== ====== ====== ====== ======== ========
</TABLE>
F-74
<PAGE> 142
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31 NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Income taxes at the statutory rate.......................... $ 6,742 $(36,821)
Permanent differences....................................... 2,532 (6,845)
State taxes, net of federal benefit......................... 1,684 2,459
Benefit of graduated rates.................................. (3,082) (4,815)
Personal service corporation status......................... 108 (1,200)
------- --------
$ 7,984 $(47,222)
======= ========
</TABLE>
SFAS 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that no valuation allowance at December 31, 1995 and November 30,
1996 is necessary to reduce the deferred tax assets to the amount that will more
likely than not be realized. At November 30, 1996, the Company has available net
operating loss carryforwards of approximately $83,000, which expire in the year
2011.
6. MALPRACTICE INSURANCE
The Company carries claims-made malpractice insurance for each of its
physicians. This insurance provides coverage of $1,000,000 per incident, with a
$2,000,000 aggregate annual limit. In addition, the Company has an umbrella
policy which provides coverage of $1,000,000 per claim, with a $3,000,000
aggregate annual limit. Management is not aware of any reported claims pending
against the Company not covered by its malpractice insurance policy. Losses
resulting from unreported claims cannot be estimated by management and,
therefore, are not included in the accompanying combined financial statements.
7. RETIREMENT PLAN
The Company maintains an employee savings and profit sharing plan under
Section 401(k) of the Internal Revenue Code. The plan covers substantially all
employees. Under the plan, the Company may make discretionary contributions
subject to various limits. Total Company expense related to this plan was
approximately $7,000 for the year ended December 31, 1995 and $10,000 for the
eleven-month period ended November 30, 1996.
8. RELATED PARTY TRANSACTIONS
The Company leases office space from the general stockholder. Rent expense
on these leases amounted to approximately $125,000 for the year ended December
31, 1995 and $114,000 for the eleven-month period ended November 30, 1996.
F-75
<PAGE> 143
CAMBRIDGE EYE CLINIC, P. A. --
JOHN W. LAHR, OPTOMETRIST, P.A. AND
EYEGLASS EXPRESS OPTICAL LAB, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 116,000 shares of Vision common stock. In connection therewith,
the Company entered into a 40-year business management agreement with Vision,
whereby Vision will provide substantially all nonmedical services to the
practice.
The financial statements of the Company have been prepared as supplemental
information about the association to which Vision will provide management
services following consummation of the acquisition. The Company previously
operated as a separate independent association. The historical financial
position, results of operations and cash flows do not reflect any adjustments
relating to the acquisition.
F-76
<PAGE> 144
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Optometric Eye Care Centers, P.A.
We have audited the accompanying balance sheets of Optometric Eye Care
Centers, P.A. as of December 31, 1995 and November 30, 1996, and the related
statements of income, stockholders' equity, and cash flows for the year ended
December 31, 1995 and the eleven-month period ended November 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Optometric Eye Care Centers,
P.A. at December 31, 1995 and November 30, 1996, and the results of its
operations and its cash flows for the year ended December 31, 1995 and the
eleven-month period ended November 30, 1996 in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
January 17, 1997
F-77
<PAGE> 145
OPTOMETRIC EYE CARE CENTERS, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 23,954 $ 19,271
Accounts receivable, net of allowances for uncollectible
accounts of approximately $1,000 at December 31, 1995
and November 30, 1996.................................. 79,508 71,152
Inventories............................................... 82,397 109,106
Deferred tax asset........................................ -- 238
Other current assets...................................... 392 3,300
-------- --------
Total current assets.............................. 186,251 203,067
Deferred tax asset.......................................... 5,020 10,772
Property, equipment and improvements........................ 68,858 37,002
-------- --------
Total assets...................................... $260,129 $250,841
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 44,376 $ 54,642
Income taxes payable...................................... -- 3,096
Current maturities of obligations under capital leases.... 7,002 3,744
Current maturities of long-term debt...................... 24,196 27,132
-------- --------
Total current liabilities......................... 75,574 88,614
Long-term debt.............................................. 87,262 61,963
Obligations under capital leases............................ 18,644 6,817
Stockholders' equity:
Common stock, $1 par value: 2,500 shares authorized; 1,000
shares issued and outstanding.......................... 1,000 1,000
Retained earnings......................................... 77,649 92,447
-------- --------
Total stockholders' equity........................ 78,649 93,447
-------- --------
Total liabilities and stockholders' equity........ $260,129 $250,841
======== ========
</TABLE>
See accompanying notes.
F-78
<PAGE> 146
OPTOMETRIC EYE CARE CENTERS, P.A.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $ 213,384 $ 242,793
Sale of optical goods..................................... 811,509 820,392
Other..................................................... 7,775 1,780
---------- ----------
Total revenues.................................... 1,032,668 1,064,965
Expenses:
Compensation -- physician stockholders.................... 192,463 218,126
Salaries, wages and benefits.............................. 252,922 247,992
Cost of optical goods sold................................ 333,145 310,367
General and administrative................................ 102,887 139,730
Contract services......................................... 1,766 15,170
Optical and clinical supplies............................. 7,893 10,893
Insurance................................................. 9,945 2,164
Building and equipment rent............................... 56,717 52,361
Depreciation and amortization............................. 43,987 33,111
Interest.................................................. 18,741 15,081
---------- ----------
Total expenses.................................... 1,020,466 1,044,995
---------- ----------
Income before income taxes.................................. 12,202 19,970
Provision for income taxes.................................. 2,815 5,172
---------- ----------
Net income........................................ $ 9,387 $ 14,798
========== ==========
</TABLE>
See accompanying notes.
F-79
<PAGE> 147
OPTOMETRIC EYE CARE CENTERS, P.A.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED STOCKHOLDERS'
NUMBER AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995............................... 1,000 $1,000 $68,262 $69,262
Net income............................................. -- -- 9,387 9,387
----- ------ ------- -------
BALANCE AT DECEMBER 31, 1995............................. 1,000 $1,000 77,649 78,649
Net income............................................. -- -- 14,798 14,798
----- ------ ------- -------
BALANCE AT NOVEMBER 30, 1996............................. 1,000 $1,000 $92,447 $93,447
===== ====== ======= =======
</TABLE>
See accompanying notes.
F-80
<PAGE> 148
OPTOMETRIC EYE CARE CENTERS, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 9,387 $ 14,798
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 43,987 33,111
Changes in assets and liabilities:
Patient accounts receivable, net....................... (9,766) 8,356
Inventories............................................ (3,928) (26,709)
Other current assets................................... 1,658 (2,908)
Deferred income taxes.................................. (6,891) (5,990)
Accounts payable and accrued expenses.................. 5,435 10,266
Income taxes payable................................... -- 3,096
-------- --------
Net cash provided by operating activities......... 39,882 34,020
INVESTING ACTIVITIES
Purchases of property plant and equipment................... -- (1,255)
-------- --------
Net cash used in investing activities....................... -- (1,255)
FINANCING ACTIVITIES
Repayment of long-term debt................................. (21,351) (22,363)
Repayment of capital lease obligations...................... (6,065) (15,085)
-------- --------
Net cash used in financing activities....................... (27,416) (37,448)
-------- --------
Net increase (decrease) in cash............................. 12,466 (4,683)
Cash at beginning of period................................. 11,488 23,954
-------- --------
Cash at end of period....................................... $ 23,954 $ 19,271
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ 18,741 $ 15,081
======== ========
Cash paid during the year for income taxes.................. $ 3,900 $ 4,200
======== ========
</TABLE>
See accompanying notes.
F-81
<PAGE> 149
OPTOMETRIC EYE CARE CENTERS, P.A.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Optometric Eye Care Centers, P.A. (the Company), a Minnesota corporation,
operates a professional medical practice, specializing in general optometry. The
Company's service area is Fridley, Minnesota, and the surrounding communities of
Minneapolis, Minnesota.
INVENTORIES
Inventories consist primarily of optical lenses, contact lenses and
eyeglass frames (collectively, "optical goods"). Inventories are stated at the
lower of cost or market, with cost determined on a first-in, first-out basis.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation is
computed using straight-line and accelerated methods, with the assets' useful
lives estimated at five to seven years. Routine maintenance and repairs are
charged to expense as incurred, while costs of betterments and renewals are
capitalized.
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Medical equipment........................................... $ 137,125 $ 137,551
Leasehold improvements...................................... 94,971 94,971
Office equipment and furniture.............................. 34,795 35,624
--------- ---------
266,891 268,146
Less accumulated depreciation and amortization.............. (198,033) (231,144)
--------- ---------
$ 68,858 $ 37,002
========= =========
</TABLE>
Included in medical equipment as of December 31, 1995 and November 30, 1996
are assets acquired through capital leases with original costs of approximately
$38,000.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash reported in the financial statements reflects
its fair value because of the short-term maturity of this financial instrument.
It is not practicable to estimate the fair value of the Company's long-term debt
and obligations under capital lease because the Company's incremental borrowing
rate cannot reasonably be determined.
PATIENT SERVICE REVENUES
Net patient service revenues are based on establishing billing rates, less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which are based on predetermined rates, are generally
less than the Company's established billing rates and the differences are
recorded as contractual adjustments at the time the related service is rendered.
For the year ended December 31, 1995, approximately 6% and 81% of the
Company's gross patient service revenues were derived from Medicare and various
third-party programs, respectively. For the eleven-month period ended November
30, 1996, approximately 5% and 76% of the Company's gross patient service
revenues were derived from Medicare and various third-party programs,
respectively. The Company does not believe that there are any credit risks
associated with receivables due from governmental agencies.
F-82
<PAGE> 150
OPTOMETRIC EYE CARE CENTERS, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of credit risk from other payors is limited by the number of
patients and payors. The Company does not require any form of collateral from
its patients or third-party payors.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential wrong
doing. While no such regulatory inquires have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Bank term loan, bearing interest at prime plus 2.5% (11.00%
and 11.25% at December 31, 1995 and November 30, 1996,
respectively), payable in equal monthly installments of
$2,957 (principal and interest) through October 1999...... $111,458 $ 89,095
Less current portion........................................ (24,196) (27,132)
-------- --------
$ 87,262 $ 61,963
======== ========
</TABLE>
As of November 30, 1996, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Month ending December 1996.................................. $ 2,149
Year ending December 31:
1997...................................................... 27,377
1998...................................................... 30,545
1999...................................................... 29,024
-------
$89,095
=======
</TABLE>
F-83
<PAGE> 151
OPTOMETRIC EYE CARE CENTERS, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LEASE COMMITMENTS
Future minimum lease commitments under noncancelable operating and capital
leases (with an initial or remaining term in excess of one year) at November 30,
1996 are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Month ending December 1996.................................. $ 3,256 $ 416
Year ending December 31:
1997...................................................... 31,224 4,990
1998...................................................... 27,330 4,990
1999...................................................... 2,275 2,159
------- -------
Total minimum lease payments...................... $64,085 12,555
=======
Less amount representing interest........................... (1,994)
-------
Present value of minimum lease payments (including current
portion of $4,080)........................................ $10,561
=======
</TABLE>
4. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Current:
Allowance for doubtful accounts........................... $ -- $ 238
Noncurrent:
Depreciation expense...................................... 5,020 10,772
------ -------
Total deferred tax assets......................... $5,020 $11,010
====== =======
</TABLE>
Components of the income tax provision (benefit) consist of the following:
<TABLE>
<CAPTION>
ELEVEN-MONTH PERIOD ENDED
YEAR ENDED DECEMBER 31, 1995 NOVEMBER 30, 1996
------------------------------ ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
-------- --------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal....................... $5,436 $(3,996) $1,440 $ 6,473 $(3,474) $2,999
State......................... 4,270 (2,895) 1,375 4,689 (2,516) 2,173
------ ------- ------ ------- ------- ------
$9,706 $(6,891) $2,815 $11,162 $(5,990) $5,172
====== ======= ====== ======= ======= ======
</TABLE>
F-84
<PAGE> 152
OPTOMETRIC EYE CARE CENTERS, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Income taxes at the statutory rate........................ $ 4,149 $ 6,790
Permanent differences..................................... 256 1,436
State taxes, net of federal benefit....................... 963 748
Benefit of graduated rates................................ (2,553) (3,802)
------- -------
$ 2,815 $ 5,172
======= =======
</TABLE>
5. MALPRACTICE INSURANCE
The Company carries malpractice insurance for each of its physicians
written on an occurrence basis. This insurance provides coverage of $1 million
per incident, with a $2 million annual limit. In addition, the Company has an
umbrella policy which provides coverage of $3 million per incident, with a $3
million annual limit. Management is not aware of any reported claims pending
against the Company. Losses resulting from unreported claims cannot be estimated
by management and, therefore, are not included in the accompanying financial
statements.
6. RELATED PARTY TRANSACTIONS
The physician stockholders of the Company provide all optometry services
for the Company and their salaries and related benefits are reported as
compensation -- physician stockholders in the accompanying statements of income.
Salaries and benefits of approximately $18,000 and $19,000 for the year ended
December 31, 1995 and the eleven-month period ended November 30, 1996,
respectively, which are paid to a related party, are included in salaries, wages
and benefits in the accompanying statements of income.
7. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 94,700 shares of Vision common stock and notes of approximately
$46,800. In connection therewith, the Company entered into a 40-year business
management agreement with Vision, whereby Vision, will provide substantially all
nonmedical services to the practice.
The financial statements of the Company have been prepared as supplemental
information about the associations to which Vision will provide management
services following consummation of the acquisition. The Company previously
operated as a separate independent association. The historical financial
position, results of operations and cash flows do not reflect any adjustments
relating to the acquisition.
F-85
<PAGE> 153
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholder
Jerald B. Turner, M.D., P.A.
We have audited the accompanying balance sheets of Jerald B. Turner, M.D.,
P.A. as of December 31, 1995 and November 30, 1996, and the related statements
of income, stockholder's equity, and cash flows for the year ended December 31,
1995 and the eleven-month period ended November 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jerald B. Turner, M.D., P.A.
at December 31, 1995 and November 30, 1996, and the results of its operations
and its cash flows for the year ended December 31, 1995 and the eleven-month
period ended November 30, 1996 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Tampa, Florida
February 26, 1997
F-86
<PAGE> 154
JERALD B. TURNER, M.D., P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 59,029 $297,516
Patient accounts receivable, net of allowances for
uncollectible accounts of approximately $14,000 and
$15,000 at December 31, 1995 and November 30, 1996,
respectively........................................... 146,336 178,977
Inventories............................................... 25,020 32,134
Prepaid expenses and other current assets................. 9,566 23,791
-------- --------
Total current assets.............................. 239,951 532,418
Property, equipment and improvements, net................... 194,695 389,626
-------- --------
Total assets...................................... $434,646 $922,044
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 10,072 $ 14,666
Accrued salaries, wages and benefits...................... 59,539 128,192
Note payable to stockholder............................... -- 293,262
-------- --------
Total current liabilities......................... 69,611 436,120
Stockholder's equity:
Common stock, $1 par value: 7,500 shares authorized; 500
shares issued and outstanding.......................... 500 500
Additional paid-in capital................................ 7,822 7,822
Retained earnings......................................... 356,713 477,602
-------- --------
Total stockholder's equity........................ 365,035 485,924
-------- --------
Total liabilities and stockholder's equity........ $434,646 $922,044
======== ========
</TABLE>
See accompanying notes.
F-87
<PAGE> 155
JERALD B. TURNER, M.D., P.A.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $1,262,429 $1,520,911
Sales of optical goods.................................... 13,123 90,407
Other..................................................... 816 2,568
---------- ----------
Total revenues.................................... 1,276,368 1,613,886
Expenses:
Compensation to physician stockholder..................... 526,735 423,641
Salaries, wages and benefits.............................. 414,263 682,687
Cost of optical goods sold................................ 8,439 37,857
Medical supplies.......................................... 20,909 20,824
Optical supplies.......................................... 1,709 6,972
General and administrative................................ 80,054 119,429
Insurance................................................. 11,272 14,415
Building rent............................................. 67,998 61,531
Depreciation.............................................. 67,552 113,577
Repairs and maintenance................................... 9,070 4,269
Interest.................................................. -- 7,795
---------- ----------
Total expenses.................................... 1,208,001 1,492,997
---------- ----------
Net income........................................ $ 68,367 $ 120,889
========== ==========
</TABLE>
See accompanying notes.
F-88
<PAGE> 156
JERALD B. TURNER, M.D., P.A.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995...................... 500 $500 $7,822 $288,346 $296,668
Net income.................................... -- -- -- 68,367 68,367
--- ---- ------ -------- --------
BALANCE AT DECEMBER 31, 1995.................... 500 500 7,822 356,713 365,035
Net income.................................... -- -- -- 120,889 120,889
--- ---- ------ -------- --------
BALANCE AT NOVEMBER 30, 1996.................... 500 $500 $7,822 $477,602 $485,924
=== ==== ====== ======== ========
</TABLE>
See accompanying notes.
F-89
<PAGE> 157
JERALD B. TURNER, M.D., P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 68,367 $120,889
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 67,552 113,577
Loss on disposal of property, equipment and
improvements........................................... -- 1,600
Changes in operating assets and liabilities:
Increase in patient accounts receivable, net........... (9,749) (32,641)
Increase in inventories................................ (25,020) (7,114)
Decrease (increase) in prepaid expenses and other
current assets........................................ 4,043 (14,225)
Increase in accounts payable and accrued expenses...... 8,031 4,594
Increase in accrued salaries, wages and benefits....... 8,877 68,653
--------- --------
Net cash provided by operating activities......... 122,101 255,333
INVESTING ACTIVITIES
Purchases of property, equipment and improvements........... (113,451) (16,846)
--------- --------
Net cash used in investing activities....................... (113,451) (16,846)
FINANCING ACTIVITIES
Net cash provided by financing activities................... -- --
--------- --------
Increase in cash............................................ 8,650 238,487
Cash at beginning of period................................. 50,379 59,029
--------- --------
Cash at end of period....................................... $ 59,029 $297,516
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest...................... $ -- $ 5,605
========= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITY
Note payable incurred to acquire property, equipment and
improvements.............................................. $ -- $293,262
========= ========
</TABLE>
See accompanying notes.
F-90
<PAGE> 158
JERALD B. TURNER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Jerald B. Turner, M.D., P.A., a Florida corporation (the Company), operates
a professional medical practice, specializing in general ophthalmology. The
Company's service area is Clearwater, Florida, and surrounding communities in
Pinellas County, Florida.
INVENTORIES
Inventories consist primarily of optical lenses, contact lenses and
eyeglass frames (collectively, "optical goods"). Inventories are stated at the
lower of cost or market, with cost determined on a first-in, first-out basis.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation is
computed using straight-line and accelerated methods, with the assets' useful
lives estimated at five to ten years for equipment, furniture and fixtures, and
seven to thirty-nine years for leasehold improvements. Routine maintenance and
repairs are charged to expense as incurred, while costs of betterments and
renewals are capitalized.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which generally are based on predetermined rates, are
generally less than the Company's established billing rates, and the differences
are recorded as contractual adjustments at the time the related service is
rendered.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, approximately 61% and 64%, respectively, of the Company's net
patient service revenues were derived from third-party payors (Medicare,
Medicaid and managed care contracts). The Company does not believe that there
are any credit risks associated with receivables due from governmental agencies.
Concentration of credit risk from other payors is limited by the number of
patients and payors. The Company does not require any form of collateral from
its patients or third-party payors.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential
wrongdoing. While no such regulatory inquiries have been made, compliance with
such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
INCOME TAXES
The Company has elected to have its income taxed as an S Corporation under
the federal Internal Revenue Code. As a result, in lieu of corporate income tax,
the Company's taxable income is passed through to the stockholder of the Company
and taxed at the individual level. Accordingly, no provision or liability for
federal income tax has been reflected in these financial statements.
F-91
<PAGE> 159
JERALD B. TURNER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount for cash reported in the balance sheets approximates
its fair value because of its short-term nature. It is not practicable to
estimate the fair value of the Company's note payable to stockholder due to its
related party nature.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying footnotes. Actual results could differ from those estimates.
2. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Medical equipment.......................................... $ 368,662 $ 567,746
Computer equipment......................................... 66,885 132,494
Furniture and fixtures..................................... 141,177 152,755
Leasehold improvements..................................... 3,800 26,421
--------- ---------
580,524 879,416
Less accumulated depreciation.............................. (385,829) (489,790)
--------- ---------
$ 194,695 $ 389,626
========= =========
</TABLE>
3. OPERATING LEASES
The Company leases office space at $1,148 per month under a short-term
operating lease expiring July 31, 1997 and a month-to-month lease in a space
owned by the physician stockholder for $5,000 per month. Lease agreements
generally provide for the payment of taxes, insurance, utilities and repairs by
the lessee.
4. NOTE PAYABLE TO STOCKHOLDER
On November 15, 1996, the Company entered into an unsecured demand note
agreement for approximately $293,000 at 9% with its principal stockholder,
Jerald B. Turner, M.D. The proceeds were used during the eleven-month period
ended November 30, 1996 to purchase property, equipment and improvements and
interest is payable monthly. Interest expense during the eleven-month period
ended November 30, 1996 amounted to $7,795.
5. MALPRACTICE INSURANCE
The Company carries claims-made medical malpractice insurance for each of
its physicians. This insurance provides coverage of $1,000,000 per incident,
with a $3,000,000 aggregate annual limit. In the normal course of business, the
Company has been named in various medical malpractice lawsuits; however,
management is not aware of any reported claims currently pending against the
Company. Losses from unreported claims cannot be estimated by management and,
therefore, are not included in the accompanying financial statements.
F-92
<PAGE> 160
JERALD B. TURNER, M.D., P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. PROFIT SHARING PLAN
The Company maintains an employee profit sharing plan covering
substantially all employees and the physician stockholder. Under the Plan, the
Company may make discretionary contributions subject to various limits. Total
Company expense related to this plan was approximately $53,000 and $64,000 for
the year ended December 31, 1995 and the eleven-month period ended November 30,
1996, respectively. Company contributions to the physician stockholder are
included in compensation to physician stockholder in the accompanying statements
of income.
7. SUBSEQUENT EVENTS
OPERATING LEASE AGREEMENT WITH PHYSICIAN STOCKHOLDER
On December 1, 1996, the Company and the physician stockholder executed a
long-term lease agreement expiring in the year 2001 under which the Company
leases office space in a building owned by the physician stockholder. The lease
agreement provides for the payment of taxes, insurance, utilities and repairs by
the lessee. The Company, at its option, can renew the lease at rental rates
adjusted by the consumer price index.
Future minimum lease payments as of November 30, 1996 are as follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 7,782
Year ending December 31,
1997...................................................... 93,380
1998...................................................... 93,380
1999...................................................... 93,380
2000...................................................... 93,380
2001...................................................... 85,598
Thereafter................................................ --
--------
$466,900
========
</TABLE>
SALE OF ASSETS
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 194,000 shares of Vision common stock and notes of approximately
$231,000. In connection therewith, Jerald B. Turner, M.D., principal
stockholder, entered into a 40-year business management agreement with Vision,
whereby Vision will provide substantially all nonmedical services to the
practice.
The financial statements of the Company have been prepared as supplemental
information about the associations to which Vision will provide management
services following consummation of the acquisition. The Company previously
operated as a separate independent association. The historical financial
position, results of operations and cash flows do not reflect any adjustments
relating to the acquisition.
F-93
<PAGE> 161
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Gillette, Beiler & Associates, P.A.
We have audited the accompanying balance sheets of Gillette, Beiler &
Associates, P.A. as of December 31, 1995 and November 30, 1996, and the related
statements of operations, stockholders' deficit, and cash flows for the year
ended December 31, 1995 and the eleven-month period ended November 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gillette, Beiler &
Associates, P.A. at December 31, 1995 and November 30, 1996, and the results of
its operations and its cash flows for the year ended December 31, 1995 and the
eleven-month period ended November 30, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
March 22, 1997
F-94
<PAGE> 162
GILLETTE, BEILER & ASSOCIATES, P.A.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 52,425 $ 16,846
Patient accounts receivable, net of allowance for
doubtful accounts of $14,000 in 1995 and $32,000 in
1996.................................................. 87,602 105,932
Due from related party................................... 27,741 79,722
--------- ---------
Total current assets............................. 167,768 202,500
Property and equipment, net................................ 179,243 187,023
Goodwill................................................... -- 127,574
--------- ---------
Total assets..................................... $ 347,011 $ 517,097
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accrued compensation..................................... $ 183,147 $ 221,962
Accounts payable and accrued expenses.................... 62,855 32,794
Current portion of loans payable to stockholder.......... 37,094 58,832
Notes payable and current portion of long-term debt...... 180,693 154,413
Due to related parties................................... -- 144,941
--------- ---------
Total current liabilities........................ 463,789 612,942
Loans payable to stockholder, less current portion......... 58,832 --
Long-term debt, less current portion....................... 162,832 93,926
Deferred rent payable...................................... 264,032 263,163
Other long-term liabilities................................ 18,012 14,834
Stockholders' deficit:
Common stock, $.01 par value: 50,000 shares authorized;
37,775 and 40,500 shares issued and outstanding in
1995 and 1996, respectively........................... 378 405
Additional paid-in capital............................... -- 127,547
Accumulated deficit...................................... (620,864) (595,720)
--------- ---------
Total stockholders' deficit...................... (620,486) (467,768)
--------- ---------
Total liabilities and stockholders' deficit...... $ 347,011 $ 517,097
========= =========
</TABLE>
See accompanying notes.
F-95
<PAGE> 163
GILLETTE, BEILER & ASSOCIATES, P.A.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $2,752,187 $3,086,443
Patient service revenue -- related party.................. 298,543 190,376
Other income.............................................. 53,336 --
---------- ----------
Total revenues.................................... 3,104,066 3,276,819
Expenses:
Salaries and benefits -- optometrists..................... 1,832,844 1,856,888
Salaries and benefits -- other............................ 156,712 193,676
Management fees to related party.......................... 423,890 479,004
Advertising............................................... 25,236 16,187
Professional fees......................................... 55,326 12,600
General and administrative................................ 75,345 138,006
Medical supplies.......................................... 27,513 23,924
Insurance................................................. 30,116 50,552
Building and equipment rent............................... 452,695 400,586
Depreciation and amortization............................. 36,880 49,763
Interest.................................................. 41,693 30,489
---------- ----------
Total expenses.................................... 3,158,250 3,251,675
---------- ----------
Net income (loss)................................. $ (54,184) $ 25,144
========== ==========
</TABLE>
See accompanying notes.
F-96
<PAGE> 164
GILLETTE, BEILER & ASSOCIATES, P.A.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDERS'
NUMBER AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995..................... 37,775 $378 $ -- $(565,005) $(564,627)
Distributions.............................. -- -- -- (1,675) (1,675)
Net loss................................... -- -- -- (54,184) (54,184)
------ ---- -------- --------- ---------
BALANCE, DECEMBER 31, 1995................... 37,775 378 -- (620,864) (620,486)
Purchase of minority interest.............. 2,725 27 127,547 -- 127,574
Net income................................. -- -- -- 25,144 25,144
------ ---- -------- --------- ---------
BALANCE, NOVEMBER 30, 1996................... 40,500 $405 $127,547 $(595,720) $(467,768)
====== ==== ======== ========= =========
</TABLE>
See accompanying notes.
F-97
<PAGE> 165
GILLETTE, BEILER & ASSOCIATES, P.A.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ (54,184) $ 25,144
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 36,880 49,763
Provision for bad debts................................... 14,000 17,573
Amortization of deferred rent and other................... 53,050 (12,817)
(Gain) loss on disposal of fixed assets................... (22,909) --
Changes in assets and liabilities:
Patient accounts receivable............................ (62,436) (35,903)
Due from related party................................. (10,183) (51,981)
Accrued compensation................................... 144,612 38,815
Accounts payable and accrued expenses.................. 20,077 (21,291)
Due to related parties................................. -- 144,941
--------- ---------
Net cash provided by operating activities......... 118,907 154,244
INVESTING ACTIVITIES
Purchases of property and equipment......................... (187,004) (57,543)
Proceeds from disposal of fixed assets...................... 37,909 --
--------- ---------
Net cash used in investing activities............. (149,095) (57,543)
FINANCING ACTIVITIES
Borrowings on revolving credit note......................... -- 196,012
Payments of revolving credit note........................... -- (222,627)
Proceeds from issuance of long-term debt.................... 276,737 13,179
Payments of long-term debt.................................. (167,052) (81,750)
Payments of related party debt.............................. (49,109) (37,094)
--------- ---------
Net cash provided by (used in) financing
activities.................................................. 60,576 (132,280)
--------- ---------
Increase (decrease) in cash................................. 30,388 (35,579)
Cash at beginning of period................................. 22,037 52,425
--------- ---------
Cash at end of period....................................... $ 52,425 $ 16,846
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 39,000 $ 34,000
========= =========
Goodwill recorded in connection with purchase of minority
interest.................................................. $ -- $ 127,574
========= =========
</TABLE>
See accompanying notes.
F-98
<PAGE> 166
GILLETTE, BEILER & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION
Gillette, Beiler & Associates, P.A., a Florida corporation, operates
professional optometry practices in 11 VisionWorks stores located in the Tampa
Bay area.
The following corporations (the Predecessor Practices) previously operated
as entities under common control:
Drs. Gillette, Beiler & Associates, P.A.
Dr. Gillette & Associates, Tampa, P.A.
Dr. Gillette & Associates, St. Petersburg, P.A.
Dr. Gillette & Associates, Palm Harbor, P.A.
Dr. Gillette & Associates, Sarasota, P.A.
Dr. Gillette & Associates, St. Petersburg East, P.A.
Dr. Gillette & Associates, North Tampa, P.A.
Dr. Gillette & Associates, South Tampa, P.A.
Dr. Gillette & Associates, #6978, P.A.
Effective November 27, 1996, the Predecessor Practices merged with Dr.
Gillette & Associates, #6965, P.A. (the Surviving Practice). On December 31,
1996, the Surviving Practice changed its name to Gillette, Beiler & Associates,
P.A. (the Company). Each outstanding share of the Predecessor Practices was
converted into shares of the Company. This transaction was accounted for as a
reorganization of companies under common control in a manner similar to that
used in a pooling of interests transaction, except for a minority interest which
was recorded under the purchase method. The accompanying financial statements
have been prepared to reflect the accounts of the Company as if the
reorganization had occurred as of the beginning of the earliest period
presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed using
the straight-line method, with the assets' useful lives estimated at five to
seven years. Routine maintenance and repairs are charged to expense as incurred,
while costs of betterments and renewals are capitalized.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Office furniture and equipment.............................. $ 765,350 $ 822,893
Less accumulated depreciation............................... (586,107) (635,870)
--------- ---------
$ 179,243 $ 187,023
========= =========
</TABLE>
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts receivable and short-term borrowings
reported in the financial statements reflect their fair value because of the
short-term maturity of those financial instruments. It is not practicable to
estimate the fair value of the Company's long-term debt and other noncurrent
liabilities because the Company's incremental borrowing rate cannot reasonably
be determined.
F-99
<PAGE> 167
GILLETTE, BEILER & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates, less
allowances and contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which are based on predetermined rates, are generally
less than the Company's established billing rates and the differences are
recorded as contractual adjustments at the time the related service is rendered.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, patient service revenue -- related party was earned through
contractual arrangements between the Company and an association under common
control.
The Company does not believe that there are any credit risks associated
with receivables due from governmental agencies. Concentration of credit risk
from other payors is limited by the number of patients and payors. The Company
does not require any form of collateral from its patients or third-party payors.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential wrong
doing. While no such regulatory inquires have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
ADVERTISING COSTS
The Company expenses advertising costs as incurred.
INCOME TAXES
The Company has elected to have its income taxed as an S corporation under
the federal Internal Revenue Code. As a result, in lieu of corporate income tax,
the Company's taxable income is passed through to the stockholders of the
Company and taxed at the individual level. Accordingly, no provision or
liability for federal income tax has been reflected in the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTANGIBLE ASSETS
Goodwill is being amortized over its estimated useful life of 40 years.
F-100
<PAGE> 168
GILLETTE, BEILER & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Notes payable under $100,000 line of credit, due on demand.
Interest due monthly at prime plus 1% (9.5% at December
31, 1995 and 9.25% at November 30, 1996). The note is
collateralized by accounts receivable..................... $ 94,475 $ 67,860
Bank term loans due in monthly installments of $663
(principal and interest) through 2000. The loans bear
interest at 12.5% and 14% and are collateralized by
certain equipment. The loans were refinanced with a bank
in 1997 and will be due on demand......................... 28,066 23,907
Notes payable to a corporation due in monthly installments
of $7,218 (principal and interest) through 2000. The notes
bear interest ranging from the prime rate plus .5% to the
prime rate plus 2% (8.75% to 10.25% at November 30, 1996)
and are collateralized by certain equipment............... 220,984 156,572
-------- ---------
343,525 248,339
Less current portion........................................ (180,693) (154,413)
-------- ---------
$162,832 $ 93,926
======== =========
</TABLE>
As of November 30, 1996, maturity of long-term debt is as follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 74,463
Year ending December 31:
1997...................................................... 79,950
1998...................................................... 41,411
1999...................................................... 41,906
2000...................................................... 10,609
--------
$248,339
========
</TABLE>
F-101
<PAGE> 169
GILLETTE, BEILER & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LOANS PAYABLE TO STOCKHOLDER
Loans payable to stockholder consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Note payable to the majority stockholder of the Company due
in monthly installments of $2,005 (principal and
interest) through 1999. The note bears interest at 9.75%
and is collateralized by certain equipment. The note was
refinanced with a bank in 1997........................... $ 75,093 $ 58,832
Unsecured note payable to the majority stockholder of the
Company due in monthly principal installments of $2,083
through 1996, plus interest at the rate of prime plus 1%.
The note was fully paid in 1996.......................... 18,750 --
Note payable to the majority stockholder of the Company due
in monthly principal installments of $694 through 1996
plus interest at the rate of prime plus 2%. The note was
collateralized by certain equipment, and was fully paid
in 1996.................................................. 2,083 --
-------- --------
95,926 58,832
Less current portion....................................... (37,094) (58,832)
-------- --------
$ 58,832 $ --
======== ========
</TABLE>
5. LEASE COMMITMENTS
Future minimum lease commitments under noncancelable operating leases (with
an initial or remaining term in excess of one year) at November 30, 1996 are as
follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 38,217
Year ending December 31,
1997...................................................... 458,604
1998...................................................... 465,604
1999...................................................... 470,604
2000...................................................... 477,604
2001...................................................... 482,604
Thereafter................................................ 2,393,117
----------
$4,786,354
==========
</TABLE>
6. MALPRACTICE INSURANCE
The Company carries claims-made malpractice insurance for each of its
optometrists. This insurance provides coverage of $1 million per incident, with
a $3 million annual limit.
Management is aware of a claim pending against the Company. The claim,
which alleges medical malpractice, is currently in the discovery stage and no
trial date has been set. The Company, through its insurer, plans to vigorously
contest the case. In the opinion of management, this litigation will not have a
material adverse effect on the financial condition of the Company.
Losses resulting from unreported claims cannot be estimated by management
and, therefore, are not included in the accompanying financial statements.
7. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (a related company -- Vision)
in exchange for 560,957 shares of Vision common stock and notes of $416,103. In
connection with this transaction, the Company entered into a 40-year business
management agreement with Vision, whereby Vision will provide substantially all
nonmedical services to the practice.
F-102
<PAGE> 170
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
J & R Kennedy, O.D., P.A.
and Roseville Opticians, Inc.
We have audited the accompanying combined balance sheets of J & R Kennedy,
O.D., P.A. and Roseville Opticians, Inc. as of December 31, 1995 and November
30, 1996, and the related combined statements of income, stockholder's equity,
and cash flows for the year ended December 31, 1995 and the eleven-month period
ended November 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of J & R Kennedy,
O.D., P.A. and Roseville Opticians, Inc. at December 31, 1995 and November 30,
1996, and the combined results of their operations and their cash flows for the
year ended December 31, 1995 and the eleven-month period ended November 30, 1996
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
March 21, 1997
F-103
<PAGE> 171
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 25 $ 4,761
Patient accounts receivable............................... 71,488 77,529
Due from stockholder...................................... 1,623 2,779
Inventories............................................... 104,787 107,827
Prepaid expenses and other current assets................. 7,646 5,972
-------- --------
Total current assets.............................. 185,569 198,868
Property, equipment and improvements, net................... 75,238 76,848
Noncurrent deferred tax asset............................... -- 8,309
-------- --------
Total assets...................................... $260,807 $284,025
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Bank overdraft............................................ $ 30,980 $ 3,547
Accounts payable and accrued expenses..................... 67,374 88,606
Taxes payable............................................. 6,993 17,006
Current deferred tax liability............................ 14,130 14,076
Current maturities of long-term debt...................... 5,271 5,751
-------- --------
Total current liabilities......................... 124,748 128,986
Long-term debt.............................................. 14,946 9,709
Noncurrent deferred tax liability........................... 322 --
Stockholder's equity:
Common stock, $1 par value: 75,000 shares authorized;
1,010 shares issued and outstanding.................... 1,010 1,010
Retained earnings......................................... 119,781 144,320
-------- --------
Total stockholder's equity........................ 120,791 145,330
-------- --------
Total liabilities and stockholder's equity........ $260,807 $284,025
======== ========
</TABLE>
See accompanying notes.
F-104
<PAGE> 172
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenue:
Net patient service revenues.............................. $296,386 $324,416
Sale of optical goods..................................... 671,309 663,095
Other..................................................... 170 74
-------- --------
Total revenue..................................... 967,865 987,585
Expenses:
Compensation to physician stockholder..................... 231,838 221,875
Salaries, wages and benefits.............................. 267,728 314,686
Cost of optical goods sold................................ 233,276 234,154
General and administrative................................ 130,904 118,589
Insurance................................................. 6,345 4,114
Building and equipment rent............................... 52,259 48,066
Depreciation and amortization............................. 10,585 12,302
Interest.................................................. 1,319 939
-------- --------
Total expenses.................................... 934,254 954,725
-------- --------
Income before income taxes.................................. 33,611 32,860
Provision for income taxes.................................. 14,856 8,321
-------- --------
Net income.................................................. $ 18,755 $ 24,539
======== ========
</TABLE>
See accompanying notes.
F-105
<PAGE> 173
J & R KENNEDY, O.D., P.A.
AND ROSEVILLE OPTICIANS, INC.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
--------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
------ ------ -------- -------------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995............................... 1,010 $1,010 $101,026 $102,036
Net income............................................. -- -- 18,755 18,755
----- ------ -------- --------
BALANCE AT DECEMBER 31, 1995............................. 1,010 1,010 119,781 120,791
Net income............................................. -- -- 24,539 24,539
----- ------ -------- --------
BALANCE AT NOVEMBER 30, 1996............................. 1,010 $1,010 $144,320 $145,330
===== ====== ======== ========
</TABLE>
See accompanying notes.
F-106
<PAGE> 174
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 18,755 $ 24,539
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 10,585 12,302
Deferred income taxes..................................... 7,863 (8,685)
Changes in assets and liabilities:
Patient accounts receivable............................ (16,354) (6,041)
Due from stockholder................................... (1,623) (1,156)
Inventories............................................ (24,425) (3,040)
Prepaid expenses and other current assets.............. (4,899) 1,674
Bank overdraft and accounts payable and accrued
expenses.............................................. 30,319 (6,201)
Taxes payable.......................................... 6,993 10,013
-------- --------
Net cash provided by operating activities......... 27,214 23,405
INVESTING ACTIVITIES
Purchases of property and equipment......................... (47,456) (13,912)
-------- --------
Net cash used in investing activities............. (47,456) (13,912)
FINANCING ACTIVITIES
Borrowings from third parties............................... 23,000 -
Repayment of borrowings from third parties.................. (2,783) (4,757)
-------- --------
Net cash provided by (used in) financing
activities...................................... 20,217 (4,757)
-------- --------
(Decrease) increase in cash................................. (25) 4,736
Cash at beginning of year................................... 50 25
-------- --------
Cash at end of year......................................... $ 25 $ 4,761
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest.................... $ 1,300 $ 1,000
======== ========
</TABLE>
See accompanying notes.
F-107
<PAGE> 175
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
J & R Kennedy, O.D., P.A. and Roseville Opticians, Inc. (the Company),
commonly controlled Minnesota C corporations, operate as a professional medical
practice, specializing in general optometry and as an optical retail dispensary,
respectively. The Company's primary service area is Roseville, Minnesota, and
surrounding communities in Ramsey County, Minnesota.
INVENTORIES
Inventories consist primarily of optical lenses, contact lenses and
eyeglass frames (collectively, optical goods). Inventories are stated at the
lower of cost or market, with cost determined on an average cost basis.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements are carried at cost. Depreciation is
computed using straight-line and accelerated methods, with the assets' useful
lives estimated at 5 to 10 years for equipment, furniture and fixtures and
automobiles, and 31 years for leasehold improvements. Routine maintenance and
repairs are charged to expense as incurred, while costs of betterments and
renewals are capitalized.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash reflects its fair value because of the
short-term maturity of that financial instrument. It is not practicable to
estimate the fair value of the Company's long-term debt because the Company's
incremental borrowing rate cannot reasonably be determined.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which are based on predetermined rates, are generally
less than the Company's established billing rates, and the differences are
recorded as contractual adjustments at the time the related service is rendered.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, approximately 19% and 24%, respectively, of the Company's net
patient service revenues were derived from third-party payors (Medicare,
Medicaid, and managed care contracts). The Company does not believe that there
are any credit risks associated with receivables due from governmental agencies.
Concentration of credit risk from other payers is limited by the number of
patients and payors. The Company does not require any form of collateral from
its patients or third-party payors.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential wrong
doing. While no such regulatory inquiries have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
F-108
<PAGE> 176
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. RELATED PARTY TRANSACTIONS
The Company paid approximately $6,000 for the year ended December 31, 1995
and $7,000 for the eleven-month period ended November 30, 1996 for services
rendered to the Company by a related organization with certain common ownership.
The Company has an amount due from stockholder of $1,623 at December 31,
1995 and $2,779 at November 30, 1996. Such amounts relate to personal expenses
paid by the Company on behalf of the stockholder.
3. PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Equipment................................................... $ 191,111 $ 205,023
Furniture and fixtures...................................... 47,183 47,183
Automobiles................................................. 16,752 16,752
Leasehold improvements...................................... 18,690 18,690
--------- ---------
273,736 287,648
Less accumulated depreciation............................... (198,498) (210,800)
--------- ---------
$ 75,238 $ 76,848
========= =========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Note payable to bank at 10% with monthly payments of $586,
including interest, due May 1999.......................... $20,217 $15,460
Less current portion........................................ (5,271) (5,751)
------- -------
$14,946 $ 9,709
======= =======
</TABLE>
F-109
<PAGE> 177
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As of November 30, 1996, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 458
Year ending December 31:
1997...................................................... 5,800
1998...................................................... 6,407
1999...................................................... 2,795
-------
$15,460
=======
</TABLE>
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Noncurrent:
Charitable contribution................................... $ 426 $ 446
Net operating loss carryforward........................... 5,127 14,890
-------- -------
5,553 15,336
Valuation allowance......................................... -- (1,152)
-------- -------
Total deferred tax assets......................... 5,553 14,184
DEFERRED TAX LIABILITIES
Current:
Accrual to cash........................................... 14,130 14,076
Noncurrent:
Depreciation.............................................. 5,875 5,875
-------- -------
Total deferred tax liabilities.................... 20,005 19,951
-------- -------
Net deferred tax liabilities...................... $(14,452) $(5,767)
======== =======
</TABLE>
Components of the income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED ELEVEN-MONTH PERIOD ENDED
DECEMBER 31, 1995 NOVEMBER 30, 1996
---------------------------- ---------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Federal............................ $5,337 $5,987 $11,324 $12,978 $(6,579) $6,399
State.............................. 1,656 1,876 3,532 4,028 (2,106) 1,922
------ ------ ------- ------- ------- ------
$6,993 $7,863 $14,856 $17,006 $(8,685) $8,321
====== ====== ======= ======= ======= ======
</TABLE>
F-110
<PAGE> 178
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Income taxes at the statutory rate.......................... $11,834 $5,301
Permanent differences....................................... 421 413
State taxes, net of federal benefit......................... 2,332 1,087
Change in valuation allowance............................... - 1,152
Personal service corporation status......................... 269 368
------- ------
$14,856 $8,321
======= ======
</TABLE>
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, requires a valuation allowance to reduce the deferred tax assets reported
if, based on the weight of the evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a $1,152 valuation allowance at November 30, 1996 is necessary
to reduce the deferred tax assets to the amount that will more likely than not
be realized. The change in the valuation allowance for the current year is
$1,152. At December 31, 1995 and November 30, 1996, the Company has available
net operating loss carryforwards of approximately $13,000 and $37,000,
respectively, which expire in the year 2011.
6. MALPRACTICE INSURANCE
The Company carries claims-made malpractice insurance for each of its
physicians. This insurance provides coverage of $1,000,000 per incident, with a
$2,000,000 annual limit. In addition, the Company has an umbrella policy which
provides coverage of $2,000,000 per claim, with a $2,000,000 annual limit.
Management is not aware of any reported claims pending against the Company.
Losses resulting from unreported claims cannot be estimated by management and,
therefore, are not included in the accompanying combined financial statements.
7. RETIREMENT PLAN
The Company maintains an employee savings and profit sharing plan under
Section 401(k) of the Internal Revenue Code. The plan covers substantially all
employees. Under the plan, the Company may make discretionary contributions
subject to various limits. Total Company expense related to this plan was
approximately $2,000 and $4,000 for the year ended December 31, 1995 and the
eleven-month period ended November 30, 1996, respectively.
8. SUBSEQUENT EVENTS
On December 1, 1996 and December 20, 1996, the Company renewed
noncancelable operating leases for office space. The effective date of the
leases is December 1, 1996 and they are scheduled to terminate on
F-111
<PAGE> 179
J & R KENNEDY, O.D., P.A. AND
ROSEVILLE OPTICIANS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
November 30, 2001. The former operating leases had expired as of November 30,
1996. Approximate future minimum rental commitments under the noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 4,488
Year ending December 31:
1997...................................................... 55,194
1998...................................................... 56,883
1999...................................................... 58,626
2000...................................................... 60,418
2001...................................................... 56,932
--------
$292,641
========
</TABLE>
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 115,000 shares of Vision common stock and notes of approximately
$79,000. In connection therewith, the Company entered into a 40-year business
management agreement with Vision, whereby Vision will provide substantially all
nonmedical services to the practice.
The combined financial statements of the Company have been prepared as
supplemental information about the association to which Vision will provide
management services following consummation of the acquisition. The Company
previously operated as a separate independent association. The historical
combined financial position, results of operations and cash flows do not reflect
any adjustments relating to the acquisition.
F-112
<PAGE> 180
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Dr. Smith and Associates, P.A. #6950,
Dr. Smith and Associates, P.A. #6958, and
Dr. Smith and Associates, P.A. #6966
We have audited the accompanying combined balance sheets of Dr. Smith and
Associates, P.A. #6950, Dr. Smith and Associates, P.A. #6958, and Dr. Smith and
Associates, P.A. #6966 (the Company) as of December 31, 1995 and November 30,
1996, and the related combined statements of income, stockholders' equity, and
cash flows for the year ended December 31, 1995 and the eleven-month period
ended November 30, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Dr. Smith and
Associates, P.A. #6950, Dr. Smith and Associates, P.A. #6958, and Dr. Smith and
Associates, P.A. #6966 at December 31, 1995 and November 30, 1996, and the
combined results of their operations and their cash flows for the year ended
December 31, 1995 and the eleven-month period ended November 30, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
January 17, 1997
F-113
<PAGE> 181
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 23,538 $ 31,993
Patient accounts receivable, net of allowances for
doubtful accounts of approximately $4,000 and $39,000
at December 31, 1995 and November 30, 1996,
respectively........................................... 24,178 8,844
Prepaid expenses and other current assets................. -- 699
-------- --------
Total current assets.............................. 47,716 41,536
Property and equipment, net................................. 123,389 91,974
Due from stockholder........................................ 219,165 261,384
-------- --------
Total assets...................................... $390,270 $394,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 19,750 $ 28,200
Accrued expenses and other current liabilities............ 57,570 68,514
Amounts due under line of credit.......................... -- 14,000
Due to affiliate.......................................... 12,705 39,591
Income tax payable........................................ 1,182 --
Current portion of long-term debt......................... 38,917 39,931
Current portion of obligations under capital leases....... 26,220 25,428
-------- --------
Total current liabilities......................... 156,344 215,664
Long-term debt.............................................. 52,130 15,442
Obligations under capital leases............................ 48,717 25,469
Stockholders' equity:
Common stock, $.01 par value; 30,000 shares authorized,
and 3,000 shares issued and outstanding................ 30 30
Additional paid-in capital................................ 8,180 8,180
Retained earnings......................................... 124,869 130,109
-------- --------
Total stockholders' equity........................ 133,079 138,319
-------- --------
Total liabilities and stockholders' equity........ $390,270 $394,894
======== ========
</TABLE>
See accompanying notes.
F-114
<PAGE> 182
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Revenues:
Net patient service revenues.............................. $1,019,159 $ 990,014
Other..................................................... 18,248 14,137
---------- ----------
Total revenues.................................... 1,037,407 1,004,151
Expenses:
Compensation to physician stockholder..................... 75,000 70,000
Salaries, wages and benefits.............................. 511,033 547,622
General and administrative................................ 169,513 164,967
Medical supplies.......................................... 6,524 5,269
Building and equipment rent............................... 83,600 100,477
Depreciation and amortization............................. 35,038 35,442
Interest.................................................. 24,169 14,478
---------- ----------
Total expenses.................................... 904,877 938,255
---------- ----------
Income before income taxes.................................. 132,530 65,896
Provision for income taxes.................................. 1,182 --
---------- ----------
Net income........................................ $ 131,348 $ 65,896
========== ==========
</TABLE>
See accompanying notes.
F-115
<PAGE> 183
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
NUMBER AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995....................... 3,000 $30 $8,180 $ 28,006 $ 36,216
Net income................................... -- -- -- 131,348 131,348
Distributions................................ -- -- -- (34,485) (34,485)
----- --- ------ -------- --------
BALANCE, DECEMBER 31, 1995..................... 3,000 30 8,180 124,869 133,079
Net income................................... -- -- -- 65,896 65,896
Distributions................................ -- -- -- (60,656) (60,656)
----- --- ------ -------- --------
BALANCE, NOVEMBER 30, 1996..................... 3,000 $30 $8,180 $130,109 $138,319
===== === ====== ======== ========
</TABLE>
See accompanying notes.
F-116
<PAGE> 184
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
ELEVEN-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $131,348 $ 65,896
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 35,038 35,442
Changes in operating assets and liabilities:
Patient accounts receivable, net....................... (4,178) 15,334
Prepaid expenses....................................... -- (699)
Due from stockholder................................... (62,718) (42,219)
Accounts payable....................................... 15,036 8,450
Accrued expenses and other current liabilities......... 39,320 10,944
Due to affiliate....................................... (24,203) 26,886
Income tax payable..................................... 1,182 (1,182)
-------- ---------
Net cash provided by operating activities......... 130,825 118,852
INVESTING ACTIVITIES
Purchases of property, plant and equipment.................. (53,736) (4,027)
Other....................................................... 11,318 --
-------- ---------
Net cash used in investing activities............. (42,418) (4,027)
FINANCING ACTIVITIES
Borrowings on line of credit................................ -- 14,000
Distributions to shareholders............................... (34,485) (60,656)
Payment of capital lease obligations........................ (28,999) (24,040)
Payment of long-term debt................................... -- (35,674)
-------- ---------
Net cash used in financing activities............. (63,484) (106,370)
-------- ---------
Net increase in cash and cash equivalents................... 24,923 8,455
Cash and cash equivalents at beginning of period............ (1,385) 23,538
-------- ---------
Cash and cash equivalents at end of period........ $ 23,538 $ 31,993
======== =========
</TABLE>
See accompanying notes.
F-117
<PAGE> 185
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
NOTES TO COMBINED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Dr. Smith and Associates, P.A. #6950 (P.A. #6950), a C corporation, Dr.
Smith and Associates, P.A. #6958 (P.A. #6958), an S corporation, and Dr. Smith
and Associates, P.A. #6966 (P.A. #6966), an S corporation, operate under common
ownership as a professional medical practice, specializing in general optometry.
These corporations are located in the Miami, Florida, area and are hereinafter
collectively referred to as the Company. All significant intercompany
transactions have been eliminated.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Property and equipment under
capital leases are stated at the net present value of the future minimum lease
payments at the inception of the related leases. Depreciation is computed using
straight-line and accelerated methods, with the assets' useful lives estimated
at five to seven years. Amortization expense related to capital leases is
included in depreciation and amortization in the combined statements of income.
ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and amounts due under line of credit reported
in the combined financial statements reflects their fair value because of the
short-term maturity of those financial instruments. It is not practicable to
estimate the fair value of the Company's long-term debt and obligations under
capital leases because the Company's incremental borrowing rate cannot
reasonably be determined.
NET PATIENT SERVICE REVENUES
Net patient service revenues are based on established billing rates, less
allowances for contractual adjustments for patients covered by Medicare,
Medicaid and various other discount arrangements. Payments received under these
programs and arrangements, which are based on predetermined rates, are generally
less than the Company's established billing rates and the differences are
recorded as contractual adjustments at the time the related service is rendered.
For the year ended December 31, 1995 and the eleven-month period ended
November 30, 1996, approximately 12% and 14%, respectively, of the Company's net
patient service revenues were derived from third-party payors. The Company does
not believe that there are any credit risks associated with receivables due from
governmental agencies. Concentration of credit risk from other payors is limited
by the number of patients and payors. The Company does not require any form of
collateral from its patients or third-party payors.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company believes that it is in
compliance with all applicable laws and regulations and is not aware of any
pending or threatened investigations involving allegations of potential wrong
doing. While no such regulatory inquires have been made, compliance with such
laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines,
penalties and exclusion from the Medicare and Medicaid programs.
F-118
<PAGE> 186
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Income taxes for P.A. #6950 have been provided using the liability method
in accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS No. 109). Under this method, deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
P.A. #6958 and P.A. #6966 have elected to have their income taxed under the
provisions of Subchapter S of the federal Internal Revenue Code. As a result, in
lieu of corporate tax, #6958's and #6966's taxable income is passed through to
the stockholders of #6958 and #6966 and taxed at the individual level.
Accordingly, no provision or liability for federal income tax for #6958 and
#6966 has been reflected in these combined financial statements.
USE OF ESTIMATES
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amount reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Medical equipment........................................... $ 34,751 $ 37,552
Computer equipment.......................................... 25,556 26,782
Office furniture and equipment.............................. 4,380 4,380
Equipment under capital lease............................... 244,605 244,605
--------- ---------
309,292 313,319
Less accumulated depreciation and amortization.............. (185,903) (221,345)
--------- ---------
$ 123,389 $ 91,974
========= =========
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Note payable to vendor with interest imputed at 10.75%,
payable in monthly installments of $528 through 1997
(collateralized by certain equipment)..................... $ 30,470 $ 21,450
Note payable to landlord bearing interest at prime plus 1%
(9.65% and 9.25% at December 31, 1995 and November 30,
1996, respectively), payable in monthly installments
through 1998)............................................. 60,577 33,923
-------- --------
91,047 55,373
Less current portion........................................ (38,917) (39,931)
-------- --------
$ 52,130 $ 15,442
======== ========
</TABLE>
F-119
<PAGE> 187
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
As of November 30, 1996, maturity of long-term debt is as follows:
<TABLE>
<S> <C>
Month ending December 31, 1996.............................. $ 3,283
Year ending December 31:
1997...................................................... 40,031
1998...................................................... 12,059
1999...................................................... --
-------
Total............................................. $55,373
=======
</TABLE>
Interest payments approximate interest expense for the year ended December
31, 1995 and for the eleven-month period ended November 30, 1996.
4. LEASE COMMITMENTS
Future minimum lease commitments under capital leases and noncancelable
operating leases (with an initial or remaining term in excess of one year) at
November 30, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
Month ending December 31, 1996.............................. $ 2,566 $ 9,000
Year ending December 31:
1997...................................................... 29,499 108,000
1998...................................................... 22,154 108,000
1999...................................................... 2,361 108,000
2000...................................................... 790 108,000
2001...................................................... -- 108,000
Thereafter................................................ -- 162,000
------- --------
Total minimum lease payments...................... 57,370 $711,000
========
Less amount representing interest........................... (6,473)
-------
Present value of minimum lease payments (including current
portion of $25,428)....................................... $50,897
=======
</TABLE>
F-120
<PAGE> 188
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
#6950's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
DEFERRED TAX ASSETS
Current:
Accrual to cash........................................... $ 8,722 $ --
Noncurrent:
Depreciation.............................................. 27,383 29,092
Valuation allowance......................................... (35,560) (24,593)
-------- --------
Total deferred tax assets......................... 545 4,499
DEFERRED TAX LIABILITIES
Current:
Accrual to cash........................................... -- 3,681
Noncurrent:
Capital lease............................................. 545 818
-------- --------
Total deferred tax liabilities.................... 545 4,499
-------- --------
Net deferred tax assets........................... $ -- $ --
======== ========
</TABLE>
Components of the income tax provision (benefit) which relate solely to
#6950 consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 NOVEMBER 30, 1996
--------------------------- --------------------------
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal................................. $1,182 $-- $1,182 $-- $-- $--
State................................... -- -- -- -- -- --
------ --- ------ -- --- --
$1,182 $-- $1,182 $-- $-- $--
====== === ====== === === ===
</TABLE>
Income taxes are different from the amount computed by applying the United
States statutory rate to income before income taxes for the following reasons:
<TABLE>
<CAPTION>
DECEMBER 31, NOVEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Income taxes at the statutory rate.......................... $ 36,678 $ 17,691
Permanent differences....................................... 332 332
S-corporation income........................................ (32,250) (8,356)
State taxes, net of federal benefit......................... 508 1,032
Change in valuation allowance............................... (4,217) (10,967)
Personal service corporation status......................... 131 268
-------- --------
$ 1,182 $ --
======== ========
</TABLE>
SFAS No. 109 requires a valuation allowance to reduce the deferred tax
assets reported if, based on the weight of the evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
After consideration of all the evidence, both positive and negative, management
has determined that valuation allowances of $35,560 at December 31, 1995 and
$24,593 at November 30, 1996 are necessary to
F-121
<PAGE> 189
DR. SMITH AND ASSOCIATES, P.A. #6950,
DR. SMITH AND ASSOCIATES, P.A. #6958, AND
DR. SMITH AND ASSOCIATES, P.A. #6966
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
reduce the deferred tax assets to the amount that will more likely than not be
realized. The change in the valuation allowance for the year ended December 31,
1995 was $(4,217) and for the current year is $(10,967).
6. MALPRACTICE INSURANCE
The Company is covered by medical malpractice liability insurance written
on an occurrence basis. This insurance provides coverage of $5,000,000 per
incident, with a $5,000,000 aggregate limit. Management is not aware of any
reported claims pending against the Company. Losses resulting from unreported
claims cannot be estimated by management and, therefore, are not included in the
accompanying combined financial statements.
7. LITIGATION
During 1996, the Company entered into an out-of-court settlement related to
a wrongful termination claim. Payment under the out-of-court settlement of
$25,000 is classified in general and administrative expenses in the 1996
combined statement of income.
8. RELATED PARTY TRANSACTIONS
Amounts due from stockholder and due to affiliate of the Company reflect
net advances and borrowings between the Company and their owner and the owner's
related interests, including other affiliated corporations. Advances to and
borrowings from the shareholder accrue interest at approximately 6.5%.
Compensation to stockholder reflects wages earned by the stockholder acting
in the capacity as an optometrist and officer of the Company. Other related
party compensation for the year ended December 31, 1995 and the eleven-month
period ended November 30, 1996 was approximately $48,000 and $18,000,
respectively.
9. LINE OF CREDIT
The Company has a revolving credit note of $50,000 due on demand, which
bears interest at prime plus 3% (11.65% and 11.25% at December 31, 1995 and
November 30, 1996, respectively). At November 30, 1996, $14,000 was outstanding
under this facility.
The revolving credit note is collateralized by substantially all of the
assets of the Company.
10. SUBSEQUENT EVENT
On December 1, 1996, substantially all assets and liabilities of the
Company were acquired by Vision Twenty-One, Inc. (Vision) in exchange for
approximately 255,000 shares of Vision common stock and notes of approximately
$145,000. In connection therewith, the Company entered into a 40-year business
management agreement with Vision, whereby Vision will provide substantially all
nonmedical services to the practice.
The financial statements of the Company have been prepared as supplemental
information about the associations to which Vision will provide management
services following consummation of the acquisition. The Company previously
operated as a separate independent association. The historical financial
position, results of operations and cash flows do not reflect any adjustments
relating to the acquisition.
F-122
<PAGE> 190
============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE SELLING STOCKHOLDERS, OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 6
The Company..................................... 16
The Acquisitions................................ 16
Relationships with Affiliated Providers and
Retail Optical Companies...................... 18
Use of Proceeds................................. 19
Dividend Policy................................. 19
Capitalization.................................. 20
Dilution........................................ 21
Selected Pro Forma Financial Data............... 22
Selected Financial Data......................... 23
Management's Discussion and Analysis of
Financial Conditions and Results of
Operations.................................... 24
Business........................................ 32
Management...................................... 46
Certain Transactions............................ 53
Principal and Selling Stockholders.............. 56
Description of Capital Stock.................... 58
Shares Eligible for Future Sale................. 62
Underwriting.................................... 64
Legal Matters................................... 65
Experts......................................... 66
Additional Information.......................... 66
Index to Consolidated Financial Statements...... F-1
</TABLE>
============================================================
============================================================
2,100,000 Shares
VISION
TWENTY-ONE
Common Stock
-------------------------
PROSPECTUS
-------------------------
PRUDENTIAL SECURITIES INCORPORATED
WHEAT FIRST BUTCHER SINGER
, 1997
============================================================
<PAGE> 191
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Company estimates that expenses payable by it in connection with the
Offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 9,514
NASD filing fee............................................. 3,640
Nasdaq National Market listing fee.......................... 36,402
Printing expenses........................................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Fees and expenses (including legal fees) for qualifications
under state securities laws............................... *
Registrar and Transfer Agent's fees and expenses............ *
Miscellaneous............................................... *
--------
Total............................................. $900,000
========
</TABLE>
- ---------------
* To be included by amendment to the Registration Statement.
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
The Company intends to pay all expenses of registration with respect to shares
being sold by the Selling Shareholders hereunder, with the exception of
underwriting discounts and commissions.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0831 of the Florida Business Corporation Act ("FBCA") limits
the liability of directors of Florida corporations. Section 607.0831 provides as
follows:
1. A director is not personally liable for monetary damages to the
corporation or any other person for any statement, vote, decision, or
failure to act, regarding corporate management or policy, by a director,
unless:
a. The director breached or failed to perform his duties as a
director; and
b. The director's breach of, or failure to perform, those duties
constitutes:
(1) A violation of the criminal law, unless the director had
reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful. A judgment or
other final adjudication against a director in any criminal
proceeding for a violation of the criminal law estops that director
from contesting the fact that his breach, or failure to perform,
constitutes a violation of the criminal law; but does not estop the
director from establishing that he had reasonable cause to believe
that his conduct was lawful or had no reasonable cause to believe
that his conduct was unlawful;
(2) A transaction from which the director derived an improper
personal benefit, either directly or indirectly;
(3) A circumstance under which the liability provisions of
Florida Statutes sec. 607.0834 (liability for unlawful distributions)
are applicable;
(4) In a proceeding by or in the right of the corporation to
procure a judgment in its favor or by or in the right of a
shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; or
II-1
<PAGE> 192
(5) In a proceeding by or in the right of someone other than the
corporation or a shareholder, recklessness or an act or omission
which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights,
safety, or property.
2. For the purposes of this section, the term "recklessness" means the
action, or omission to act, in conscious disregard of a risk;
a. Known, or so obvious that it should have been known to the
director; and
b. Known to the director, or so obvious that it should have been
known, to be so great as to make it highly probable that harm would
follow from such action or omission.
3. A director is deemed not to have derived an improper personal
benefit from any transaction if the transaction and the nature of any
personal benefit derived by the director are not prohibited by state or
federal law or regulation and, without further limitation:
a. In an action other than a derivative suit regarding a decision
by the director to approve, reject, or otherwise affect the outcome of
an offer to purchase the stock of, or to effect a merger of, the
corporation, the transaction and the nature of any personal benefits
derived by a director are disclosed or known to all directors voting on
the matter, and the transaction was authorized, approved or ratified by
at least two directors who comprise a majority of the disinterested
directors (whether or not such disinterested directors constitute a
quorum);
b. The transaction and the nature of any personal benefits derived
by a director are disclosed or known to the shareholders entitled to
vote, and the transaction was authorized, approved, or ratified by the
affirmative vote or written consent of such shareholders who hold a
majority of the shares, the voting of which is not controlled by
directors who derived a personal benefit from or otherwise had a
personal interest in the transaction; or
c. The transaction was fair and reasonable to the corporation at
the time it was authorized by the board, a committee, or the
shareholders, notwithstanding that a director received a personal
benefit.
4. The circumstances set forth in subsection 3 are not exclusive and
do not preclude the existence of other circumstances under which a director
will be deemed not to have derived an improper benefit.
Section 607.0850 of the FBCA empowers a Florida corporation, subject to
certain limitations, to indemnify its directors and officers against expenses
(including attorneys' fees, judgments, fines and certain settlements) actually
and reasonably incurred by them in connection with any suit or proceeding to
which they are a party so long as they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to a criminal action or proceeding, so long as
they had no reasonable cause to believe their conduct to have been unlawful.
The Articles of Incorporation of the Company provide that the Company shall
indemnify any person who is or was a director or officer of the Company to the
full extent permitted by Florida law. In addition, the Board of Directors of the
Company has approved the execution by the Company of indemnification agreements
with the Directors and certain officers of the Company, the form of which has
been filed as an exhibit to the Registration Statement.
The Company maintains director and officer liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In November 1996, the Company issued an aggregate of 2,685,318 shares of
Common Stock to Theodore Gillette, Richard Sanchez and Peter Fontaine in
connection with a reorganization of the Company. These transactions were exempt
from the registration requirements of the Securities Act pursuant to Section
4(2).
II-2
<PAGE> 193
In May 1996 and October 1996, the Company issued an aggregate of 270,331
shares of Common Stock to Bruce S. Maller, a director of the Company, as
compensation for consulting and advisory services. These transactions were
exempt from the registration requirements of the Securities Act pursuant to Rule
701.
In September 1996, the Company issued 108,132 shares of Common Stock to Dr.
Richard L. Lindstrom, a Director of the Company, as compensation for consulting
and advisory services. This transaction was exempt from the registration
requirements of the Securities Act pursuant to Rule 701.
In December 1996, the Company sold an aggregate principal amount of
$1,250,000 of its 10% Senior Subordinated Notes, Due December 19, 1999 (the
"Notes"), to certain unrelated parties in a private placement. Each Note has a
detachable Warrant exchangeable into 7,036 shares of Common Stock of the Company
at an exchange price ranging from $6.00 to $7.11 per share, or in a cashless
exchange for a reduced number of shares pursuant to a formula. This transaction
was exempt from the registration requirements of the Securities Act pursuant to
Section 4(2).
In February 1997, the Company sold a 10% Senior Subordinated Series 1997
Note, Due December 19, 1999, in the principal amount of $2,000,000 (the "Note"),
to Piper Jaffray Healthcare Fund II Limited Partnership in a private placement.
The Note has a detachable Warrant exchangeable into a maximum of 333,333 shares
of Common Stock at an exchange price ranging from $6.00 to $7.11 per share, or
in a cashless exchange for a reduced number of shares pursuant to a formula.
This transaction was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2).
In a private placement April 1997, which was amended in June 1997, the
Company issued a promissory note to Prudential Securities Group in the maximum
aggregate amount of $5,000,000 and warrants exchangeable into a maximum of
633,333 shares of Common Stock at exchange prices ranging from 80% of the
initial public offering price of the Company's Common Stock as to 533,333 of the
shares in the first tranche to 50% of the market price as to the remaining
shares in the second and third tranches. This transaction was exempt from the
registration requirements of the Securities Act pursuant to Section 4(2).
In connection with the 1996 Acquisitions, the Company issued non-negotiable
promissory notes, as part of the purchase price, totalling approximately
$2,000,000 and issued an aggregate of 2,223,053 shares of Common Stock. These
transactions were exempt from the registration requirements of the Securities
Act pursuant to Section 4(2).
In 1996 and 1997, the Company granted options to purchase 647,626 shares of
Common Stock under the Plans to certain employees, executive officers and
affiliated professionals. These transactions were exempt from the registration
requirements of the Securities Act pursuant to Rule 701. The Company plans to
file registration statements under the Securities Act after this Offering to
register sales of shares of Common Stock under the Plans, if any.
In April 1997, the Company issued 128,541 shares of Common Stock in
connection with the Merger Agreement with Richard L. Short, D.O., P.A. This
transaction was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2).
In May 1997, the Company issued 11,411 shares of Common Stock in connection
with the acquisition of certain assets of Drs. Smith, Porter & Associates, P.A.
This transaction was exempt from the registration requirements of the Securities
Act pursuant to Section 4(2).
In May 1997, the Company issued 169,150 shares of Common Stock in
connection with the Merger Agreement with Cochise Eye & Laser, P.C. This
transaction was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2).
II-3
<PAGE> 194
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation of Vision
Twenty-One, Inc.
3.2 -- Bylaws of Vision Twenty-One, Inc.
4.1 -- Specimen of Vision Twenty-One, Inc. Common Stock
Certificate.
4.2 -- Promissory Note dated June 1996 from Vision Twenty-One, Inc.
to Peter Fontaine.
4.3 -- Promissory Note dated November 1996 from Vision Twenty-One,
Inc. to Peter Fontaine.
4.4 -- Promissory Note dated December 1996 from Vision Twenty-One,
Inc. to Peter Fontaine.
4.5 -- Note Purchase Agreement for 10% Senior Subordinated Notes
Due December 19, 1999 (Detachable Warrants Exchangeable Into
Common Stock) dated December 20, 1996, by and between Vision
Twenty-One, Inc. and certain purchasers.
4.6 -- Amendment No. 1 dated April 18, 1997, to that certain Note
Purchase Agreement dated December 20, 1996, by and between
Vision Twenty-One, Inc. and certain purchasers.
4.7 -- Note Purchase Agreement for 10% Senior Subordinated Series
1997 Notes Due December 19, 1999 (Detachable Warrants
Exchangeable Into Common Stock) dated February 28, 1997
between Vision Twenty-One, Inc. and Piper Jaffray Healthcare
Fund II Limited Partnership.
4.8* -- Amended and Restated Note and Warrant Purchase Agreement
dated June 1997 between Vision Twenty-One, Inc. and
Prudential Securities Group.
(The Company is not filing any instrument with respect to
long-term debt that does not exceed 10% of the total assets
of the Company and the Company agrees to furnish a copy of
such instrument to the Commission upon request.)
5.1* -- Opinion of Shumaker, Loop & Kendrick, LLP as to the Common
Stock being registered.
10.1 -- Employment Agreement dated October 1, 1996 between Vision
Twenty-One, Inc. and Theodore N. Gillette.
10.2 -- Employment Agreement dated October 1, 1996 between Vision
Twenty-One, Inc. and Richard Sanchez.
10.3 -- Employment Agreement dated September 1, 1996 between Vision
Twenty-One, Inc. and Richard T. Welch.
10.4 -- Services Agreement dated September 9, 1996 between Vision
Twenty-One, Inc. and Dr. Richard L. Lindstrom, M.D.
10.5 -- Vision Twenty-One, Inc. 1996 Stock Incentive Plan.
10.6 -- Vision Twenty-One, Inc. Affiliated Professionals Stock Plan.
10.7 -- Agreement dated May 10, 1996 between Vision Twenty-One, Inc.
and Bruce S. Maller.
10.8 -- Advisory Agreement dated October 20, 1996 between Vision
Twenty-One, Inc. and Bruce S. Maller.
10.9 -- Services Agreement dated March 10, 1996 between Vision
Twenty-One, Inc. and The BSM Consulting Group.
10.10 -- Subscription Agreement dated June 4, 1996 between Vision
Twenty-One, Inc. and Peter Fontaine.
10.11* -- Promissory Note dated June 1996 from Vision Twenty-One, Inc.
to Peter Fontaine, filed as Exhibit 4.2 to this Registration
Statement and incorporated herein by reference.
</TABLE>
II-4
<PAGE> 195
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
10.12* -- Promissory Note dated November 1996 from Vision Twenty-One,
Inc. to Peter Fontaine, filed as Exhibit 4.3 to this
Registration Statement and incorporated herein by reference.
10.13* -- Promissory Note dated December 1996 from Vision Twenty-One,
Inc. to Peter Fontaine filed as Exhibit 4.4 to this
Registration Statement and incorporated herein by reference.
10.14* -- Note Purchase Agreement for 10% Senior Subordinated Notes
Due December 19, 1999 (Detachable Warrants Exchangeable Into
Common Stock), dated December 20, 1996, by and between
Vision Twenty-One, Inc. and certain purchasers filed as
Exhibit 4.5 to this Registration Statement and incorporated
herein by reference.
10.15* -- Amendment No. 1 dated April 18, 1997, to that certain Note
Purchase Agreement dated December 20, 1996, by and between
Vision Twenty-One, Inc. and certain purchasers filed as
Exhibit 4.6 to this Registration Statement and incorporated
herein by reference.
10.16* -- Note Purchase Agreement for 10% Senior Subordinated Series
1997 Notes Due December 19, 1999 (Detachable Warrants
Exchangeable Into Common Stock), by and between Vision
Twenty-One, Inc. and Piper Jaffray Healthcare Fund II
Limited Partnership, filed as Exhibit 4.7 to this
Registration Statement and incorporated herein by reference.
10.17* -- Amended and Restated Note and Warrant Purchase Agreement
dated June 1997 between Vision Twenty-One, Inc. and
Prudential Securities Group, Inc. filed as Exhibit 4.8 to
this Registration Statement and incorporated herein by
reference.
10.18 -- Form of Indemnification Agreement.
10.19*+ -- Ancillary Provider Participation Agreement and Provider
Amendment among Humana Medical Plan, Inc., Humana Health
Plan of Florida, Inc., Humana Health Insurance of Florida,
Inc., Humana Insurance Company and Vision 21.
10.20*+ -- Asset Purchase Agreement dated December 1, 1996, by and
among Gillette & Associates, #6965, P.A., Theodore N.
Gillette, O.D., Mark Sarno, O.D. and Mark Beiler, O.D. and
Vision Twenty-One, Inc.
10.21 -- Subordinated Promissory Note dated December 1, 1996, from
Vision Twenty-One, Inc. to Gillette & Associates, #6965,
P.A.
10.22* -- Business Management Agreement dated December 1, 1996,
between Vision Twenty-One, Inc. and Gillette & Associates,
#6965, P.A.
10.23+ -- Agreement and Plan of Reorganization dated December 1, 1996,
by and among Eye Institute of Southern Arizona, P.C.,
Jeffrey I. Katz, M.D. and Barry Kusman, M.D., Vision
Twenty-One, Inc. and Vision 21 of Southern Arizona, Inc.
10.24 -- Business Management Agreement dated December 1, 1996,
between Eye Institute of Southern Arizona, P.C. and
ExcelCare, P.C. (as assigned to Vision Twenty-One, Inc.)
10.25*+ -- Asset Purchase Agreement dated December 1, 1996, by and
among Lindstrom, Samuelson & Hardten Ophthalmology
Associates, P.A., Richard L. Lindstrom, M.D., Thomas W.
Samuelson, M.D. and David R. Hardten, M.D. and Vision
Twenty-One, Inc.
10.26 -- Subordinated Promissory Note dated December 1, 1996, from
Vision Twenty-One, Inc. to Lindstrom, Samuelson & Hardten
Ophthalmology Associates, P.A.
10.27 -- Business Management Agreement dated December 1, 1996,
between Vision Twenty-One, Inc. and Lindstrom, Samuelson &
Hardten Ophthalmology Associates, P.A.
10.28+ -- Agreement and Plan of Reorganization dated December 1, 1996,
by and among Dr. Smith & Associates, #6950, P.A., Paul
Smith, O.D. and Vision Twenty-One, Inc.
10.29* -- Business Management Agreement dated December 1, 1996,
between Dr. Smith & Associates, #6950, P.A. and Dr. Smith &
Associates, #6952, P.A. (as assigned to Vision Twenty-One,
Inc.)
</TABLE>
II-5
<PAGE> 196
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
10.30+ -- Asset Purchase Agreement dated December 1, 1996, by and
among Dr. Smith & Associates, #6958, P.A., Paul Smith, O.D.
and Vision Twenty-One, Inc.
10.31 -- Subordinated Promissory Note dated December 1, 1996, from
Vision Twenty-One, Inc. to Dr. Smith & Associates, #6958,
P.A.
10.32* -- Business Management Agreement dated December 1, 1996,
between Vision Twenty-One, Inc. and Dr. Smith & Associates,
#6958, P.A.
10.33+ -- Asset Purchase Agreement dated December 1, 1996, by and
among Dr. Smith & Associates, #6966, P.A., Paul Smith, O.D.
and Vision Twenty-One, Inc.
10.34 -- Subordinated Promissory Note dated December 1, 1996, from
Vision Twenty-One, Inc. to Dr. Smith & Associates, #6966,
P.A.
10.35* -- Business Management Agreement dated December 1, 1996,
between Vision Twenty-One, Inc. and Dr. Smith & Associates,
#6966, P.A.
10.36*+ -- Managed Care Organization Asset Purchase Agreement dated
December 1, 1996, between Eye Specialists of Arizona
Network, P.C., Daniel B. Feller, M.D. and Vision Twenty-One,
Inc.
10.37 -- Subordinated Promissory Note dated December 1, 1996, from
Vision Twenty-One, Inc. to Eye Specialists of Arizona
Network, P.C.
10.38*+ -- Optical Asset Purchase Agreement dated December 1, 1996, by
and among Sharona Optical, Inc., Millennium Vision, P.C.
Daniel B. Feller, M.D. and Sharona Feller and Vision
Twenty-One, Inc.
10.39 -- Subordinated Promissory Note dated December 1, 1996, from
Vision Twenty-One, Inc. to Sharona Optical, Inc.
10.40*+ -- Agreement and Plan of Reorganization dated December 1, 1996,
by and among Daniel B. Feller, M.D., P.C., Daniel B. Feller,
M.D. and Vision Twenty-One, Inc.
10.41 -- Business Management dated December 1, 1996, between Daniel
B. Feller, M.D., P.C. and Millennium Vision, P.C. (as
assigned to Vision Twenty-One, Inc.)
10.42 -- Stock Purchase Agreement dated May 1997, between David R.
Hardten, M.D., Robert B. Kennedy, O.D., Thomas A. Knox,
Gregory W. Kraupa, O.D., John W. Lahr, O.D., Richard L.
Lindstrom, M.D., Jack W. Moore, Thomas W. Samuelson, M.D.
and Bradley D. Richter, O.D. and Vision Twenty-One, Inc.
10.43 -- Regional Services Agreement dated May 1997, between Vision
Twenty-One, Inc. and Richard L. Lindstrom, M.D.
10.44*+ -- Asset Purchase Agreement dated May 1, 1997 by and among Drs.
Smith, Porter & Associates, P.A., Paul R. Smith, O.D., and
Vision Twenty-One, Inc.
10.45* -- Subordinated Promissory Note dated May 1, 1997 from Vision
Twenty-One, Inc. to Drs. Smith, Porter & Associates, P.A.
10.46* -- Business Management Agreement dated May 1, 1997 between
Vision Twenty-One, Inc. and Drs. Smith, Porter & Associates,
P.A.
10.47 -- Form of Contract Provider agreement.
11 -- Statement of Computation of Per Share Earnings.
21 -- List of the subsidiaries of Vision Twenty-One, Inc.
23.1* -- Consent of Shumaker, Loop & Kendrick, LLP (included in their
opinion filed as Exhibit 5.1).
23.2 -- Consent of Ernst & Young, LLP, independent certified public
accountants.
</TABLE>
II-6
<PAGE> 197
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
24 -- Power of Attorney (included on signature page).
27.1 -- Financial Data Schedule for year ended December 31, 1996.
(For SEC Use Only).
27.2 -- Financial Data Schedule for three months ended March 31,
1997. (For SEC Use Only).
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain information contained in this exhibit is subject to a request for
confidential treatment. In accordance with Rule 406 promulgated under the
Securities Act of 1933, as amended, such confidential information has been
omitted herefrom and filed separately with the Securities and Exchange
Commission.
(b) Financial Statement Schedules:
[INSERT]
All other schedules are omitted because the required information is not
present or is not present in amounts sufficient to require submission of the
schedule or because the information required is included in the financial
statements or notes thereto or the schedule is not required or inapplicable
under the related instructions.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bonafide offering thereof.
II-7
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Largo, State of Florida
on June 13, 1997.
VISION TWENTY-ONE, INC.
By: /s/ THEODORE N. GILLETTE
------------------------------------
Theodore N. Gillette
Chief Executive Officer
(The Principal Executive Officer)
By: /s/ RICHARD T. WELCH
------------------------------------
Richard T. Welch
Chief Financial Officer
(The Principal Financial and
Accounting Officer)
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Theodore N. Gillette and Richard T. Welch his true and lawful attorneys-in-fact
and agents, for him and in his name, place and stead, in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
Registration Statement, and any registration statement filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on June 13, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ THEODORE N. GILLETTE Chief Executive Officer
- --------------------------------------------------------
Theodore N. Gillette
/s/ RICHARD T. WELCH Chief Financial Officer
- --------------------------------------------------------
Richard T. Welch
/s/ RICHARD L. SANCHEZ Director
- --------------------------------------------------------
Richard L. Sanchez
/s/ PETER FONTAINE Director
- --------------------------------------------------------
Peter Fontaine
/s/ HERBERT U. PEGUES II, M.D. Director
- --------------------------------------------------------
Herbert U. Pegues II, M.D.
</TABLE>
II-8
<PAGE> 199
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ BRUCE S. MALLER Director
---------------------------------------------------
Bruce S. Maller
/s/ RICHARD L. LINDSTROM, M.D. Director
---------------------------------------------------
Richard L. Lindstrom, M.D.
/s/ JEFFREY KATZ, M.D. Director
---------------------------------------------------
Jeffrey Katz, M.D.
</TABLE>
II-9
<PAGE> 200
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have audited the consolidated financial statements of Vision Twenty-One,
Inc. and Subsidiaries as of December 31, 1995 and 1996, and for each of the
three years in the period ended December 31, 1996, and have issued our report
thereon dated March 22, 1997, except for Note 11, as to which the date is June
6, 1997 (included elsewhere in this Registration Statement). Our audits also
included the financial schedule listed in Item 16(b) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Tampa, Florida
June 6, 1997
S-1
<PAGE> 201
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT -----------------------
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS AND OTHER END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1994:
Deducted from asset accounts:
Allowance for doubtful accounts..... $ -- $ -- $ -- $ -- $ --
==== ==== ======== ==== ========
For the year ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts..... $ -- $ -- $ -- $ -- $ --
==== ==== ======== ==== ========
For the year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts..... $ -- $ -- $685,000(1) $ -- $685,000
==== ==== ======== ==== ========
</TABLE>
- ---------------
(1) Amount represents allowance for doubtful accounts acquired in connection
with the December 1, 1996 acquisition of substantially all of the assets and
certain liabilities of 10 ophthalmology and optometry practices.
S-2
<PAGE> 202
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Articles of Incorporation of Vision
Twenty-One, Inc.
3.2 -- Bylaws of Vision Twenty-One, Inc.
4.1 -- Specimen of Vision Twenty-One, Inc. Common Stock
Certificate.
4.2 -- Promissory Note dated June 1996 from Vision Twenty-One, Inc.
to Peter Fontaine.
4.3 -- Promissory Note dated November 1996 from Vision Twenty-One,
Inc. to Peter Fontaine.
4.4 -- Promissory Note dated December 1996 from Vision Twenty-One,
Inc. to Peter Fontaine.
4.5 -- Note Purchase Agreement for 10% Senior Subordinated Notes
Due December 19, 1999 (Detachable Warrants Exchangeable Into
Common Stock) dated December 20, 1996, by and between Vision
Twenty-One, Inc. and certain purchasers.
4.6 -- Amendment No. 1 dated April 18, 1997, to that certain Note
Purchase Agreement dated December 20, 1996, by and between
Vision Twenty-One, Inc. and certain purchasers.
4.7 -- Note Purchase Agreement for 10% Senior Subordinated Series
1997 Notes Due December 19, 1999 (Detachable Warrants
Exchangeable Into Common Stock) dated February 28, 1997
between Vision Twenty-One, Inc. and Piper Jaffray Healthcare
Fund II Limited Partnership.
4.8* -- Amended and Restated Note and Warrant Purchase Agreement
dated June 1997 between Vision Twenty-One, Inc. and
Prudential Securities Group.
(The Company is not filing any instrument with respect to
long-term debt that does not exceed 10% of the total assets
of the Company and the Company agrees to furnish a copy of
such instrument to the Commission upon request.)
5.1* -- Opinion of Shumaker, Loop & Kendrick, LLP as to the Common
Stock being registered.
10.1 -- Employment Agreement dated October 1, 1996 between Vision
Twenty-One, Inc. and Theodore N. Gillette.
10.2 -- Employment Agreement dated October 1, 1996 between Vision
Twenty-One, Inc. and Richard Sanchez.
10.3 -- Employment Agreement dated September 1, 1996 between Vision
Twenty-One, Inc. and Richard T. Welch.
10.4 -- Services Agreement dated September 9, 1996 between Vision
Twenty-One, Inc. and Dr. Richard L. Lindstrom, M.D.
10.5 -- Vision Twenty-One, Inc. 1996 Stock Incentive Plan.
10.6 -- Vision Twenty-One, Inc. Affiliated Professionals Stock Plan.
10.7 -- Agreement dated May 10, 1996 between Vision Twenty-One, Inc.
and Bruce S. Maller.
10.8 -- Advisory Agreement dated October 20, 1996 between Vision
Twenty-One, Inc. and Bruce S. Maller.
10.9 -- Services Agreement dated March 10, 1996 between Vision
Twenty-One, Inc. and The BSM Consulting Group.
10.10 -- Subscription Agreement dated June 4, 1996 between Vision
Twenty-One, Inc. and Peter Fontaine.
10.11* -- Promissory Note dated June 1996 from Vision Twenty-One, Inc.
to Peter Fontaine, filed as Exhibit 4.2 to this Registration
Statement and incorporated herein by reference.
10.12* -- Promissory Note dated November 1996 from Vision Twenty-One,
Inc. to Peter Fontaine, filed as Exhibit 4.3 to this
Registration Statement and incorporated herein by reference.
10.13* -- Promissory Note dated December 1996 from Vision Twenty-One,
Inc. to Peter Fontaine filed as Exhibit 4.4 to this
Registration Statement and incorporated herein by reference.
10.14* -- Note Purchase Agreement for 10% Senior Subordinated Notes
Due December 19, 1999 (Detachable Warrants Exchangeable Into
Common Stock), dated December 20, 1996, by and between
Vision Twenty-One, Inc. and certain purchasers filed as
Exhibit 4.5 to this Registration Statement and incorporated
herein by reference.
</TABLE>
<PAGE> 203
<TABLE>
<CAPTION>
<C> <C> <S>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
10.15* -- Amendment No. 1 dated April 18, 1997, to that certain Note Purchase Agreement dated December 20, 1996,
by and between Vision Twenty-One, Inc. and certain purchasers filed as Exhibit 4.6 to this
Registration Statement and incorporated herein by reference.
10.16* -- Note Purchase Agreement for 10% Senior Subordinated Series 1997 Notes Due December 19, 1999
(Detachable Warrants Exchangeable Into Common Stock), by and between Vision Twenty-One, Inc. and Piper
Jaffray Healthcare Fund II Limited Partnership, filed as Exhibit 4.7 to this Registration Statement
and incorporated herein by reference.
10.17* -- Amended and Restated Note and Warrant Purchase Agreement dated June 1997 between Vision Twenty-One,
Inc. and Prudential Securities Group, Inc. filed as Exhibit 4.8 to this Registration Statement and
incorporated herein by reference.
10.18 -- Form of Indemnification Agreement.
10.19*+ -- Ancillary Provider Participation Agreement and Provider Amendment among Humana Medical Plan, Inc.,
Humana Health Plan of Florida, Inc., Humana Health Insurance of Florida, Inc., Humana Insurance
Company and Vision 21.
10.20*+ -- Asset Purchase Agreement dated December 1, 1996, by and among Gillette & Associates, #6965, P.A.,
Theodore N. Gillette, O.D., Mark Sarno, O.D. and Mark Beiler, O.D. and Vision Twenty-One, Inc.
10.21 -- Subordinated Promissory Note dated December 1, 1996, from Vision Twenty-One, Inc. to Gillette &
Associates, #6965, P.A.
10.22* -- Business Management Agreement dated December 1, 1996, between Vision Twenty-One, Inc. and Gillette &
Associates, #6965, P.A.
10.23+ -- Agreement and Plan of Reorganization dated December 1, 1996, by and among Eye Institute of Southern
Arizona, P.C., Jeffrey I. Katz, M.D. and Barry Kusman, M.D., Vision Twenty-One, Inc. and Vision 21 of
Southern Arizona, Inc.
10.24 -- Business Management Agreement dated December 1, 1996, between Eye Institute of Southern Arizona, P.C.
and ExcelCare, P.C. (as assigned to Vision Twenty-One, Inc.)
10.25*+ -- Asset Purchase Agreement dated December 1, 1996, by and among Lindstrom, Samuelson & Hardten
Ophthalmology Associates, P.A., Richard L. Lindstrom, M.D., Thomas W. Samuelson, M.D. and David R.
Hardten, M.D. and Vision Twenty-One, Inc.
10.26 -- Subordinated Promissory Note dated December 1, 1996, from Vision Twenty-One, Inc. to Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
10.27 -- Business Management Agreement dated December 1, 1996, between Vision Twenty-One, Inc. and Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
10.28+ -- Agreement and Plan of Reorganization dated December 1, 1996, by and among Dr. Smith & Associates,
#6950, P.A., Paul Smith, O.D. and Vision Twenty-One, Inc.
10.29* -- Business Management Agreement dated December 1, 1996, between Dr. Smith & Associates, #6950, P.A. and
Dr. Smith & Associates, #6952, P.A. (as assigned to Vision Twenty-One, Inc.)
10.30+ -- Asset Purchase Agreement dated December 1, 1996, by and among Dr. Smith & Associates, #6958, P.A.,
Paul Smith, O.D. and Vision Twenty-One, Inc.
10.31 -- Subordinated Promissory Note dated December 1, 1996, from Vision Twenty-One, Inc. to Dr. Smith &
Associates, #6958, P.A.
10.32* -- Business Management Agreement dated December 1, 1996, between Vision Twenty-One, Inc. and Dr. Smith &
Associates, #6958, P.A.
10.33+ -- Asset Purchase Agreement dated December 1, 1996, by and among Dr. Smith & Associates, #6966, P.A.,
Paul Smith, O.D. and Vision Twenty-One, Inc.
10.34 -- Subordinated Promissory Note dated December 1, 1996, from Vision Twenty-One, Inc. to Dr. Smith &
Associates, #6966, P.A.
10.35* -- Business Management Agreement dated December 1, 1996, between Vision Twenty-One, Inc. and Dr. Smith &
Associates, #6966, P.A.
</TABLE>
2
<PAGE> 204
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<C> <C> <S>
10.36*+ -- Managed Care Organization Asset Purchase Agreement dated December 1, 1996, between Eye Specialists of
Arizona Network, P.C., Daniel B. Feller, M.D. and Vision Twenty-One, Inc.
10.37 -- Subordinated Promissory Note dated December 1, 1996, from Vision Twenty-One, Inc. to Eye Specialists
of Arizona Network, P.C.
10.38*+ -- Optical Asset Purchase Agreement dated December 1, 1996, by and among Sharona Optical, Inc.,
Millennium Vision, P.C. Daniel B. Feller, M.D. and Sharona Feller and Vision Twenty-One, Inc.
10.39 -- Subordinated Promissory Note dated December 1, 1996, from Vision Twenty-One, Inc. to Sharona Optical,
Inc.
10.40*+ -- Agreement and Plan of Reorganization dated December 1, 1996, by and among Daniel B. Feller, M.D.,
P.C., Daniel B. Feller, M.D. and Vision Twenty-One, Inc.
10.41 -- Business Management dated December 1, 1996, between Daniel B. Feller, M.D., P.C. and Millennium
Vision, P.C. (as assigned to Vision Twenty-One, Inc.)
10.42 -- Stock Purchase Agreement dated May 1997, between David R. Hardten, M.D., Robert B. Kennedy, O.D.,
Thomas A. Knox, Gregory W. Kraupa, O.D., John W. Lahr, O.D., Richard L. Lindstrom, M.D., Jack W.
Moore, Thomas W. Samuelson, M.D. and Bradley D. Richter, O.D. and Vision Twenty-One, Inc.
10.43 -- Regional Services Agreement dated May 1997, between Vision Twenty-One, Inc. and Richard L. Lindstrom,
M.D.
10.44*+ -- Asset Purchase Agreement dated May 1, 1997 by and among Drs. Smith, Porter & Associates, P.A., Paul R.
Smith, O.D., and Vision Twenty-One, Inc.
10.45* -- Subordinated Promissory Note dated May 1, 1997 from Vision Twenty-One, Inc. to Drs. Smith, Porter &
Associates, P.A.
10.46* -- Business Management Agreement dated May 1, 1997 between Vision Twenty-One, Inc. and Drs. Smith, Porter
& Associates, P.A.
10.47 -- Form of Contract Provider agreement.
11 -- Statement of Computation of Per Share Earnings.
21 -- List of the subsidiaries of Vision Twenty-One, Inc.
23.1* -- Consent of Shumaker, Loop & Kendrick, LLP (included in their opinion filed as Exhibit 5.1).
23.2 -- Consent of Ernst & Young, LLP, independent certified public accountants.
24 -- Power of Attorney (included on signature page).
27.1 -- Financial Data Schedule for year ended December 31, 1996. (For SEC Use Only).
27.2 -- Financial Data Schedule for three months ended March 31, 1997. (For SEC Use Only).
</TABLE>
- ---------------
* To be filed by amendment.
+ Certain information contained in this exhibit is subject to a request for
confidential treatment. In accordance with Rule 406 promulgated under the
Securities Act of 1933, as amended, such confidential information has been
omitted herefrom and filed separately with the Securities and Exchange
Commission.
3
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VISION TWENTY-ONE, INC.
Vision Twenty-One, Inc., a corporation organized and existing under the
General Corporation Law of the State of Florida (the "Corporation"), does hereby
certify:
I. The Corporation pursuant to the provisions of Section 607.1007 of
the Florida Business Corporation Act (the "Act"), hereby adopts these Amended
and Restated Articles of Incorporation which accurately restate and integrate
the original Articles of Incorporation filed on May 9, 1996 and all amendments
thereto that are in effect to date as permitted by Section 607.1007 of the
Florida Statutes.
II. Each amendment made by these Amended and Restated Articles of
Incorporation (the "Restated Articles") has been effected in conformity with the
provisions of the Act, and the Restated Articles and each amendment thereto were
duly approved and adopted by the Corporation by written consent of the
Corporation's Board of Directors dated May 30, 1997.
III. The original Articles of Incorporation and all amendments and
supplements thereto are hereby superseded by the Restated Articles which are as
follows:
1. NAME. The name of the corporation is VISION TWENTY-ONE, INC.
(the "Corporation").
2. CORPORATE ADDRESS AND REGISTERED OFFICE AND AGENT. The
principal office of the Corporation is located at 7209 Bryan Dairy Road, Largo,
Florida 34647. The address of the Corporation's registered office in the State
of Florida is 101 East Kennedy Boulevard, Suite 2800, Post Office Box 172609,
Tampa, Florida 33672-0609. The name of its registered agent at such address is
Darrell C. Smith.
3. PURPOSE. The nature of the business and the purpose for
which the Corporation is formed are to engage in any lawful act or activity for
which a corporation may be organized under the Act.
4. AUTHORIZED SHARES. The total number of shares of all
classes of capital stock which the Corporation shall have the authority to issue
is Sixty Million (60,000,000) shares, consisting of (i) Fifty Million
(50,000,000) shares of common stock, $.001 value per share (the "Common Stock"),
and (ii) Ten Million (10,000,000) shares of preferred stock, $.001 value per
share (the "Preferred Stock"). The designation, powers, preferences and relative
participating, optional or other special rights and the qualifications,
limitations and restrictions thereof in respect of each class of capital stock
of the Corporation are as follows:
A. COMMON STOCK. Each holder of record of shares of Common
Stock shall be entitled to vote at all meetings of the stockholders and
shall have one vote for each share held by him of record. Subject to
the prior rights of the holders of all
<PAGE> 2
classes or series of stock at the time outstanding having prior rights
as to dividends, the holders of shares of Common Stock shall be
entitled to receive, when and as declared by the Board of Directors of
the Corporation (the "Board of Directors"), out of the assets of the
Corporation legally available therefor, such dividends as may be
declared from time to time by the Board of Directors.
B. PREFERRED STOCK. The Preferred Stock may be issued
from time to time by the Board of Directors as shares of one or more
series. Subject to the terms contained in any designation of a series
of Preferred Stock and to limitations prescribed by law, the Board of
Directors is expressly authorized, at any time and from time to time,
to fix by resolution the designation and relative powers, preferences
and rights and the qualifications and limitations thereof relating to
the shares of each such class or series. The authority of the Board of
Directors with respect to the provisions for shares of any class of
Preferred Stock or any series of any class of Preferred Stock shall
include, but not be limited to, the following:
(1) the designation of such class or series, the
number of shares to constitute such class or series which may be
increased or decreased (but not below the number of shares of that
class or series then outstanding) by resolution of the Board of
Directors, and the stated value thereof if different from the par
value thereof;
(2) whether the shares of such class or series
shall have voting rights, in addition to any voting rights
provided by law, and, if so, the terms of such voting rights;
(3) the dividends, if any, payable on such
class or series, whether any such dividends shall be cumulative,
and, if so, from what dates, the conditions and dates upon which
such dividends shall be payable, the preference or relation which
such dividends shall bear to the dividends payable on any shares
of stock of any other class or any other series of the same class;
(4) whether the shares of such class or series
shall be subject to redemption by the Corporation, and, if so, the
times, prices and other conditions of such redemption;
(5) the amount or amounts payable upon, and
the rights of the holders of such class or series in, the
voluntary or involuntary liquidation, dissolution or winding up,
or upon any distribution of the assets, of the Corporation;
(6) whether the shares of such class or series
shall be subject to the operation of a retirement or sinking fund
and, if so, the extent to and manner in which any such retirement
or sinking fund shall be applied to the purchase or redemption of
the shares of such class or series for retirement or other
corporate purposes and the terms and provisions relative to the
operation thereof;
-2-
<PAGE> 3
(7) whether the shares of such class or series
shall be convertible into, or exchangeable for, shares of stock of
any other class or any other series of the same class or any other
securities or cash or other property and, if so, the price or
prices or the rate or rates of conversion or exchange and the
method, if any, of adjusting the same, and any other terms and
conditions of conversion or exchange;
(8) the limitations and restrictions, if any,
to be effective while any shares of such class or series are
outstanding upon the payment of dividends or the making of other
distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of the same class;
(9) the conditions or restrictions, if any,
upon the creation of indebtedness of the Corporation or upon the
issue of any additional stock, including additional shares of such
class or series or of any other series of the same class or of any
other class;
(10) the ranking (be it pari passu, junior or
senior) of each class or series vis-a-vis any other class or
series of any class of Preferred Stock as to the payment of
dividends, the distribution of assets and all other matters; and
(11) any other powers, preferences and relative,
participating, optional and other special rights, and any
qualifications, limitations and restrictions thereof, insofar as
they are not inconsistent with the provisions of these Articles
of Incorporation, to the full extent permitted in accordance with
the laws of the State of Florida.
The powers, preferences and relative, participating, optional and other
special rights of each class or series of Preferred Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding.
5. NAME AND MAILING ADDRESS OF INCORPORATOR. The name and
mailing address of the incorporator is Darrell C. Smith, Shumaker, Loop &
Kendrick, 101 East Kennedy Boulevard, Suite 2800, Post Office Box 172609, Tampa,
Florida 33672-0609.
6. NAMES AND MAILING ADDRESSES OF DIRECTORS. The names of the
persons who are to serve as directors of the Corporation until the first annual
meeting of stockholders or until their successors are elected and qualify are as
follows:
Ted Gillette Richard Sanchez
Vision 21, Inc. Vision 21, Inc.
7209 Bryan Dairy Road 7209 Bryan Dairy Road
Largo, Florida 34647 Largo, Florida 34647
-3-
<PAGE> 4
7. MANAGEMENT OF THE CORPORATION. The business and
affairs of the Corporation shall be managed by or under the direction of a Board
of Directors comprised as follows:
A. NUMBER, CLASS AND TERM. The number of directors
shall be determined from time to time by resolution adopted by the
affirmative vote of a majority of the directors then in office but such
number shall in no event be less than two nor more than fifteen. The
Board of Directors shall be divided into three classes, designated
Class I, Class II and Class III. Each class shall consist, as nearly as
may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the first annual meeting
of stockholders, the Class I director or directors shall be elected for
a one-year term, the Class II director or directors shall be elected
for a two-year term and the Class III director or directors shall be
elected for a three-year term. At each succeeding annual meeting of
stockholders successors to the class of directors whose term expires at
that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible, but in no case shall a
decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the
year in which his term expires and until his successor shall be elected
and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
B. VACANCIES. Subject to the rights of holders of
any series of Preferred Stock then outstanding, any vacancy on the
Board of Directors that results from an increase in the number of
directors may be filled by a majority of the Board of Directors then in
office, provided that a quorum is present, and any other vacancy
occurring in the Board of Directors may be filled by a majority of the
directors then in office, even if less than a quorum is present, or by
a sole remaining director. Any director of any class elected to fill a
vacancy resulting from an increase in such class shall hold office for
a term that shall coincide with the remaining term of that class. Any
director elected to fill a vacancy not resulting from an increase in
the number of directors shall have the same remaining term as that of
his predecessor.
C. REMOVAL. Subject to the rights of holders of
any series of Preferred Stock then outstanding, any director or the
entire Board of Directors may be removed from office at any time, but
only for cause by an affirmative vote of the holders of a majority of
the then outstanding shares of voting stock.
D. RIGHTS OF PREFERRED STOCK. Notwithstanding the
foregoing, whenever the holders of any one or more classes or series of
Preferred Stock issued by the Corporation shall have the right, voting
separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling
of vacancies and other features of such directorships shall be governed
by the terms of these Articles of Incorporation applicable thereto, and
such directors so elected shall not be divided into classes pursuant to
this Section 7 unless expressly provided by such terms.
E. BALLOT. Election of directors need not be by
ballot unless the By-Laws so provide.
-4-
<PAGE> 5
F. POWERS. In addition to the powers and
authorities hereinabove or by statute expressly conferred upon them,
the directors are hereby empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the provisions of the laws of
the State of Florida, these Articles of Incorporation and any By-Laws
from time to time made by the stockholders; provided, however, that no
By-Law so made shall invalidate any prior act of the directors which
would have been valid if such By-Law had not been made.
G. BY-LAWS. Except to the extent prohibited by
law, the Board of Directors shall have the power to make, alter, amend,
change, add to or repeal the By-Laws of the Corporation and to
establish the rights, powers and procedures that from time to time
shall govern the Board of Directors and each of its members and that
from time to time shall affect the Board of Directors' powers to manage
the business and affairs of the Corporation, and no By-Law shall be
adopted by the stockholders of the Corporation which shall impair or
impede the implementation of the foregoing.
8. STOCKHOLDER MEETINGS. Except as otherwise provided
by law, at any annual or special meeting of stockholders only such business
shall be conducted as shall have been properly brought before the meeting.
Except as otherwise provided in this Section 8, in order to be properly brought
before the meeting, such business must have either been: (A) specified in
written notice of the meeting (or any supplement thereto) given to the
stockholders of record on the record date for such meeting by or at the
direction of the Board of Directors; (B) brought before the meeting at the
direction of the Chief Executive Officer, the President of the Corporation or
the Board of Directors; or (C) specified in a written notice given by or on
behalf of a stockholder of record on the record date for such meeting entitled
to vote thereat or duly authorized proxy for such stockholder, in accordance
with all of the following requirements. A notice referred to in clause (C) of
the preceding sentence must be delivered personally to, or mailed to and
received at, the principal executive office of the Corporation, addressed to the
attention of the secretary, not less than 45 days nor more than 60 days prior to
the meeting; provided, however, that in the event that less than 55 days' notice
or prior public disclosure of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the annual or special meeting was mailed or such public disclosure was
made, whichever first occurs. Such notice referred to in clause (C) of the first
sentence of this Section 8 shall set forth: (i) a description of each such item
of business proposed to be brought before the meeting and the reasons for
conducting such business at such meeting; (ii) the name and address of the
person proposing to bring such business before the meeting; (iii) the class and
number of shares held of record, held beneficially and represented by proxy by
such person as of the record date for the meeting (if such date has then been
made publicly available) and as of the date of such notice; (iv) if any item of
such business involves a nomination for Director, all information regarding each
such nominee that would be required to be set forth in a definitive proxy
statement filed with the Securities and Exchange Commission (the "Commission")
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor thereto, and the written consent of each such
nominee to serve if elected; (v) any material interest of the stockholder in
such item of business; and (vi) all other information that would be required to
be filed with the Commission if, with respect to the business proposed to be
brought before the meeting, the person proposing such business was a participant
in a solicitation subject to Section 14 of the Exchange Act or any successor
thereto. No business shall be brought before any meeting of stockholders of the
Corporation otherwise than as provided in this Section 8. The Board of Directors
may require a proposed nominee for Director to furnish such other information as
may be required to be set forth in a stockholder's notice
-5-
<PAGE> 6
of nomination which pertains to the nominee or which may be reasonably required
to determine the eligibility of such proposed nominee to serve as a Director of
the Corporation. The Chairman of the meeting may, if the facts warrant,
determine that a nomination or stockholder proposal was not made in accordance
with the foregoing procedure, and if he or she should so determine, he or she
shall so declare to the meeting and the defective nomination or proposal shall
be disregarded.
9. LIABILITY FOR MONETARY DAMAGES. No director of the
Corporation shall be personally liable to the Corporation or any other person
for monetary damages for any statement, vote, decision or failure to act
regarding corporate management or policy by such director as a director, except
for liability under the Act and other applicable law. If the Act is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Act as so
amended.
10. INDEMNIFICATION. The Corporation shall, to the full
extent permitted by Florida law, indemnify any person who is or was a director,
officer, employee or agent of the Corporation or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
11. CHANGES. Notwithstanding any other provisions
contained in these Articles of Incorporation or in the By-Laws of the
Corporation, the affirmative vote of the holders of at least eighty percent
(80%) of the votes entitled to be cast by the holders of all then outstanding
shares of the voting stock, voting together as a single class, shall be required
to amend or repeal, or adopt any provisions inconsistent with, Sections 7, 8, 9,
10 and 11 of these Articles of Incorporation.
IN WITNESS WHEREOF, the undersigned President has executed
these Amended and Restated Articles of Incorporation this 2nd day of June, 1997.
/s/ Theodore N. Gillette
--------------------------------
Theodore N. Gillette, President
-6-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
VISION 21, INC.
A FLORIDA CORPORATION
(ADOPTED MAY 10, 1996)
ARTICLE I - OFFICES
1. Business Offices. Vision 21, Inc. (hereinafter referred to as
the "Corporation"), may have such offices, either within or without the State
of Florida, as the Board of Directors may designate from time to time. The
Corporation shall designate an office as its "principal office" in accordance
with Florida law.
2. Registered Office. The Corporation shall have and
continuously maintain a registered office in the State of Florida, which may be
changed from time to time by the Board of Directors or by an Officer of the
Corporation so authorized by the Board of Directors.
ARTICLE II - SHAREHOLDERS
1. Annual Meeting. The Corporation shall hold an Annual Meeting
of the Shareholders for the election of Directors and for the transaction of
any proper business. The Annual Meeting of Shareholders shall be held at such
time and on such date as the Corporation's Board of Directors shall determine
from time to time but not later than thirteen (13) months after the last Annual
Meeting of Shareholders. The failure to hold it at the designated time does
not affect the validity of any corporate action and shall not work as a
forfeiture of or dissolution of the Corporation.
2. Special Meetings. Special meetings of the Shareholders may be
called by the President or the Board of Directors and shall be called if the
holders of not less than Ten Percent (10%) of the votes entitled to be cast on
any issue proposed to be considered at the proposed meeting sign, date and
deliver a written demand or several such written demands for the special
meeting describing the purpose or purposes for the meeting to the Corporation's
Secretary. Only business within the purpose or purposes described in the
special meeting notice may be conducted at such special meeting.
3. Place of Meeting. The Board of Directors may designate any
place either within or without the State of Florida as the place of meeting for
any annual meeting or for any special meeting of the Shareholders. If no
designation is made, then the place of the meeting shall be the principal
office of the Corporation.
4. Notice of Meeting. Written notice stating the place, date,
and time of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by first class mail, by or at the direction of the President or
the Secretary of the Corporation or the persons calling the meeting to each
Shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed delivered upon deposit in the United States mail, with postage
prepaid, addressed to the Shareholder at the address specified in the
Corporation's stock transfer records.
<PAGE> 2
5. Notice of Adjourned Meeting. Notice of an adjourned meeting
is necessary only if the new place, date and time are not announced at the
meeting from which the adjournment is taken or a new record date is fixed for
the reconvening of the meeting. At the adjourned meeting, any business may be
transacted that might have been transacted on the original date of the meeting.
6. Waiver of Notice. A Shareholder may waive any notice required
by statute, the Articles of Incorporation, or Bylaws before or after the date
and time stated in the notice. The waiver must be in writing, be signed by the
Shareholder entitled to the notice, and be delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. Neither the
business to be transacted at nor the purpose of any regular or special meeting
of the Shareholders need be specified in any written waiver of notice. A
Shareholder's attendance at a meeting waives objection to (a) lack of notice or
defective notice of the meeting, unless the Shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting
or (b) consideration of a particular matter at the meeting that is not within
the purpose or purposes described in the meeting notice, unless the Shareholder
objects to considering the matter when it is presented.
7. Record Date Determinations. The Board of Directors may fix
the record date for one or more voting groups in order to determine the
Shareholders entitled (a) to notice of or to vote at any meeting of
Shareholders or any adjournment thereof, (b) to demand a special meeting, (c)
to receive any distribution or (d) to take any other action. Such a record
date must be a date after the date upon which the Board of Directors made the
record date determination. The record date cannot be more than seventy (70)
days before the meeting or action requiring a determination of Shareholders. A
determination of Shareholders entitled to notice of or to vote at a
Shareholders' meeting is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than one hundred twenty (120) days after the date
fixed for the original meeting.
8. Quorum. Unless otherwise required in the Articles of
Incorporation, a majority of the outstanding shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
Shareholders. When a specified item of business is required to be voted on by
a class, series of stock, or voting group, a majority of the shares of such
class, series or voting group shall constitute a quorum for the transaction of
such item of business by that class, series or voting group. This quorum
requirement can be changed only by an amendment to the Corporation's Articles
of Incorporation. After a quorum has been established, the subsequent
withdrawal of Shareholders, so as to reduce the shares represented at the
meeting below the number required for the original quorum, does not affect the
validity of any action taken at the meeting.
9. Voting. Each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
Shareholders. If a quorum exists at a meeting of Shareholders, (a) action on a
matter, other than the election of Directors, is approved if the votes cast by
the holders of the shares represented at the meeting and entitled to vote on
the subject matter favoring the action exceed the votes cast opposing the
action, unless a greater number of affirmative votes or voting by classes is
required by law; and (b) action on a matter,
-2-
<PAGE> 3
other than the election of Directors, by a voting group is approved if the
votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless a greater number of affirmative votes is required
by law.
10. Proxies. A Shareholder, other person entitled to vote on
behalf of a Shareholder pursuant to law, or a Shareholder's attorney-in-fact
may vote the Shareholder's shares in person or by proxy. A Shareholder may
appoint a proxy to vote or otherwise act for him by signing an appointment
form, either personally or by his attorney-in-fact. An executed telegram or
cablegram appearing to have been transmitted by such person, or a photographic,
photostatic or equivalent reproduction of an appointment form, is a sufficient
appointment form. An appointment of a proxy is effective when received by the
corporate officer or agent authorized to tabulate votes. An appointment is
valid for up to eleven (11) months unless a longer period is expressly provided
in the appointment form. An appointment of a proxy is revocable by the
Shareholder, except as otherwise provided by law.
11. Action by Shareholders Without a Meeting. Any action required
or permitted to be taken at any meeting of Shareholders may be taken without a
meeting, without prior notice, and without a vote, if the action is taken by
the holders of shares of each voting group entitled to vote thereon having not
less than the minimum number of votes with respect to each voting group that
would be necessary to authorize or take such action at a duly constituted
meeting. In order to be effective, the action must be evidenced by one or more
written consents describing the action taken, dated and signed by approving
Shareholders having the requisite number of votes of each voting group entitled
to vote thereon, and delivered to the Corporation's principal office in
Florida, its principal place of business or its officer or agent having custody
of the book in which proceedings of meetings of Shareholders are recorded. No
written consent shall be effective to take the corporate action referred to
therein unless, within sixty (60) days of the date of the earliest dated
consent delivered in the manner required by this section, written consent
signed by the number of holders required to take action is delivered to the
Corporation in the manner required by this section. Such a written consent has
the effect of a meeting vote.
Any written consent, once given, may be revoked prior to the
date that the Corporation receives the required number of consents to authorize
the proposed action. No revocation is effective unless in writing and until
received by the Corporation at its principal office in Florida or its principal
place of business, or received by the corporate officer or agent having custody
of the book in which proceedings of meetings of Shareholders are recorded.
Notice of such action must be given to those Shareholders who
have not consented in writing or who are not entitled to vote on the action
within ten (10) days after obtaining such authorization by written consent.
The notice shall fairly summarize the material features of the authorized
action and, if the action be such for which dissenter's rights are provided by
law, the notice shall contain a clear statement of the right of the
Shareholders dissenting therefrom to be paid the fair value of their shares
upon compliance with the provisions of Florida law regarding the rights of
dissenting shareholders.
12. Shareholders' List for Meeting. After fixing a record date
for a meeting, the Corporation shall prepare an alphabetical list of the names
of all its Shareholders who are entitled to notice of a Shareholders' meeting,
arranged by voting group with the address of, and the number and class and
series, if any, of shares held by each. The Shareholders' list must be
-3-
<PAGE> 4
available for inspection by any Shareholder for a period of ten (10) days prior
to the meeting or such shorter time as exists between the record date and the
meeting and continuing through the meeting at the Corporation's principal
office, at a place identified in the meeting notice in the city where the
meeting will be held, or at the office of the Corporation's transfer agent or
registrar. A Shareholder or his agent or attorney is entitled on written
demand to inspect the list, during regular business hours and at his expense,
during the period it is available for inspection; provided that such demand is
made in good faith and for a proper purpose, the purpose is described with
reasonable particularity and the list is directly connected with the purpose.
The Corporation shall make the Shareholders' list available at
the meeting, and any Shareholder or his agent or attorney is entitled to
inspect the list at any time during the meeting or any adjournment. The
Shareholders' list is prima facie evidence of the identity of Shareholders
entitled to examine the Shareholders' list or to vote at a meeting of
Shareholders.
ARTICLE III - DIRECTORS
1. Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation managed under
the direction of, its Board of Directors, subject to any limitation set forth
by law or in the Corporation's Articles of Incorporation.
2. Number, Tenure, Election and Qualifications. The number of
directors shall be determined from time to time by resolution adopted by the
affirmative vote of a majority of the directors then in office but such number
shall in no event be less than two nor more than fifteen. The Board of
Directors shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. At the first annual meeting of stockholders, the Class I director
or directors shall be elected for a one-year term, the Class II director or
directors shall be elected for a two-year term and the Class III director or
directors shall be elected for a three-year term. At each succeeding annual
meeting of stockholders successors to the class of directors whose term expires
at that annual meeting shall be elected for a three-year term. If the number
of directors is changed, any increase or decrease shall be apportioned among
the classes so as to maintain the number of directors in each class as nearly
equal as possible, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office.
3. General Standards for Directors. A Director shall discharge
his duties as a Director, including his duties as a member of any committee of
the Board of Directors upon which he may serve, (a) in good faith, (b) with
such care as an ordinarily prudent person in a like position would use under
similar circumstances, and (c) in a manner he reasonably believes to be in the
best interests of the Corporation. In discharging his duties, a Director shall
be entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, in each case prepared or
presented by: (i) one or more officers or employees of the Corporation whom
the Director reasonably believes to be reliable and
-4-
<PAGE> 5
competent in the matters presented; (ii) legal counsel, public accountants, or
other persons as to matters that the Director reasonably believes are within
the person's professional or expert competence; or (iii) a committee of the
Board of Directors of which he is not a member if the Director reasonably
believes the committee merits confidence.
In discharging his duties, a Director may consider such
factors as the Director deems relevant, including but not limited to the
long-term prospects and interests of the Corporation and its Shareholders, and
the social, economic, legal, or other effects of any action on the employees,
suppliers, customers of the Corporation or its subsidiaries, the communities
and society in which the Corporation or its subsidiaries operate, and the
economy of the state and the nation.
A Director is not acting in good faith if he has knowledge
concerning the matter in question that makes reliance otherwise permitted by
this section unwarranted.
A Director is not liable for any action taken as a Director,
or any failure to take any action, if he performed the duties of his office in
compliance with this section.
4. Election of Directors. Notwithstanding the terms of the
Articles of Incorporation, whenever the holders of any one or more classes or
series of Preferred Stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or
special meeting of Shareholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of the Articles of Incorporation applicable thereto, and such directors
so elected shall not be divided into classes pursuant to Section 7 of the
Articles of Incorporation unless expressly provided by such terms. At the
annual meeting of Shareholders, Directors shall be elected by a plurality of
the votes cast by the shares represented at the meeting and entitled to vote
for the election of Directors. If the election of Directors is not held on a
day designated in these Bylaws for any annual meeting of Shareholders, or at
any adjournment thereof, the Board of Directors may cause the election to be
held at a special meeting of Shareholders specifically called for that purpose.
5. Regular Meetings. The annual meeting of the Board of
Directors shall be held without notice immediately after, and at the same place
as, the annual election of Directors. The Board of Directors may, from time to
time, by resolution appoint the time and place, either within or without the
State of Florida, for holding other regular meetings of the Board, if by it
deemed advisable; and such regular meetings shall thereupon be held at the time
and place so appointed, without the giving of any notice with regard thereto.
In case the day appointed for a regular meeting shall fall upon a Saturday,
Sunday or legal holiday in the State of Florida, such meeting shall be held on
the next succeeding day not a Saturday, Sunday or legal holiday in the State of
Florida, at the regularly appointed hour.
6. Special Meeting. Special meetings of the Board of Directors
shall be held whenever called by the Chairman of the Board, any two Directors
or the President of the Corporation. Special meetings may be held within or
without the State of Florida. Notice of a special meeting must be given at
least two (2) days prior to the date of the meeting by written notice delivered
personally, by mail, telegram, telecopy or nationally recognized overnight
courier service (such as Federal Express, Airborne, UPS, Emory or Purolator) to
each Director at his address. Such notice shall be effective upon the earliest
of (a) receipt, (b) five days after
-5-
<PAGE> 6
its deposit in the United States mail, as evidenced by the postmark, if mailed
postpaid and correctly addressed, or (c) the date shown on the return receipt
or other evidence of delivery, if sent by registered or certified mail, return
receipt requested, or overnight courier service, and the delivery receipt is
signed by or on behalf of the addressee. Such written notice shall include the
date, time and place of the meeting. The notice of a special meeting need not
describe the purpose of the special meeting.
7. Notice of Adjourned Meeting. Notice of any adjourned meeting
shall be given to the Directors who were not present at the time of the
adjournment and, unless the date, time and place of the adjourned meeting are
announced at the time of the adjournment, to the other Directors also.
8. Waiver of Notice. A Director can waive the requirement of
notice of a meeting of the Board of Directors by signing a waiver of notice
either before or after the meeting. The attendance of a Director at a meeting
constitutes a waiver of notice of such meeting and a waiver of any and all
objections to the time or place of the meeting or the manner in which it has
been called or convened, except when a Director states, at the beginning of the
meeting or promptly upon arrival at the meeting, any objection to the
transaction of business because the meeting is not lawfully called or convened.
9. Quorum and Voting. A majority of the number of Directors in
office shall constitute a quorum for any meeting of the Board of Directors.
The Board of Directors may permit any or all Directors to participate in a
regular or special meeting by, or conduct the meeting through any use of, any
means of communication by which all Directors participating may simultaneously
hear each other during the meeting. A Director participating in a meeting by
this means is deemed to be present in person at the meeting.
If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors,
unless applicable law, the Articles of Incorporation of the Corporation or
these Bylaws require the vote of a greater number of Directors. A majority of
the Directors present at a meeting, whether or not a quorum exists, may adjourn
the meeting to another time and place.
10. Presumption of Assent. A Director who is present at a meeting
of the Board of Directors or a committee thereof when corporate action is taken
is deemed to have assented to the action taken unless (a) he objects at the
beginning of the meeting or promptly upon arrival thereat to the holding of the
meeting or the transacting of specified business at the meeting or (b) he votes
against or abstains from the action taken.
11. Action Without a Meeting. Any action required or permitted to
be taken by the Board of Directors at a meeting may be taken without a meeting
if the action is taken by all the Directors. The action must be evidenced by
one or more written consents describing the action taken and signed by each
Director. The action is effective when the last Director signs a consent,
unless the consent specifies a different effective date. Such a consent has
the effect of a meeting vote.
-6-
<PAGE> 7
12. Director Conflicts of Interest. No contract or other
transaction between the Corporation and one or more of its Directors or any
other corporation, firm, association, or entity in which one or more of its
Directors are directors or officers or are financially interested shall be
either void or voidable because of such relationship or interest, because such
Director or Directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction, or because his or their votes are counted for such purpose, if:
(a) the fact of such relationship or interest is disclosed or known to the
Board of Directors or committee which authorizes, approves, or ratifies the
contract or transaction by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested Directors; (b) the fact of
such relationship or interest is disclosed or known to the Shareholders
entitled to vote and they authorize, approve, or ratify such contract or
transaction by vote or written consent; or (c) the contract or transaction is
fair and reasonable as to the Corporation at the time it is authorized by the
Board of Directors, a committee, or the Shareholders.
Common or interested Directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves, or ratifies such contract or transaction.
For the purposes of Shareholder action pursuant to this
section, a conflict of interest transaction is authorized, approved, or
ratified if it receives the vote of a majority of the shares entitled to be
counted under this section. Shares owned by or voted under the control of a
Director who has a relationship or interest in the transaction may not be
counted in a vote of Shareholders to determine whether to authorize, approve,
or ratify the transaction. A majority of the shares, whether or not present,
that are entitled to be counted in the vote on the transaction constitutes a
quorum for the purpose of taking action thereon.
13. Compensation of Directors. The Board of Directors may fix the
compensation of Directors. Each Director may be paid a stated salary as such
or a fixed sum for the attendance at meetings of the Board of Directors or any
committee thereof, or both, and may be reimbursed for his expenses of
attendance at each such meeting. The Board of Directors may also pay to each
Director rendering services to the Corporation not ordinarily rendered by
Directors, as such, special compensation appropriate to the value of such
services, as determined by the Board of Directors from time to time. None of
these payments shall preclude any Director from serving the Corporation in any
other capacity and receiving compensation therefor. The Board of Directors may
determine the compensation of a Director who is also an Officer for service as
an Officer as well as for service as a Director.
14. Resignations. A Director may resign at any time by delivering
written notice to the Board of Directors or its Chairman or to the Corporation.
A resignation is effective when the notice is delivered unless the notice
specifies a later effective date. If a resignation is made effective at a
later date, the Board of Directors may fill the pending vacancy before the
effective date if the Board of Directors provides that the successor does not
take office until the effective date.
-7-
<PAGE> 8
15. Removal of Directors. Subject to the rights of holders of any
series of Preferred Stock then outstanding, any director or the entire Board of
Directors may be removed from office at any time, but only for cause by an
affirmative vote of the holders of a majority of the then outstanding shares of
voting stock.
16. Vacancies. Subject to the rights of holders of any series of
Preferred Stock then outstanding, any vacancy on the Board of Directors that
results from an increase in the number of directors may be filled by a majority
of the Board of Directors then in office, provided that a quorum is present,
and any other vacancy occurring in the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum is
present, or by a sole remaining director. Any director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor. A
vacancy that will occur at a specific later date may be filled before the
vacancy occurs but the new Director may not take office until the vacancy
occurs.
ARTICLE IV - COMMITTEES
1. Creation. The Board of Directors may, by resolution adopted
by a majority of the full Board of Directors, designate from among its members
an Executive Committee and one or more other committees each of which, to the
extent provided in such resolution, shall have and may exercise all the
authority of the Board of Directors, except that no such committee shall have
the authority to: (a) approve or recommend to Shareholders actions or
proposals required by law to be approved by the Shareholders; (b) fill
vacancies on the Board of Directors or any committee thereof; (c) adopt, amend
or repeal the Bylaws; (d) authorize or approve the reacquisition of shares
unless pursuant to a general formula or method specified by the Board of
Directors; (e) authorize or approve the issuance or sale or contract for the
sale of shares, or determine the designation and relative rights, preferences,
and limitations of a voting group except that the Board of Directors may
authorize a committee to do so within the limits specifically prescribed by the
Board of Directors.
Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted by a majority of the full Board of Directors, may designate one or more
Directors as alternate members of any such committee who may act in the place
and stead of any absent member or members at any meeting of such committee.
2. Operation. The sections of these Bylaws that govern meetings,
notice and waiver of notice, quorum and voting, and action without a meeting
requirements of the Board of Directors apply to committees and their members as
well.
-8-
<PAGE> 9
ARTICLE V - OFFICERS
1. Officers. The Officers of the Corporation shall include a
President, a Treasurer and a Secretary. Other Officers may be elected by the
Board of Directors from time to time. A duly elected Officer may appoint one
or more Officers or assistant officers, if authorized to do so by the Board of
Directors. The same individual may simultaneously hold more than one office in
the Corporation.
2. Election and Term of Office. As far as practicable, the
Officers of the Corporation shall be elected at the regular meeting of the
Board of Directors following the annual election of Directors. If the election
of Officers is not held at such meeting, the election shall be held as soon
thereafter as conveniently may be. Each Officer shall hold office until the
regular meeting of the Board of Directors following the annual election of
Directors in the next subsequent year and until his successor shall have been
duly elected and shall have qualified, or until his earlier resignation,
removal from office or death.
3. Resignation and Removal. An Officer may resign at any time by
delivering notice to the Corporation. A resignation is effective when the
notice is delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date and the Corporation accepts the
future effective date, the Board of Directors may fill the pending vacancy
before the effective date if the Board of Directors provides that the successor
does not take office until the effective date.
The Board of Directors may remove any Officer at any time with
or without cause. Any Officer or assistant officer, if appointed by another
Officer, may likewise be removed by such Officer.
The appointment of an Officer does not itself create contract
rights. An Officer's removal does not affect the Officer's contract rights, if
any, with the Corporation. An Officer's resignation does not affect the
Corporation's contract rights, if any, with the Officer.
4. Vacancies. A vacancy in any office because of resignation,
removal, death or otherwise, may be filled by the Board of Directors for the
unexpired portion of the term.
5. President. The President shall be the chief executive officer
of the Corporation, and, under the direction of the Board of Directors, shall
have general responsibility for the management and direction of the business,
properties and affairs of the Corporation. He shall have general executive
powers, including all powers required by law to be exercised by a president of
a corporation as such, as well as the specific powers conferred by these Bylaws
or by the Board of Directors.
6. Vice President. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice President, if one has
been appointed or elected (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
appointment or election, or in the absence of any designation, then in the
order of their appointment or election), shall perform the duties of the
President and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President.
-9-
<PAGE> 10
Each Vice President shall have general executive powers as
well as the specific powers conferred by these Bylaws. He shall also have such
further powers and duties as may from time to time be conferred upon, or
assigned to, him by the Board of Directors or the President.
7. Secretary. The Secretary shall (a) prepare minutes of
meetings of the Board of Directors and Shareholders; (b) authenticate records
of the Corporation; (c) keep the minutes of the proceedings of the Board of
Directors and the Shareholders in one or more books provided for that purpose;
(d) see that all notices are duly given in accordance with the provisions of
these Bylaws or as required by law; (e) be custodian of the corporate records
and of the seal of the Corporation and see that the seal of the Corporation is
affixed to all documents the execution of which on behalf of the Corporation
under its seal is duly authorized; (f) be the registrar of the Corporation and
keep a register of the post office addresses of all Shareholders that shall be
furnished to the Secretary by the Shareholders; (g) have general charge of the
stock transfer books of the Corporation; and (h) in general perform all duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board of Directors.
8. Treasurer. The Treasurer shall (a) have charge and custody
of, and be responsible for, all funds and securities of the Corporation; (b)
receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, and deposit all such moneys in the name of the
Corporation in such banks, trust companies or other depositaries as the Board
of Directors may select; and (c) in general perform all of the duties as from
time to time may be assigned to him by the President or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond for the faithful discharge of his duties in such sum and with such surety
or sureties as the Board of Directors shall determine.
9. Salaries. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
ARTICLE VI - SHARES AND THEIR TRANSFER
1. Certificates for Shares. Shares may but need not be
represented by certificates. Unless otherwise provided by law, the rights and
obligations of Shareholders are identical whether or not their shares are
represented by certificates. Certificates representing shares of the
Corporation shall be in such form as shall be determined by the Board of
Directors. Each certificate for shares shall be consecutively numbered or
otherwise identified. Each share certificate must state on its face (a) the
name of the Corporation and that the Corporation is organized under the laws of
Florida; (b) the name of the person to whom issued; and (c) the number and
class of shares and the designation of the series, if any, the certificate
represents. Each share certificate (i) must be signed either manually or in
facsimile by the Chairman of the Board of Directors, if any, the President or a
Vice President and the Secretary, Treasurer or an assistant Secretary or
Treasurer and (ii) may bear the corporate seal or its facsimile.
If the Corporation is authorized to issue different classes of
shares or different series within a class, the designations, relative rights,
preferences, and limitations applicable to each class and the variations in
rights, preferences, and limitations determined for each series
-10-
<PAGE> 11
must be summarized on the front or back of each certificate. Alternatively,
each certificate may state conspicuously on its front or back that the
Corporation will furnish the Shareholder a full statement of this information
on request and without charge.
Any certificate representing shares that are restricted as to
the sale, disposition, or other transfer of such shares, shall also state that
such shares are restricted as to transfer and shall set forth or fairly
summarize on the front of back of the certificate, or shall state that the
Corporation will furnish to any Shareholder on request and without charge, a
full statement of such restrictions.
2. Transfer of Shares. If a certificated security in registered
form is presented to the Corporation with a request to register transfer or an
instruction is presented to the Corporation with a request to register
transfer, pledge, or release, the Corporation shall register the transfer,
pledge, or release as requested if: (a) the security is indorsed or the
instruction was originated by the appropriate person or persons; (b) reasonable
assurance is given that those indorsements or instructions are genuine and
effective; (c) the Corporation has no duty as to adverse claims or has
discharged the duty; (d) any applicable law relating to the collection of taxes
has been complied with; and (e) the transfer, pledge, or release is in fact
rightful or is to a bona fide purchaser.
3. Lost, Destroyed or Stolen Certificated Securities. If a
certificated security has been lost, apparently destroyed, or wrongfully taken,
and the owner fails to notify the Corporation of that fact within a reasonable
time after he has notice of it and the Corporation registers a transfer of the
security before receiving notification, the owner is precluded from asserting
against the Corporation any claim for registering the transfer or any claim to
a new security.
If the owner of a certificated security claims that the
security has been lost, destroyed, or wrongfully taken, the Corporation shall
issue a new certificated security or, at the option of the Corporation, an
equivalent uncertificated security in place of the original security if the
owner (a) so requests before the Corporation has notice that the security has
been acquired by a bona fide purchaser; (b) files with the Corporation a
sufficient indemnity bond; and (c) satisfies any other reasonable requirements
imposed by the Corporation.
ARTICLE VII - BOOKS, RECORDS AND REPORTS
1. Books and Records. The Corporation shall keep as permanent
records minutes of all meetings of its Shareholders and Board of Directors, a
record of all actions taken by the Shareholders or Board of Directors without a
meeting, and a record of all actions taken by a committee of the Board of
Directors in place of the Board of Directors on behalf of the Corporation. The
Corporation shall maintain accurate accounting records. The Corporation or its
agent shall maintain a record of its Shareholders in a form that permits
preparation of a list of the names and addresses of all Shareholders in
alphabetical order by class of shares showing the number and series of shares
held by each. The Corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
-11-
<PAGE> 12
The Corporation shall keep a copy of the following records:
(a) its Articles or Restated Articles of Incorporation and all amendments to
them currently in effect; (b) its Bylaws or Restated Bylaws and all amendments
to them currently in effect; (c) resolutions adopted by its Board of Directors
creating one or more classes or series of shares and fixing their relative
rights, preferences, and limitations, if shares issued pursuant to those
resolutions are outstanding; (d) the minutes of all Shareholders' meetings and
records of all action taken by Shareholders without a meeting for the past
three (3) years; (e) written communications to all Shareholders generally or
all Shareholders of a class or series within the past three (3) years,
including the financial statements furnished for the past three (3) years; (f)
a list of the names and business street addresses of its current Directors and
Officers; and (g) its most recent annual report delivered to the Florida
Department of State.
2. Shareholder's Inspection Rights. If a Shareholder gives the
Corporation written notice of his demand at least five (5) business days before
the date on which he wishes to inspect and copy, he is entitled to inspect and
copy, during regular business hours at the Corporation's principal office, any
of the following records: (a) the Corporation's Articles or Restated Articles
of Incorporation and all amendments to them currently in effect; (b) the
Corporation's Bylaws or Restated Bylaws and all amendments to them currently in
effect; (c) resolutions adopted by the Board of Directors creating one or more
classes or series of shares and fixing their relative rights, preferences, and
limitations, if shares issued pursuant to those resolutions are outstanding;
(d) the minutes of all Shareholders' meetings and records of all action taken
by Shareholders without a meeting for the past three (3) years; (e) written
communications to all Shareholders generally or all Shareholders of a class or
series within the past three (3) years, including the financial statements
furnished for the past three (3) years; (f) a list of the names and business
addresses of the Corporation's current Directors and Officers; and (g) the
Corporation's most recent annual report delivered to the Florida Department of
State.
If (a) a Shareholder makes a demand for inspection in good
faith and for a proper purpose, (b) he describes with reasonable particularity
his purpose and the records he desires to inspect, (c) the records are directly
connected with his purpose, and (d) he gives the Corporation written notice of
his demand at least five (5) business days before the date on which he wishes
to inspect and copy, he is entitled to inspect and copy, during regular
business hours at a reasonable location specified by the Corporation, any of
the following records of the Corporation: (i) excerpts from minutes of any
meeting of the Board of Directors, records of any action of a committee of the
Board of Directors while acting in place of the Board of Directors on behalf of
the Corporation, minutes of any meeting of the Shareholders, and records of
action taken by the Shareholders or Board of Directors without a meeting, to
the extent not otherwise subject to inspection pursuant to this section; (ii)
accounting records of the Corporation; (iii) the record of Shareholders; and
(iv) any other books and records.
If a Shareholder gives the Corporation written notice of his
demand at least fifteen (15) business days before the date on which he wishes
to inspect and copy, he is entitled to inspect and copy, during regular
business hours at a reasonable location in Florida specified by the
Corporation, (a) the Corporation's Bylaws or Restated Bylaws and all amendments
to them currently in effect and (b) a list of the names and business street
addresses of the Corporation's current Directors and Officers.
-12-
<PAGE> 13
3. Annual Reports. On or after January 1 and on or before May 1
of each year, the Corporation shall deliver to the Florida Department of State
for filing a sworn annual report, on such forms as the Department of State may
prescribe and containing such information as is prescribed by law. Similar
reports shall be filed as required by law in those jurisdictions other than the
State of Florida where the Corporation may be authorized to transact business.
4. Financial Statements. Unless modified by resolution of the
Shareholders within 120 days of the close of each fiscal year, the Corporation
shall furnish its Shareholders annual financial statements, which may be
consolidated or combined statements of the Corporation and one or more of its
subsidiaries, as appropriate, that include a balance sheet as of the end of the
fiscal year, an income statement for that year, and a statement of cash flows
for that year. If financial statements are prepared for the Corporation on the
basis of generally accepted accounting principles, the annual financial
statements must also be prepared on that basis.
If the annual financial statements are reported upon by a
public accountant, his report must accompany them. If not, the statements must
be accompanied by a statement of the President or the person responsible for
the Corporation's accounting records (a) stating his reasonable belief whether
the statements were prepared on the basis of generally accepted accounting
principles and, if not, describing the basis of preparation; and (b) describing
any respects in which the statements were not prepared on a basis of accounting
consistent with the statements prepared for the preceding year.
The Corporation shall mail the annual financial statements to
each Shareholder within 120 days after the close of each fiscal year or within
such additional time thereafter as is reasonably necessary to enable the
Corporation to prepare its financial statements if, for reasons beyond the
Corporation's control, it is unable to prepare its financial statements within
the prescribed period. Thereafter, on written request from a Shareholder who
was not mailed the statements, the Corporation shall mail him the latest annual
financial statements.
5. Other Reports to Shareholders. If the Corporation indemnifies
or advances expenses of defense to any Director, Officer, employee, or agent
otherwise than by court order or action by the Shareholders or by an insurance
carrier pursuant to insurance maintained by the Corporation, the Corporation
shall report the indemnification or advance in writing to the Shareholders with
or before the notice of the next Shareholders' meeting, or prior to such
meeting if the indemnification or advance occurs after the giving of such
notice but prior to the time such meeting is held, which report shall include a
statement specifying the persons paid, the amounts paid, and the nature and
status at the time of such payment of the litigation or threatened litigation.
If the Corporation issues or authorizes the issuance of shares
for promises to render services in the future, the Corporation shall report in
writing to the Shareholders the number of shares authorized or issued, and the
consideration received by the Corporation, with or before the notice of the
next Shareholders' meeting.
-13-
<PAGE> 14
ARTICLE VIII - MISCELLANEOUS
1. Distributions to Shareholders. The Board of Directors may
authorize and the Corporation may make distributions to its Shareholders
subject to restriction by the Articles of Incorporation and the limitations
provided by law. Dividends may be paid in cash, in property, or in shares of
stock, subject to the provisions of the Articles of Incorporation and
applicable law.
2. Corporate Seal. The Board of Directors may provide for a
corporate seal, which may be altered at will and used itself or by a facsimile
thereof, by impressing or affixing it or in any other manner reproducing it.
3. Execution of Instruments. All bills, notes, checks, other
instruments for the payment of money, agreements, indentures, mortgages, deeds,
conveyances, transfers, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, proxies, and other instruments or documents
may be signed, executed, acknowledged, verified, delivered, or accepted on
behalf of the Corporation by such Officers, employees, or agents of the
Corporation as the Board of Directors may from time to time direct.
4. Indemnification.
The Corporation shall indemnify any person who is or was a
Director, Officer, employee, or agent of the Corporation or was serving at the
request of the Corporation as a Director, Officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise, to
the full extent permitted by law.
The Corporation may purchase and maintain insurance on behalf
of any person who is or was a Director, Officer, employee, or agent of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise against any liability asserted
against him and incurred by him in any such capacity or arising out of his
status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE IX - AMENDMENTS
The Corporation's Board of Directors may amend or repeal the
Corporation's Bylaws unless: (a) the Articles of Incorporation or law reserves
the power to amend the Bylaws generally or a particular Bylaw provision
exclusively to the Shareholders; or (b) the Shareholders, in amending or
repealing the Bylaws generally or a particular Bylaw provision, provide
expressly that the Board of Directors may not amend or repeal the Bylaws or
that Bylaw provision.
The Corporation's Shareholders may amend or repeal the Corporation's
Bylaws even though the Bylaws may also be amended or repealed by its Board of
Directors.
-14-
<PAGE> 1
EXHIBIT 4.1
VISION TWENTY-ONE, INC.
TOTAL AUTHORIZED ISSUE
50,000,000 SHARES PAR VALUE $.001 EACH
COMMON STOCK
THIS IS TO CERTIFY THAT _____________________________________ is the
owner of _______________________________________________ fully paid and
non-assessable shares of the above Corporation transferable only on the books
of the Corporation by the holder hereof in person or by duly authorized
Attorney upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly
authorized officers.
DATED:
______________________________ [CORPORATE SEAL] ______________________________
Secretary President
<PAGE> 1
EXHIBIT 4.2
PROMISSORY NOTE
$3,000,000 June ____, 1996
FOR VALUE RECEIVED, VISION 21, INC. ("Maker") hereby promises to pay
to the order of PETER J. FONTAINE ("Payee") the principal amount of Three
Million Dollars ($3,000,000) together with interest at the rate of eight
percent (8%) per annum.
This Note and all accrued interest hereon shall be due and payable at
the time of and out of the proceeds from the underwritten initial public
offering of Maker's shares of common stock pursuant to a registration statement
to be filed with the Securities and Exchange Commission under the Securities
Act of 1933, as amended ("Registration Statement"). Maker further agrees to
reimburse Payee for all out of pocket expenses incurred by Payee in making the
loan represented by this Note to Maker.
Maker hereby waives notice of demand, dishonor, protest and
presentment. If this Note and accrued interest hereon is not paid within
thirty (30) days from the effective date of the Registration Statement, Maker
agrees to pay all costs and expenses of collection incurred by Payee including,
but not limited to, reasonable attorneys' fees.
This Note shall be binding upon Maker and its successors and assigns.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty. This Note has been executed, made and delivered in
the State of New York and shall be governed by and construed in accordance with
the laws of such State. This Note may not be modified or amended, and no
provision hereof may be waived, except by a written instrument executed by the
parties hereto.
VISION 21, INC.
By: /s/ Theodore N. Gillete
-------------------------------
Theodore N. Gillete, President
<PAGE> 1
EXHIBIT 4.3
PROMISSORY NOTE
$200,000.00 November 8, 1996
FOR VALUE RECEIVED, VISION 21, INC. ("Maker") hereby promises to pay
to the order of PETER J. FONTAINE ("Payee") the principal amount of Two Hundred
Thousand Dollars ($200,000.00) together with interest at the rate of eight and
one-half percent (8.5%) per annum.
This Note and all accrued interest hereon shall be due and payable on
the effective date of the Maker's initial public offering of the Maker's shares
of common stock or January 1, 1998, whichever date occurs first. All principal
and interest shall become due and payable upon demand at any time after January
1, 1998. Maker further agrees to reimburse Payee for all out-of-pocket
expenses incurred by Payee in making the loan represented by this Note to
Maker.
If this Note and accrued interest hereon is not paid within thirty
(30) days from the effective date of the initial public offering or by January
31, 1998, whichever occurs first, Maker agrees to pay all costs and expenses of
collection incurred by Payee, including, but not limited to, reasonable
attorneys' fees.
This Note shall be binding upon Maker and its successors and assigns.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty.
This Note shall be governed by the laws of the State of New York.
"MAKER"
VISION 21, INC.
By: /s/ Theodore N. Gillete
--------------------------------
Theodore N. Gillette
President
THIS INSTRUMENT WAS MADE, EXECUTED AND DELIVERED OUTSIDE THE STATE OF FLORIDA,
AND NO FLORIDA DOCUMENTARY STAMP TAX IS DUE HEREON IN ACCORDANCE WITH F.A.C.
12b-4.053(35).
<PAGE> 1
EXHIBIT 4.4
PROMISSORY NOTE
$500,000.00 December 4, 1996
FOR VALUE RECEIVED, VISION 21, INC. ("Maker") hereby promises to pay
to the order of PETER J. FONTAINE ("Payee") the principal amount of Five
Hundred Thousand Dollars ($500,000.00) together with interest at the rate of
eight and one-half percent (8.5%) per annum.
This Note and all accrued interest hereon shall be due and payable on
the effective date of the Maker's initial public offering of the Maker's shares
of common stock or January 1, 1998, whichever date occurs first. All principal
and interest shall become due and payable upon demand at any time after January
1, 1998. Maker further agrees to reimburse Payee for all out-of-pocket
expenses incurred by Payee in making the loan represented by this Note to
Maker.
If this Note and accrued interest hereon is not paid within thirty
(30) days from the effective date of the initial public offering or by January
31, 1998, whichever occurs first, Maker agrees to pay all costs and expenses of
collection incurred by Payee, including, but not limited to, reasonable
attorneys' fees.
This Note shall be binding upon Maker and its successors and assigns.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty.
This Note shall be governed by the laws of the State of Arizona.
"MAKER"
VISION 21, INC.
By: /s/ Theodore N. Gillette
-------------------------------
Theodore N. Gillette
President
THIS INSTRUMENT WAS MADE, EXECUTED AND DELIVERED OUTSIDE THE STATE OF FLORIDA,
AND NO FLORIDA DOCUMENTARY STAMP TAX IS DUE HEREON IN ACCORDANCE WITH F.A.C.
12b-4.053(35).
<PAGE> 1
EXHIBIT 4.5
VISION 21, INC.
NOTE PURCHASE AGREEMENT
DATED: DECEMBER 20, 1996
10% SENIOR SUBORDINATED NOTES DUE DECEMBER 19, 1999
(DETACHABLE WARRANTS EXCHANGEABLE INTO COMMON STOCK)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 - Authorizations of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - Issuance and Sale of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 3 - Agreements with Other Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE 4 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Description of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.3 No material adverse change in financial condition or affairs . . . . . . . . . . . . . . . . . . . . 2
4.4 Tax returns and payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.5 No default on other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.6 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.7 Compliance with applicable laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.8 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.9 Adverse developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.10 Compliance with other instruments; none burdensome . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.11 No stockholder or governmental consent required . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.12 Offering of notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.14 Authorization, execution and delivery of notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.15 Representations and warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.16 Representations and warranties as to acquired businesses . . . . . . . . . . . . . . . . . . . . . . 4
4.17 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE 5 - Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.1 Representations and warranties correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.2 Reservation of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5.3 No default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 Sale and delivery of notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.6 Compliance certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.7 Legality of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.8 Proceedings and documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 6 - Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 7 - Accounting; Financial Statements and Other Information. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 8 - Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 9 - Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
9.1 Prepayment without penalties or premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.2 Notations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 10 - Insurance of Properties and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 11 - Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 12 - Agreement to Register. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 13 - First Right of Refusal and Co-Sale Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 Purchase right of first refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 Co-sale rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 14 - Provisions Respecting Exchange of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.1 Exchange of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.2 Issuance of common stock upon exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.3 Adjustment to exchange price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.4 Fractional shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.5 Effect of reclassifications, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.6 Company to reserve stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14.7 No dilution or impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.8 Taxes on exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.9 Notices of record date, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 15 - Transfers Not Registered Under Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . . . 22
15.1 Restrictive legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
15.2 Notice of proposed transfer, opinions of counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 16 - Registration, Transfer, and Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 17 - Replacement of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 18 - Events of Default; Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 19 - Subordination of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 20 - Remedies on Default, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 21 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
21.1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
21.2 The Exchange Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21.3 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21.4 First Liquidity Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21.5 Generally accepted accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21.6 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
21.7 Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21.8 Net Issuable Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
21.9 Officer's certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.10 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.11 Public offering of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.12 Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.13 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 22 - Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 23 - Survival of Agreements, Representations, and Warranties, etc.. . . . . . . . . . . . . . . . . . . . 31
ARTICLE 24 - Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 25 - Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 26 - Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 27 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Exhibit A - Form of 10% Senior Subordinated Note, due December 19, 1999 . . . . . . . . . . . . . . . . . . . . . . . 1
Exhibit B - Form of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exhibit C - Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Schedule 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Schedule 4.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Schedule 4.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUBSCRIPTION FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
iii
<PAGE> 5
VISION 21, INC.
7209 BRYAN DAIRY ROAD
LARGO, FLORIDA 34647
[Name and Address of each
Purchaser; see SCHEDULE 1]
December 20, 1996
Dear Sirs:
Vision 21, Inc., a Florida corporation (the "Company"), agrees with
you as follows:
ARTICLE 1 - AUTHORIZATIONS OF NOTES
The Company has authorized the issue of up to $3,000,000 aggregate
principal amount of its 10% Senior Subordinated Notes due December 19, 1999
("the Notes"), such term to include all Notes issued in exchange therefor or in
replacement thereof substantially in the form attached as EXHIBIT A. There
shall be attached to each Note a detachable warrant exchangeable into Common
Stock of the Company which expires and becomes null and void on December 19,
2003, substantially in the form attached as EXHIBIT B hereto ("Warrant"), such
term to include all warrants issued in exchange therefor or in replacement
thereof, exchangeable for shares of Common Stock of the Company.
Notwithstanding anything else contained in this agreement, the minimum
aggregate amount of Notes that may be sold hereunder shall be Fifty Thousand
Dollars ($50,000.00). All Notes must be purchased on or before December 30,
1996 ("Entry Termination Date").
ARTICLE 2 - ISSUANCE AND SALE OF NOTES
The Company agrees to sell to you and, subject to the terms and
conditions herein set forth, you agree to purchase from the Company, Notes in
the principal amount set forth opposite your name in SCHEDULE 1 hereto. Such
purchase and delivery for each purchaser of the notes ("Purchaser") shall be
made within three days of their execution of this Note Purchase Agreement or at
a time to be mutually agreed upon in writing (either of which shall be the
"Closing Time" for such Purchaser's purchase) but not after the Entry
Termination Date. At Closing Time, the Company will deliver to you the Notes
to be purchased by you against payment of the purchase price thereof by
certified or official bank check or wire transfer (at the election of the
Company) payable to the order of Company in same day U.S. funds. Such
purchase price shall be an amount equal to 100 percent of the principal amount
of the Notes to be purchased by you. The Note or Notes shall be dated as of
the Closing Time and payable to you as the Purchaser thereof.
ARTICLE 3 - AGREEMENTS WITH OTHER PURCHASERS
Through the period from this date through the Entry Termination Date,
the Company may add additional signature pages to this Agreement reflecting
other Purchaser's execution of this Agreement which shall be deemed to be an
automatic addendum to this Agreement. Purchasers shall be listed in SCHEDULE 1
hereto (all of which constitute "Purchasers"). The Purchasers agree to
purchase Notes from
1
<PAGE> 6
the Company in the principal amounts set forth opposite their respective names
in SCHEDULE 1. Upon attaching another executed signature page for an
additional Purchaser, the Company shall mail to each existing Purchaser a
revised SCHEDULE 1 which shall replace the then SCHEDULE 1. No Purchaser shall
have any rights against the Company nor shall they have any recision or
cancellation rights should there not be any additional Purchasers.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization. The Company is and at Closing Time will be a
Corporation duly organized and validly existing and in good standing under the
laws of the State of Florida with all requisite corporate power and authority
to own and operate its properties and to carry on its business as now
conducted; the Company has and at Closing Time will have all requisite
corporate power and authority to enter into this agreement, to issue the Notes,
to issue the Warrants, to issue its Common Stock upon exchange of any Warrants,
and to carry out the terms hereof and thereof. The Company is the 100% owner
of its subsidiaries listed on SCHEDULE 4.1 hereto, each of which is duly
organized and validly existing and in good standing under the laws of the
jurisdiction of each incorporation and each has the requisite corporate power
and authority to own and operate their properties and carry on their business
as now conducted.
4.2 Description of business. The Confidential Offering Circular
of the Company of December 1996, hereinafter referred to as the Memorandum,
heretofore furnished to you by the Company constitutes a description of its
business and properties, its Subsidiaries and its acquisition and growth plans.
4.3 No material adverse change in financial condition or affairs.
There has not been any substantial material adverse change in the assets,
liabilities, financial condition or affairs of the Company, its Subsidiaries,
and the acquired businesses ("Acquired Businesses") considered as a single
enterprise from that set forth or reflected in the Memorandum, except as set
forth in SCHEDULE 4.3 hereto.
4.4 Tax returns and payments. All required tax returns and
reports of the Company and its Subsidiaries have been duly filed, and all
taxes, assessments, fees, and other governmental charges upon the Company and
its Subsidiaries or upon any of their respective properties, assets, income,
which are due and payable, have been paid, other than those presently payable
without penalty or interest.
4.5 No default on other debt. Neither the Company nor any
Subsidiary is in default with respect to the payment of any as defined herein
Indebtedness or other observance of any covenant or condition set forth in any
instrument or agreement relating thereto and which would enable the creditor to
accelerate the maturity of its Indebtedness, which would be material to the
Company's business or financial condition.
4.6 Leases. The Company and its Subsidiaries and Acquired
Businesses enjoy peaceful and undisturbed possession under all material leases
under which they are lessees, all such leases are valid and binding obligations
of the lessors, and such lessors have title in fee simple to the properties
leased.
4.7 Compliance with applicable laws. The Company and its
Subsidiaries and Acquired Businesses are in material compliance insofar as is
required with all applicable laws that are necessary for the combined entity to
operate its businesses as described in the Memorandum.
2
<PAGE> 7
4.8 Litigation, etc. There are no actions, proceedings, or
investigations pending or to the best of the Company's knowledge, threatened
which, either individually or in the aggregate, might result in any material
adverse change in the business, prospects, condition, affairs, or operations of
the Company and its Subsidiaries and Acquired Businesses considered as one
enterprise, or in any of their properties or assets, or in any material
impairment of the right or ability of the Company and its Subsidiaries,
considered as one enterprise, to carry on operations as now conducted or in any
material liability by the Company and its Subsidiaries and Acquired Businesses,
considered as one enterprise, and there are no such actions, proceedings, or
investigations which question the validity of this Agreement or of the Notes or
Warrants or any action taken or to be taken in connection herewith or
therewith.
4.9 Adverse developments. Except to the extent, if any, disclosed
herein, since the date of the Memorandum, neither the business, prospects,
condition, affairs, or operations of the Company and its Subsidiaries and
Acquired Businesses considered as one enterprise, or any of their respective
properties or assets, have been materially adversely affected in any way as a
result of any legislative or regulatory change or any revocation of license or
right to do business, or any fire, explosion, flood, drought, windstorm,
earthquake, accident, casualty, labor trouble, riot, condemnation, requisition,
embargo, act of God or of the public enemy or of armed forces, or otherwise,
whether or not insured against.
4.10 Compliance with other instruments; none burdensome. Except to
the extent, if any, disclosed in the Memorandum neither the Company nor any
Subsidiary is in violation of any term of its Charter or Bylaws or similar
governing instrument, any mortgage, indenture, contract, agreement, instrument,
judgment, decree, order, statute, rule, or regulation, the violation of which
would have a material adverse affect on the Company, its Subsidiaries, and
Acquired Businesses considered as one enterprise; the execution, delivery, and
performance of and compliance with this agreement and the Notes will not result
in any such violation of or constitute a default under or be in conflict with
any such term, or result in the creation of any mortgage, lien, encumbrance, or
charge upon any of the properties or assets of the Company or any Subsidiary or
Acquired Businesses pursuant to any such term; and there is no such term which
materially adversely affects or in the future may (so far as the Company can
now foresee) materially adversely affect the business, prospects, condition,
affairs, or operations of the Company and its Subsidiaries and Acquired
Businesses or any of their respective properties or assets.
4.11 No stockholder or governmental consent required. No consent,
approval, or authorization by the holder of any shares of the Company's capital
stock or by any governmental authority is presently required in connection with
the execution and delivery of this agreement, or the offer, issue, sale, or
delivery of the Notes, the issue of Warrants, or the issue of Common Stock upon
exchange of any Warrant pursuant to this Agreement or the consummation of any
other transaction contemplated hereby.
4.12 Offering of notes. Neither the Company nor anyone acting on
its behalf has directly or indirectly offered the Notes or the Common Stock
issuable upon exchange of a Warrant or any part thereof for sale to, nor has it
solicited any offer to buy any of the same from, anyone in a manner that would
be considered in violation of the Securities Act of 1933, as amended.
4.13 Disclosure. Neither any certificate nor any other statement
furnished to you in writing by or on behalf of the Company in connection with
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein not misleading. There is no fact known to the
Company which materially adversely affects or in the future may (so far as the
Company can now foresee) materially adversely affect
3
<PAGE> 8
the business, prospects, condition, affairs, or operations of the Company and
its Subsidiaries and Acquired Businesses considered as one enterprise or their
properties and assets (considered as a whole).
4.14 Authorization, execution and delivery of notes. The Notes and
Warrants (and shares exchangeable from the Warrants) have been duly and validly
authorized, and when executed and delivered in accordance with the provisions
of this Agreement will be the Company's valid obligations, legally binding upon
it in accordance with their terms, and entitled to the benefits of this
Agreement in accordance with the terms thereof, except as enforcement thereof
may be limited by bankruptcy, insolvency, or other laws affecting the
enforcement of creditors' rights.
4.15 Representations and warranties of the Company. The Company
represents that as of December 16, 1996, there were 5,945,000 shares
outstanding including all common shares and common share equivalents
outstanding, and all warrants or options, whether exchanged or unexchanged.
Total shares outstanding immediately following the roll-ups of the "Founding
Practices" (practices described in the Memorandum which have closed with the
Company) shall not exceed 9,500,000.
4.16 Representations and warranties as to acquired businesses. The
above representations and warranties regarding the businesses acquired by the
Company in its roll-up of Founding Practices ("Acquired Practices") are limited
to the representations and warranties received by the Company from the Founding
Practices in such acquisitions and to the Company's knowledge.
4.17 Closings. The Company represents that closings of Founding
Practices representing in excess of $30.0 million in practice revenues have
occurred.
ARTICLE 5 - CONDITIONS
Your obligations to purchase and pay for the Notes to be delivered to
you at Closing Time is subject to the fulfillment, to your satisfaction before
or at Closing Time, of the following conditions:
5.1 Representations and warranties correct. The Company's
representations and warranties contained in Article 4 or otherwise made in
writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall have been materially correct when made and shall be
materially correct at and as of Closing Time, except as affected by the
transactions contemplated hereby.
5.2 Reservation of common stock. The Company shall have duly
authorized and reserved for issuance the shares of Common Stock issuable upon
the exchange of Warrants.
5.3 No default. There shall not exist at Closing Time any
condition or event which constitutes an Event of Default as defined herein or
which, after notice or lapse of time or both, would constitute an Event of
Default.
5.4 Sale and delivery of notes. The Company shall have sold and
delivered to all the Purchasers the Notes to be acquired by them at Closing
Time pursuant to this Agreement and shall have received payment therefor.
5.5 Performance. The Company shall have performed and complied
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at Closing Time.
4
<PAGE> 9
5.6 Compliance certificate. The Company shall have delivered to
you an Officer's Certificate, dated the date of Closing Time, certifying as to
the fulfillment of the conditions specified in this Article 5, Sections 5.1 to
5.5, inclusive.
5.7 Legality of investment. Your purchase of the Notes at Closing
Time shall be permitted at Closing Time by the laws of the jurisdiction to
which you are subject and such acquisition shall not subject you to any penalty
or other onerous condition in or pursuant to any applicable law or government
regulation.
5.8 Proceedings and documents. All corporate and other
proceedings in connection with the transactions contemplated by this agreement
and all documents and instruments incident to such transactions shall be
satisfactory in form and substance to you and your counsel, and you and your
counsel shall have received all such counterpart originals or certified or
other copies of such documents requested by you or they.
ARTICLE 6 - PURCHASE FOR INVESTMENT
You represent, and in making this sale to you it is understood and
agreed that: (a) you are acquiring the Notes, Warrants and the shares of Common
Stock issuable upon exchange of any Warrants, and (b) such Notes, Warrants and
Common Stock are being acquired for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof, provided, that
the disposition of your property shall at all times be and remain within your
control. The consent of at least a majority of the holders of Senior
Subordinated Notes and Warrants shall be required for any action which alters,
changes or amends the preferences, rights, or privileges of the Senior
Subordinated Notes and Warrants.
Purchaser represents and warrants that Purchaser is an "accredited
investor" as defined under the Securities Act of 1933 ("Securities Act") and
state "Blue Sky" laws. Purchaser also represents and warrants that Purchaser
shall be such an accredited investor at such time as the Warrants held by
Purchaser are exchanged.
Purchaser represents and warrants that the Notes, Warrants and Shares
of Common Stock issuable upon exchange of any Warrants ("Securities") to be
acquired by Purchaser upon consummation of the transactions described in this
Agreement will be acquired by Purchaser for Purchaser's own account, not as a
nominee or agent, and without a view to resale or other distribution within the
meaning of the Securities Act and the rules and regulations thereunder, except
as contemplated in this Agreement, and that Purchaser will not distribute any
of the Securities in violation of the Securities Act. In addition, the
Securities shall bear any legend required by the securities or "Blue Sky" laws
of any state where Purchaser resides as well as any other legend deemed
appropriate by the Company or its counsel.
Purchaser represents and warrants that the address set forth below
Purchaser's name on SCHEDULE 1 is Purchaser's principal residence.
Purchaser (i) acknowledges that the Securities issued to Purchaser at
the Closing must be held indefinitely by Purchaser unless subsequently
registered under the Securities Act or an exemption from registration is
available, (ii) is aware that any routine sales of Securities made pursuant to
Rule 144 under the Securities Act may be made only in limited amounts and in
accordance with the terms and conditions
5
<PAGE> 10
of that Rule and that in such cases where the Rule is not applicable,
compliance with some other registration or exemption will be required.
Purchaser represents and warrants to the Company that Purchaser,
either alone or together with the assistance of Purchaser's own professional
advisor, has such knowledge and experience in financial and business matters
such that Purchaser is capable of evaluating the merits and risks of
Purchaser's investment in any of the Securities to be acquired by Purchaser
upon consummation of the transactions described in this agreement.
Purchaser confirms that Purchaser has received and read the Memorandum
of the Company. Purchaser also confirms that Purchaser has had the opportunity
to ask questions of and receive answers from the Company concerning the terms
and conditions of Purchaser's investment in the Securities, and the Purchaser
has received, to Purchaser's satisfaction, such additional information, in
addition to that set forth herein, about the Company's operations and the terms
and conditions of the offering as Purchaser has requested.
Purchaser also agrees that the certificates or instruments
representing the Securities to be issued to Purchaser pursuant to this
Agreement may contain a restrictive legend noting the restrictions on transfer
and required by federal and applicable state securities laws, and that
appropriate "stop-transfer" instructions will be given to the Company's
transfer agent, if any, provided that this Article 6 shall no longer be
applicable to any Securities following their transfer pursuant to a
registration statement effective under the Securities Act or in compliance with
Rule 144 or if the opinion of counsel referred to above is to the further
effect that transfer restrictions and the legend referred to herein are no
longer required in order to establish compliance with any provisions of the
Securities Act.
Purchaser understands that although an Initial Public Offering is
contemplated by the Company, there are no assurances that an Initial Public
Offering will occur or if it does occur that it will be successful.
At all times following the registration of any of the Company's
securities under the Securities Act or the Securities and Exchange Act of 1934
pursuant to which the Company becomes subject to the reporting requirements of
the Exchange Act, the Company shall use commercially reasonable efforts to
comply with the requirements of Rule 144 under the Securities Act, as such Rule
may be amended from time to time (or any similar rule or regulation hereafter
adopted by the SEC) regarding the availability of current public information to
the extent required to enable any holder of shares of Common Stock to sell such
shares without registration under the Securities Act pursuant to Rule 144 (or
any similar rule or regulation).
ARTICLE 7 - ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION
So long as any Note or Warrant remains outstanding, the Company will
maintain a system of accounting established and administered in accordance with
generally accepted accounting principles. The Company will deliver in
duplicate to you, so long as you hold any of the Notes or Warrants, and to each
holder of 10 percent or more in original principal amount of the Notes:
(a) As soon as practicable after the end of each of the first
three quarterly fiscal periods in each fiscal year, and in any event within 90
days thereafter, a consolidated balance sheet of the Company
6
<PAGE> 11
and its Subsidiaries as of the end of such period, and consolidated statements
of income and retained earnings of the Company and its Subsidiaries for such
period (and, in the case of the second and third quarterly periods, for the
period from the beginning of the current fiscal year to the end of such
quarterly period), all in reasonable detail and certified as complete and
correct in all material respects, subject to changes resulting from year-end
adjustments, by the Company's principal financial officer.
(b) As soon as practicable after the end of each fiscal year, and
in any event within 120 days thereafter, commencing with the year ending
December 31, 1997, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such year and consolidated statements of income
and retained earnings of the Company and its Subsidiaries for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail accompanied by an opinion of independent
certified public accountants of recognized national standing selected by the
Company.
(c) Promptly upon receipt thereof, copies of all other reports
submitted to the Company by independent certified public accountants in
connection with any annual or interim audit of the books of the Company or any
of its Subsidiaries, made by such accountants in so far as they related
directly to financial statements submitted to you by the Company pursuant to
the agreement; and
(d) Promptly upon their becoming available, copies of
(1) All regular or periodic reports and filings
(including filings pursuant to the Securities Act of 1933, as amended), if any,
which the Company or any Subsidiary files with the Securities and Exchange
Commission or any governmental agency or agency substituted therefor, or any
similar or corresponding governmental department, commission, board, bureau or
agency, or with any national securities exchange; and
(2) All reports, proxy statements and financial
statements delivered or sent by the Company to its stockholders, provided,
however, that all material furnished pursuant hereto to the extent not
otherwise made public by the Company is furnished to you solely for the
purposes hereof and with the understanding that you will not disclose such
information to any third party, except for regulatory authorities and other
proper disclosures.
ARTICLE 8 - INSPECTION
So long as you hold any of the Notes, the Company will permit any
authorized representative designated by you to visit and inspect, at your
expense, any of the Company's or Subsidiary's properties, including its books
(and to make extracts or copies therefrom), and to discuss its affairs,
finances, and accounts with its officers, all at such reasonable times and as
often as is reasonably requested provided, however, that all material furnished
pursuant hereto to the extent not otherwise made public by the Company is
furnished to you solely for the purposes hereof and with the understanding that
you will not disclose such information to any third party, except for
regulatory authorities and other proper disclosures. The Company will accord
like rights to each holder of 10 percent or more in original principal amount
of the Notes.
7
<PAGE> 12
ARTICLE 9 - PREPAYMENT
9.1 Prepayment without penalties or premium. The Company may
prepay all or a portion of the Notes at any time without penalty or a premium
so long as all accrued interest is also paid at such time.
9.2 Notations, etc. Any holder of a Note shall endorse on such
Note prior to any transfer thereof the amount of principal prepaid thereon and
the last date to which interest thereon has been paid, and will notify the
Company of the name and address of the transferee of such Note.
ARTICLE 10 - INSURANCE OF PROPERTIES AND BUSINESS
The Company will maintain or cause to be maintained, with financially
sound and reputable insurers, insurance with respect to its properties and
business and the properties and businesses of its Subsidiaries against loss or
damage of the kind customarily insured against by corporations of established
reputation engaged in the same or a similar business and similarly situated, in
amounts sufficient to prevent the Company or any Subsidiary from becoming a co-
insurer within the terms of the policies in question.
ARTICLE 11 - ADDITIONAL COVENANTS
The Company agrees that so long as you hold any of the Notes or
Warrants,
(a) The Company and its Subsidiaries will remain primarily in the
businesses of physician practice management, ownership of ambulatory surgical
centers, optical, managed care and related activities; and
(b) At all times after the date of any Public Offering of its
Common Stock, the Company shall take all necessary or appropriate steps to
cause to be made available adequate public information with respect to the
Company.
(c) Without limiting any other covenants and provisions hereof,
the Company covenants and agrees that, so long as any Warrants remain
outstanding, it will materially perform and observe the following covenants and
provisions and will cause each Subsidiary to materially perform and observe
such of the following covenants and provisions as are applicable to such
Subsidiary:
(1) Payment of Taxes and Trade Debt. Pay and discharge,
all material taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or business, or upon any properties belonging
to it, prior to the date on which penalties attach thereto, and all lawful
claims, which, if unpaid, might become a lien or charge upon any properties of
the Company, provided that the Company shall not be required to pay any such
tax, assessment, charge, levy or claim that is being contested in good faith
and by appropriate proceedings if the Company shall have set aside on its books
and to the extent required by generally accepted accounting principles,
adequate reserves with respect thereto as shall be determined by its Board of
Directors. Pay when due, or in conformity with customary trade terms as
consistent with normal operations, all lease obligations, all trade debt, and
all other Indebtedness incident to the operations of the Company, except such
as are being contested in good faith and by appropriate proceedings if the
Company shall have set aside on its books and shall and to the
8
<PAGE> 13
extent required by generally accepted accounting principles, adequate reserves
with respect thereto as shall be determined by its Board of Directors.
(2) Preservation of Corporate Existence. Preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified as a
foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties. Preserve and maintain all material licenses and other
rights to use patents, processes, licenses, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or possessed by it
and necessary in any material respect to the conduct of its business.
(3) Compliance with Laws. Comply in all material
respects with all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise, except non-compliance
being contested in good faith through appropriate proceedings so long as the
Company shall have set up sufficient reserves, if any, required under generally
accepted accounting principles with respect to such items.
(4) Keeping of Records and Books of Account. Keep
adequate records and books of account, in which complete entries will be made
in accordance with generally accepted accounting principles consistently
applied, reflecting all material financial transactions of the Company, and in
which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
within its business shall be made.
(5) Maintenance of Properties, etc. Maintain and
preserve all of its properties necessary or useful in the proper conduct of its
business, in good repair, working order and condition, ordinary wear and tear
excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto. Comply with the
provisions of all material leases to which the Company is a party or under
which the Company occupies property so as to prevent any material loss or
forfeiture thereof or thereunder.
(6) Visitation Rights. Permit Purchaser or any legal or
financial representative thereof periodically upon reasonable notice during
normal business hours to examine the books and records of the Company at the
Company's premises and permit the Purchaser (or any legal or financial
representatives thereof) to meet, and to discuss the business affairs, finances
and accounts of the Company with any of its officers or directors and
independent accountants.
ARTICLE 12 - AGREEMENT TO REGISTER
The Company agrees that:
(a) If at any time the Company determines to take action to
register any of its securities under the Securities Act of 1933, as then in
effect, or any similar federal statute (collectively the "Act"), otherwise than
pursuant to Form S-8, or any other form not applicable to an offering of Common
Stock issued or issuable upon the exchange of Warrants, it will notify in
writing each registered holder of any Notes, Warrants or any shares of Common
Stock issued upon exchange thereof of such determination and, upon written
request received within 15 days of the mailing of such notice will use its best
efforts to effect
9
<PAGE> 14
the registration under the Act of any shares of Common Stock issued or issuable
upon such conversion or exchange to which such request relates.
(b) The Company agrees at any time after six months from the date
of any Public Offering of its Common Stock, upon receipt from the registered
holders of at least 50 percent in principal amount of the then outstanding
Notes (or of any Warrants or shares of Common Stock issued in respect thereto)
of a request to register under the Act any shares of Common Stock issued upon
the exchange of any such Warrants, it will notify all other registered holders
thereof of such request and will use its best efforts to effect the
registration under the Act of the shares of Common Stock to which such request
relates. Such holders shall be entitled to make one request for registration
pursuant to this paragraph (b).
(c) If at any time a holder or holder of stock requests that the
Company file a registration statement on Form S-3 for a public offering of all
or any portion of the shares held by such requesting holder or holders, the
reasonably anticipated aggregate price to the public of which would exceed
$500,000, and the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use its best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method or disposition specified
in such notice, the number of shares of stock specified in such notice.
Whenever the Company is required by this Article 12(c) to use its best efforts
to effect the registration of stock, each of the procedures and requirements of
Article 12(c) (including but not limited to the requirement that the Company
notify all holders of stock from whom notice has not been received and provide
them with the opportunity to participate in the offering) shall apply to such
registration, provided, however, that there shall be only two registrations on
Form S-3 which may be requested and obtained under this Section.
(d) If the Company is required to use its best efforts to effect
the registration of any Common Stock under the Act, it will use its best
efforts to:
(1) Prepare and file with the Securities and Exchange
Commission (the "Commission"), within 90 days after the receipt of the written
request for registration a registration statement with respect to such shares
of Common Stock and cause such registration statement to become and remain
effective for at least a period of 45 days.
(2) Prepare and file with the Commission all amendments
and supplements to such registration statement and the prospectus used in
connection therewith necessary to keep such registration statement effective
for said 45 day period (if any stand-off period is imposed pursuant to this
Section, such 45 day period shall commence at the termination thereof) and to
comply with the provisions of the Act with respect to the disposition of all
such shares of Common Stock covered by such registration statement whenever the
holders thereof desire to dispose of the same;
(3) Furnish to the holders of such shares of Common Stock
whatever numbers of copies of prospectuses, including one or more preliminary
prospectuses, they need to comply with the Act, and all other documents they
reasonably request in order to facilitate the disposition of such shares; and
(4) Register or qualify the shares of Common Stock
covered by such registration statement under the other securities or blue sky
laws of any jurisdictions the holders thereof reasonably request, and do all
other necessary or advisable acts and things to enable such holders to
consummate the
10
<PAGE> 15
disposition of such shares in the applicable jurisdictions, except that the
Company shall not be required to file a general consent to service in any such
jurisdiction.
(e) The Company shall pay all expenses incurred by it in complying
with paragraph (d) of this Article 12 and all reasonable out-of-pocket expenses
(including the reasonable fees and disbursements of one attorney or law firm
representing all the holders of Common Stock covered by any such registration
statement) incurred by such holders in connection therewith (including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of the Company's counsel, and expenses of any special audits
incident to or required by any such registration, but not including, however,
any underwriting discounts, fees or commissions which are to be paid by such
holders).
(f) Notices and requests delivered to the Company pursuant to this
Article 12 shall contain all information regarding the shares of Common Stock
to be registered and the intended method of disposition thereof that is
reasonably required in connection with the action to be taken.
(g) In the event of any registration under the Act of any shares
of Common Stock pursuant to this Article 12, the Company hereby agrees to
indemnify and hold harmless each shareholder disposing of such shares, each
other person, if any, who controls such shares within the meaning of the Act,
and each other person, who participates in the offering of such shares, against
all losses, claims, damages or liabilities, joint or several, to which such
shareholder, controlling person, or participating person may become subject
under the Act or otherwise, in so far as such losses, claims, damages or
liabilities (or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which such shares of Common Stock were registered under the Act, or in any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Company will reimburse such shareholder and each such controlling person or
participating person for all legal or any other expenses reasonably incurred by
such shareholders, controlling person, or participating person in connection
with investigating or defending any such loss, claim, damage, liability or
proceeding; provided, however, that the Company will not be liable in any such
case to the extent that any such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, or said
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
shareholder specifically for use in the preparation thereof. Each such
shareholder will agree to indemnify the Company, each person who signed any
such registration statement, and each person, if any, who controls the Company
within the meaning of the Act, in the same manner and to the same extent that
Company has agreed to indemnify in this paragraph. Such indemnification,
however, shall only relate to untrue statements or alleged untrue statements or
omissions or alleged omissions contained in any such registration statement, or
amendment or supplement thereto, based upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
shareholder specifically for use in the preparation thereof.
(h) As a condition of the registration of any shares of Common
stock, the holders thereof shall agree:
(1) Not to sell any of such shares of Common Stock
pursuant to the registration statement for an initial public offering until 180
days after completion of the offering, unless sooner
11
<PAGE> 16
permitted to do so by the managing underwriter or underwriters, of any public
offering of the Company's securities then in process, and to execute such a
lock-up agreement required by the underwriter;
(2) To comply with all requirements of the Act and of the
Commission in connection with the offering and sale of such shares of Common
Stock;
(3) To effect sales of all such shares of Common Stock,
if so required by the Company, in an organized manner through a single broker
or dealer, or a single syndicate or selling group of brokers and/or dealers,
provided that any such required arrangement shall not prejudice any plan of
distribution proposed by any of such holders;
(4) To cooperate with the Company in its compliance with
all federal and state securities laws, including without limitation providing
such information and signing such documents as are necessary to effect a
registration or reasonably requested by underwriters pursuant to this
Agreement;
(5) To pay his prorata portion (calculated on the basis
of the ratio of the aggregate offering price attributable to the shares of
holder being registered and sold in relation to the aggregate offering price
attributable to the total number of securities being registered and sold,
including securities being registered and sold by other selling stockholders)
of the underwriting discounts and selling commissions and to pay all the fees
and disbursements of his counsel;
(6) Holder agrees to cooperate with the Company in all
respects in connection with registration of the Common Stock, including timely
supplying all information and executing and returning all documents requested
by the Company and its managing underwriter;
(7) The Company shall not be required to include any of
holder's shares of Common Stock in any registration statement unless holder
accepts the terms of the underwriting as agreed upon by the Company and
underwriters which are selected by the Company.
(8) The Company shall have the right to defer or suspend
the filing of any registration statement if the Board of Directors of the
Company determines in good faith that it would be seriously detrimental to the
Company and its Shareholders for such registration statement to be filed.
(i) Notwithstanding the above, the parties agree:
(1) The Company shall have the sole and exclusive right
to select the underwriters of any public offering of the Company's Common
Stock, including any public offering conducted pursuant to the demand
registration right set forth above. The use of underwriters in any demand
registration right set forth above is subject to the Company's ability to
engage underwriters under terms and conditions deemed reasonable by the
Company. Notwithstanding anything contained herein to the Company, the demand
registration right set forth above shall be permitted to be exercised only on
two separate occasions, and the Company may elect, upon receiving such demand
to combine such registration with any other registration of securities it may
seek to file.
(2) If the managing underwriter of any public offering
advises the Company that the total number of shares of the Company's Common
Stock which the Company, the holder and any other persons intend to include in
such public
12
<PAGE> 17
offering would adversely affect the success of such public offering, then the
amount of shares of Common Stock to be offered for the account of holder will
be reduced to the extent necessary to reduce the total number of shares of
Common Stock to be included in such public offering to the amount recommended
by such managing underwriter. Such reduction will be on a prorata basis with
all other shareholders holding registration rights for the sale of shares in
the offering. However, this cut back shall not be applicable to the demand
registrations.
(3) The Company shall not be required to (i) reduce the
amount of shares of Common Stock to be offered by the Company in such public
offering for any reason or (ii) include any shares of Common Stock of holder in
any public offering for which a registration statement is or is proposed to be
filed if such shares of Common Stock are, at the time of effectiveness of such
registration statement, eligible to be sold under Rule 144 under the Act or
otherwise eligible for sale to the public without registration.
(4) The Company shall have the right to extend, suspend
or delay the effectiveness of any registration statement for a period of up to
ninety (90) days if, upon the advice of counsel, such delay is advisable and in
the best interests of the Company because of the existence of non-public
material information, or to allow the Company to complete any pending audit of
its financial statements, any public financing plan, any pending material
acquisition or to release audited financial statements of an acquiree in a
pending acquisition.
ARTICLE 13 - FIRST RIGHT OF REFUSAL AND CO-SALE RIGHTS
13.1 Purchase right of first refusal. Prior to any First Liquidity
Event and, except for shares issued in acquisitions to be made by the Company,
shares issued in establishing a strategic alliance, or for option shares issued
to employees, contractors, consultants or affiliated physicians, no shares of
the Company and no interest therein shall be sold or transferred by the Company
after the date hereof, in any manner whatsoever without the prior written
consent of the holders of a majority interest of the Notes or without following
the terms of this Article. All of the above described sales or transfers of
Company shares which may be made by the Company without approval and without
complying with this Article shall be deemed "Approved Transfers."
Prior to making or upon receiving any bona fide offer, or counteroffer
that the Company intends to assert, with respect to any disposition of any
shares of the Company other than pursuant to an Approved Transfer, the Company
shall convey the Offer Terms with respect thereto to Purchasers and Purchasers
shall have the right to purchase all, and only all, of the shares that are the
subject of such offer or counteroffer on the Offer Terms. Purchasers may
exercise their right to acquire such shares by written notice to the Company
with respect to an offer, within the 25 day period following receipt by the
Purchaser of any initial Offer Terms or (ii) with respect to a counteroffer,
within 10 business days after receipt by the Purchasers of the Offer Terms with
respect thereto, provided that Purchasers shall have previously received
written notice of the initial Offer Terms as hereinabove provided. The closing
of such purchase shall occur at the Company's offices or such other location as
may be agreed upon on the date indicated in the written notice delivered to
such Purchasers within the time specified by the most recently delivered Offer
Terms. If Purchasers do not purchase all such shares during such period, the
Company shall be free within the time period specified by the most recently
delivered Offer Terms, to sell or transfer such shares to the third party
making or receiving such offer or counteroffer on Offer Terms no more favorable
to such third party than those contained in the last offer or counteroffer
delivered to Purchasers. In the event more than one Purchaser wishes to
acquire shares in this Section, they shall be
13
<PAGE> 18
entitled to acquire their prorata share of the shares to be sold. Such
Purchase Right of First Refusal described herein shall expire upon a First
Liquidity Event.
13.2 Co-sale rights. Prior to any First Liquidity Event and except
for an Approved Transferor any proposed First Liquidity Event, the Company
shall not transfer, sell, or otherwise dispose of (collectively, a "transfer")
shares of the Company's Common Stock (either directly or indirectly), which
transfer together with all previous transfers, rather than approved transfers,
would be in excess of an aggregate of 15% (on a fully diluted basis) of the
outstanding shares of Common Stock, to any person (such person being
hereinafter referred to individually as a "Third Party" and collectively as
"Third Parties"), unless the terms and conditions of such transfer shall
include an offer at the most favorable price, and on the most favorable terms
and conditions, at which the Company is then intending to transfer its Common
Stock (except that the only representation and warranty that the Purchasers or
any transferee of Purchasers that acquired Common Stock pursuant to this
Agreement ("Transferees") shall be required to make in connection with any
transfer is a warranty with respect to its own ownership of the Common Stock to
be sold by it and its ability to convey title thereto free and clear of liens,
encumbrances or adverse claims) to Purchasers and any Transferee to include, at
their option, in the transfer to the Third Party, an amount of Common Stock
determined in accordance with this Section.
The Third Party shall purchase from Purchasers and any Transferee the
number of shares of Common Stock owned by Purchaser or such Transferee, as the
case may be, equalling the number derived by multiplying the total number of
shares to be purchased by the Third Party by a fraction, the numerator of which
is the total number of shares of Stock owned by Purchasers or such Transferee,
as the case may be, that Purchasers or such Transferee, as the case may be,
desires to require the Third Party to purchase and the denominator of which is
the sum of (A) the total number of shares of Stock owned by Purchasers and all
Transferees desiring to require the Third Party to purchase their shares and
(B) the total number of shares of Common Stock owned by Sellers and their
affiliates. Each Purchaser shall be entitled to sell their pro rata share of
the Purchaser's right to sell.
Unless the same is an Approved Transfer on a proposed First Liquidity
Event, before the Company proposes to transfer any Common Stock, it shall
notify, or cause to be notified, Purchasers and any Transferee in writing of
each such proposed transfer. Such notice shall set forth: (i) the name of the
Third Party and the number of shares of Common Stock proposed to be
transferred, (ii) the address of the Third Party, (iii) the proposed amount and
form of consideration and terms and conditions of payment offered by the Third
Party (the "Third Party Terms") and (iv) whether the Third Party has been
informed of the "Co-Sale Right" provided for in this Section and has agreed to
purchase shares of Common Stock in accordance with the terms hereof.
The Co-Sale right may be exercised by delivery of a written notice to
the Company (the "Co-Sale Notice") within 15 days following receipt of the
notice specified in the preceding sentence. The Co-Sale Notice shall state the
number of shares of Stock that Purchasers or such Transferee, as the case may
be, would be entitled to include in such transfer to the Third Party.
Upon the giving of a Co-Sale Notice, Purchaser and such Transferees
shall be entitled and obligated to sell the number of shares of Stock set forth
in the Co-Sale Notice to the Third Party on the Third Party Terms; provided,
however, that the Company and their affiliates shall not consummate the sale of
any shares offered by them if the Third Party does not purchase all shares
which Purchasers and any Transferee are entitled to and desire to sell pursuant
hereto. After expiration of the 15 day period
14
<PAGE> 19
referred to above, if the provisions of this Section have been complied with in
all respects, the Company shall have the right for a 90 day period to transfer
the shares of Common Stock to the Third Party on the Third Party Terms without
further notice to Purchasers or any Transferee who have not given a Co-Sale
Notice, but after such 90 day period, no such transfer may be made without
again giving notice to Purchasers and all Transferees of the proposed transfer
and complying with the requirements of this Article.
Notwithstanding anything to the contrary, any Approved Transfer may be
made without compliance with this Article 13. The Co-Sale Rights contained
herein shall terminate upon a First Liquidity Event.
ARTICLE 14 - PROVISIONS RESPECTING EXCHANGE OF WARRANTS
14.1 Exchange of warrants. At any time up through December 19,
2003, subject to the terms hereof, the Warrants shall be exchangeable by the
holder of such Warrant. Each Warrant shall initially be exchangeable for
10,549 shares of Common Stock at an exchange price of $4.74 per share of Common
Stock or in a cashless exchange for a reduced number of shares (the "Net
Issuable Exchange") as determined by the Exchange Formula defined herein. The
Warrants will be exchangeable upon surrender of the Warrant to the Company at
its principal office in Florida at any time during usual business hours,
accompanied, if so required by the Company, by an instrument or instruments of
transfer in form satisfactory to the Company duly executed by the holder of
such Warrant. However, in the event that the Company has not completed an
initial public offering by September 30, 1997, and thereby redeemed the Notes,
or a First Liquidity Event as defined herein has occurred, the exchange price
of the Warrants shall be adjusted to $4.00 per share. The Warrants will expire
by 5:00 p.m., December 19, 2003 if not exchanged by such date. Should the
mid-price offering price set forth in an initial filed Form S-1 Registration
Statement for an initial public offering be less than $9.48 per share, then the
exchange price shall become one-half of that mid-price offering price. Should
the Market Price per share of Common Stock as defined herein be less than $9.48
at the time of any First Liquidity Event other than an IPO, then the exercise
price for the stock shall become one-half of that Market Price per share on
such date. Notwithstanding anything contained herein to the contrary, a holder
may no longer exchange Warrants for shares of stock after the date of a First
Liquidity Event pursuant to a Net Issuable Exchange, but may only exchange
Warrants for shares of stock by payment of the exchange price.
14.2 Issuance of common stock upon exchange. As promptly as
practicable after the surrender, as herein provided, of any Warrant, the
Company shall deliver or cause to be delivered to or upon the written order of
the holder of the Warrant the shares to be issued on exchange in accordance
with the provisions of this Article 14 certificates representing the numbers of
fully paid and nonassessable shares of Common Stock into which such Warrant is
exchangeable in accordance with the provisions of this Article 14. Subject to
the following provisions of this paragraph, such exchange shall be deemed to
have been made at the close of business on the date that such Warrant has been
exchanged, so that the rights of the holder of such Warrant exchanged shall
cease at such time and the person or persons entitled to receive the shares of
Common Stock upon exchange of such Warrant shall be treated for all purposes as
having become the record holder or holders of such shares of Common Stock at
such time and such exchange shall be at the exchange price in effect at such
time; provided, however, that no such surrender on any date when the stock
transfer books of the Company are closed shall be effective to constitute the
person or persons entitled to receive the shares of Common Stock upon such
exchange as the record holder or holders of such shares of Common Stock on such
date, but such surrender shall be effective to
15
<PAGE> 20
constitute the person or persons entitled to receive such shares of Common
Stock as the record holder or holders thereof for all purposes at the close of
business on the next succeeding day on which such stock transfer books are open
and such exchange shall be at the exchange price in effect on the date that
such Warrant has been surrendered for exchange.
If the last day for the exchange right is a Sunday or is in Florida a
legal holiday or a day on which banking institutions are authorized by law to
close, such right to exchange may be exercised on the next succeeding day which
is not a legal holiday in Florida or a day on which banking institutions are
authorized by law to close.
14.3 Adjustment to exchange price. The exchange price shall, in
addition to the preceding paragraph 14.1, be subject to adjustment as follows:
(a) For the purposes of this Section 14.3(a), the term "current
exchange price" is defined as meaning at any given time the exchange price then
in effect; and the terms "current quotient" is defined as meaning on any given
date the amount determined at the close of business on such day by dividing:
(1) An amount equal to (A) the total number of shares of
Common Stock outstanding when the current exchange price became effective,
exclusive of any such shares which may have been issued after the date hereof
as provided in this Section 14.3(a), multiplied by the current exchange price,
plus (B) the aggregate of the amounts of all consideration, if any, received by
the Company, (or, without duplication, deemed to be received as provided in
paragraph (viii) below) upon all issuances of shares of Common Stock since the
current exchange price became effective and prior to the time of the
determination of the current quotient except shares of Common Stock issued as
provided in Subdivision (c) hereof, minus (C) the aggregate amount of all
dividends and other distributions which have been paid or made after December
20, 1996, on Common Stock, other than in cash out of Company's earned surplus
or in Common Stock, by
(2) The total number of shares of Common Stock
outstanding immediately prior to the time of such determination, including any
such shares deemed to have been issued as provided in paragraph (viii) below
but excluding any such shares which may have been issued as provided in this
Section 14.3(a). For the purposes of this paragraph, the exchange price of
$4.74 shall be deemed to have become effective at the close of business on the
date of Closing Time. In determining the current quotient, the result shall be
expressed to the nearest cent.
If at the close of business on any date after the date of Closing Time
on which any adjustment event hereunder takes place, the current exchange price
exceeds the current quotient by as much as one percent of the then effective
exchange price, the exchange price shall be reduced to the price equal to the
current quotient, effective at the close of business on such date. In such
case of a subdivision or combination of the outstanding shares of Common Stock
issuable upon exchange of the Warrants, the exchange price shall be first
reduced, effective immediately prior to an adjustment of the exchange price
pursuant to this Section 14.3(a), by the amount, if any, by which the current
exchange price exceeds the current quotient.
For the purposes of this Section 14.3(a), the following provisions
shall also be applicable:
16
<PAGE> 21
i) If additional shares of Common stock are issued for cash, the
consideration received by the Company therefor shall be deemed to be the amount
of cash received by the Company for such shares, before deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such shares.
ii) If additional shares of Common Stock are issued (otherwise
than upon the exchange of the Company's obligations or shares of stock or upon
the exchange of rights or options to subscribe for or to purchase shares of
Common Stock) for a full or partial consideration other than cash, the amount
of the non-cash consideration received by the Company for such shares shall be
deemed to be the value of such consideration as determined in good faith by the
Company's Board of Directors.
iii) If additional shares of Common Stock are issued upon
conversion or exchange of any obligations (including the Notes) or of any
shares of the Company's stock that are convertible into or exchangeable for
shares of Common Stock or upon the exchange of rights or options to subscribe
for or to purchase shares of Common Stock, the amount of the consideration
received by the Company for such additional shares of Common Stock shall be
deemed to be the total of: (a) the amount of consideration received by the
Company upon the original issuance of such obligations, shares, rights, or
options, plus (b) any other consideration received by the Company upon
conversion, exchange, or exchange except in adjustment of interest and
dividends. If obligations, shares, rights, or options, of the same class or
series of a class as the obligations, shares, rights, or options so converted,
exchanged or exchanged have been originally issued for different amounts of
consideration, the amount of consideration received by the Company upon the
original issuance of each obligation, share, right, or option so converted,
exchanged, or exchanged shall be deemed to be the average amount of the
consideration received by the Company upon the original issuance of all such
obligations, shares, rights, or options. The amount of the consideration,
obligations, shares, rights, or options so converted, exchanged, or exchanged
and the amount of any other consideration received by the Company upon the
original issuance of the obligations, shares, rights, or options so converted,
exchanged, or exchanged and the amount of any other consideration, received by
the Company upon such conversion, exchange, or exchange shall be determined in
the same manner provided in paragraphs (i) and (ii) above with respect to the
consideration received by the Company in case of the issuance of additional
shares of Common Stock. If such obligations, shares, rights, or options have
been issued as a dividend upon any stock of the Company, the amount of the
consideration received by the Company upon the original issuance thereof shall
be deemed to be zero.
iv) If additional shares of Common Stock are issued as a
dividend, the aggregate number of shares of Common Stock issuable in payment of
such dividend shall be deemed to have been issued and to be outstanding at the
close of business on the record date fixed for the determination of
stockholders entitled to such dividend. Shares of Common Stock issued
otherwise than as a dividend shall be deemed to have been issued and to be
outstanding at the close of business on the date of issue.
v) The term dividend shall mean a dividend or other distribution
upon stock of the Company.
vi) The number of shares of Common Stock at any time outstanding
shall include all shares of Common Stock then owned or held by or for the
account of the Company.
vii) If the Company declares a dividend without fixing a record
date for determining the stockholders entitled thereto, the first business day
during which the Company's stock transfer books are
17
<PAGE> 22
closed for the purpose of such determination shall be deemed to be the record
date fixed for the determination of stockholders entitled to such dividend.
viii) In case of (a) the issuance of shares of stock or obligations
convertible into or exchangeable for shares of Common stock at a exchange price
per share less than the current exchange price in effect immediately prior to
the issuance of such convertible stock or obligations, or (b) the issuance of
any rights to subscribe for or to purchase, or any options for the purchase of,
additional shares of Common Stock, at a price per share for the additional
shares of Common Stock issuable upon the exchange of such rights or options
less than the current exercisable price in effect immediately prior to the
issuance of such rights or the granting of such options, then the issuance of
such stock, obligations, rights, or options shall be deemed to be an issuance
(as of the date of issuance of such stock, obligations, rights, or options) of
the total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such convertible stock or obligations or upon the exchange
of all such rights or options, as the case may be. In such case, the amount
received or receivable by the Company in consideration of the issuance of such
stock, obligations, rights, or options (plus the minimum aggregate amount of
premium or additional consideration payable to the Company upon conversion or
exchange of the stock or obligations or upon the exchange of such rights or
options) before deducting therefrom any commissions or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in connection
with, the issuance of such stock, obligations, rights or options, shall be
deemed to be the consideration actually received (as of the date of issuance of
such rights or options) for the issuance of the additional shares of Common
Stock.
The Consideration actually received by the Company for any shares of
Common Stock issued upon the exchange of such stock or obligations or upon the
exchange of such rights or options, which pursuant to this paragraph (viii) is
deemed to have been received, shall not be included in the first paragraph of
this Section 14.3(a) for the purpose of computing the current quotient and no
further adjustment of the exchange price shall be made in respect thereof
except that:
(1) On the expiration of such rights or options or the
termination of the right to convert or exchange such stock or obligations, the
current quotient and the current exchange price shall forthwith be readjusted
to the current quotient and current exchange price which would have obtained
had the adjustments made on account of the issuance of such options, rights or
convertible or exchangeable securities been made upon the basis of the delivery
of only the number of shares of Common Stock actually delivered upon the
exchange of such rights or options or upon conversion or exchange of such
securities for the consideration actually received by the Company for such
options, rights or securities and upon the exchange, exchange or conversion
thereof; and
(2) If the purchase or exchange price or exchange rate
provided for in any such options, rights, stock, or obligations changes or a
different purchase or exchange price or exchange rate becomes effective at any
time or from time to time (other than under or by reason of provisions
designated to protect against dilution) then, upon such change becoming
effective, the current quotient and current exchange price then in effect
hereunder shall forthwith be increased or decreased to such current quotient
and current exchange price as would have obtained had the adjustments made upon
the issuance of such options, rights or convertible or exchangeable securities
been made upon the basis of (A) the issuance of the number of shares of Common
Stock theretofore actually delivered upon the exchange, conversion or exchange
thereof, (B) the issuance of all Common Stock and all other options, rights or
convertible or exchangeable securities issued after the issuance of such
options, rights or convertible or exchangeable
18
<PAGE> 23
securities, and (C) the original issuance at the time of such exchange of any
such options, rights or convertible or exchangeable securities then still
outstanding.
In case, however, such stock or obligations are convertible or
exchangeable at a exchange price or exchange rate or such rights or options are
exercisable at a purchase price, per share equal to or in excess of the current
exchange price immediately prior to the issuance or sale of such convertible
stock or obligations or of such rights or options, then no adjustment of the
exchange price shall be made except in respect of additional shares of Common
Stock actually issued upon the conversion or exchange of any such convertible
stock or obligations or upon the exchange of any such rights or options.
ix) No adjustment in the exchange price shall be made in respect
of the issuance or sales of Common Stock held in the Company's treasury to the
extent it acquired such Common Stock after the date of Closing Time, except
that if any such treasury shares are issued or sold for a consideration per
share which is less than the exchange price in effect immediately prior to such
issue or sale and which is less than the average cost per share of such
treasury shares, Company shall be deemed for purposes of this Section 14.3, to
have issued or sold shares of Common Stock equal in number to such treasury
shares for a consideration per share equal to the exchange price in effect
immediately prior to such issue or sale reduced by the amount by which such
average cost of such treasury share exceeds such consideration per share.
(b) If the Company at any time subdivides or issues a stock
dividend upon the outstanding shares of Common Stock, the exchange price in
effect immediately prior to such subdivision or stock dividend shall be
proportionately decreased, and if the Company at any time combines the
outstanding shares of Common Stock, the exchange price in effect immediately
prior to such combination shall be proportionately increased. Any such
adjustment shall become effective at the close of business on the date that
such subdivision, stock dividend or combination becomes effective.
(c) No adjustment of the exchange price shall be made as a result
of or in connection with any of the following:
(1) The grant and issuance of stock options to the
Company's officers, employees, consultants, or affiliated professionals not
exceeding 15% of the total outstanding shares of the Company at any give time;
(2) The issuance of shares for strategic alliances
identified in the future (not with any current Affiliate) which is determined
to be in the best interest of the Company by the Board of Directors.
(d) Whenever the exchange price is adjusted, as herein provided,
the Company shall promptly deliver to each holder of Warrants a computation
setting forth the exchange price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Such computation shall
be made by certified public accountants (who may be Company's regular auditors
or certified public accounts and shall be conclusive evidence of the
correctness of such adjustment.
(e) The adjustments to the exchange price provided for in this
Section 14.3 shall be applicable, as provided in the Warrants, to the Purchase
Price provided for in the Warrants.
19
<PAGE> 24
14.4 Fractional shares. No fractional shares or script
representing fractional shares shall be issued upon the exchange of any
Warrants. If the exchange of any Warrants results in a fraction, an amount of
money equal to such fraction multiplied by the fair market value of one share
of Common Stock of the Company on the date on which such conversion or exchange
is deemed made shall be paid to the person otherwise entitled to such fraction.
14.5 Effect of reclassifications, etc. In case of any
reclassification or change of outstanding shares of Common Stock issuable upon
exchange of any Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, the Company, or such successor or purchasing corporation, as the
case may be, shall execute with each holder of Warrants a supplemental
agreement providing that the holder of each Warrant then outstanding shall have
the right thereafter to exchange such Warrant to purchase the kind and amount
of shares of stock and other securities and property receivable upon such
reclassification, change, sale or conveyance. Such supplemental agreement
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 14. The above
provisions of this Section 14.5 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive sales
or conveyances.
14.6 Company to reserve stock. The Company covenants that it will
at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue upon exchange of the Warrants as herein
provided, the number of shares of Common Stock that is then issuable upon the
exchange of all outstanding Warrants. The Company covenants that all shares of
Common Stock which are so issuable shall, when issued pursuant to the terms of
the Warrants and this agreement, be duly and validly issued and fully paid and
nonassessable.
14.7 No dilution or impairment. The Company will not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue, or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any term of this agreement, the Notes, or Warrants, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action that is necessary or appropriate in order to protect the rights
of the holders of the Notes and Warrants against dilution or other impairment.
14.8 Taxes on exchange. The issuance of certificates for shares of
Common Stock upon the exchange of Warrants shall be made without charge to the
Warrant holders for any tax (other than federal or state income taxes) in
respect to the issuance of such certificates. Such certificates shall be
issued in the respective names of, or in the names directed by, the holder of
the Warrant exchanged. Company, however, shall not be required to pay any tax
which may be payable in respect to any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of the
Warrants exchanged, or to issue or deliver such certificates until the person
or persons requesting the issuance thereof have paid the Company the amount of
such tax or have established to the satisfaction of the Company that such tax
has been paid.
14.9 Notices of record date, etc.. If any of the following events
occur, the Company will mail or cause to be mailed a notice, as specified
below, to every holder of a Note or Warrant:
20
<PAGE> 25
(a) Any taking by Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend at the same rate
as the rate of the last cash dividend theretofore paid) or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property or to receive any other
right;
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the Company's capital stock, or any
transfer of all or substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any other Person;
(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(d) Any proposed issue or grant by the Company of any shares of
stock of any class or any other securities (other than notes or other
obligations issued or incurred by Company in connection with the purchase of
real or personal property or the borrowing of money privately), or any right or
option to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any securities (other than the Public Offering of Common Stock or
any issue or grant referred to herein).
The above notice to the Note or Warrant holder shall specify:
(1) The date or expected date on which any such record is
to be taken for the purpose of such dividend, distribution, or right, and
stating the amount and character of such dividend, distribution, or right;
(2) The date or expected date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock
(or other securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation, or winding-up; and
(3) The amount and character of any stock or other
securities, or rights or options with respect thereto, proposed to be issued or
granted, the date or expected date of such proposed issue or grant, and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least 20 days prior to the
date therein specified.
ARTICLE 15 - TRANSFERS NOT REGISTERED UNDER SECURITIES ACT OF 1933
15.1 Restrictive legends. Each Note, Warrant and certificate for
Common Stock issued upon the exchange of any Warrant, and each Note, Warrant,
and stock certificate issued upon the transfer of any such Note, Warrant or
Common Stock (except as otherwise permitted by this Article 15), shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented hereby have not been registered
under the Securities Act of 1933. Such securities may not be
sold or transferred in the absence of such registration or an
exemption therefrom under said Act. Such securities may not
be transferred except upon the conditions
21
<PAGE> 26
specified in certain agreements, dated as of December 20,
1996, between the Company and certain Purchasers, complete and
correct copies of which are available for inspection at the
office of the Company and a conformed copy of which will be
furnished to the holder of such securities upon written
request and without charge. No transfer of such securities
shall be valid or effective unless and until the conditions so
specified have been complied with."
15.2 Notice of proposed transfer, opinions of counsel. Except as
provided in the last paragraph of this Section 15.2, prior to any transfer of
any such Notes, Warrants, or Common Stock, the holder thereof will give written
notice to Company of such holder's intention to effect such transfer and to
comply in all other respects with this Section 15.2. Each such notice shall
(a) describe the manner and circumstances of the proposed transfer in
sufficient detail to enable counsel to render the opinions referred to below,
and (b) designate counsel for the holder giving such notice (who may be house
counsel for such holder). The holder giving such notice will submit a copy
thereof to the counsel designated in such notice and Company will promptly
submit a copy thereof to its counsel, and the following provisions shall apply:
(1) If in the opinion of each such counsel, the proposed
transfer may be effected without registration under the Act of such Notes,
Warrants, or Common Stock, the Company will promptly notify the holder thereof
and such holder shall thereupon be entitled to transfer such Notes, Warrants,
or Common Stock in accordance with the terms of the notice delivered by such
holder to the Company. Each Note, Warrant, or certificate, if any, issued upon
or in connection with such transfer shall bear the appropriate restrictive
legend set forth in Section 15.1, unless in the opinion of each such counsel
such legend is no longer required to insure compliance with the Act. If for
any reason counsel for the Company (after having been furnished with the
required information under clause (a) of this Section 15.2) fails to deliver an
opinion to Company, or Company fails to notify such holder thereof as
aforesaid, within 20 days after counsel for such holder has delivered its
opinion to such holder (with a copy to Company), then for all purposes of this
agreement the opinion of the Company's counsel shall be deemed to be the same
as the opinion of counsel for such holder.
(2) If in the opinion of either or both of such counsel,
the proposed transfer may not be effected without registration under the Act of
such Notes, Warrants, or Common Stock, Company will promptly so notify the
holder thereof and thereafter such holder shall not be entitled to transfer
such Notes, Warrants, or Common Stock until receipt of a further notice from
Company under subdivision (1) above or, in the case of Common Stock, unless
registration of such Common Stock under the Act has become effective.
The Company will pay the reasonable fees and disbursements of counsel
(other than house counsel) for any holder and of counsel for the Company in
connection with all opinions rendered by them pursuant to this Section 15.2.
ARTICLE 16 - REGISTRATION, TRANSFER, AND EXCHANGE OF NOTES
(a) The Company shall, at its expense (except for transfer taxes),
keep a register at its principal office in which, subject to reasonable
regulations, it shall provide for the registration and transfers of Notes.
22
<PAGE> 27
(b) Whenever any Note or Notes are surrendered at the Company's
principal office, either for transfer or exchange, accompanied (if so required
by the Company) by an instrument of transfer in a form satisfactory to Company
and duly executed by the holder thereof or the holder's attorney duly
authorized in writing, the Company shall execute and deliver in exchange
therefor (subject to the provisions of Article 15) a new printed Note or Notes
as requested by the holder, in the same aggregate unpaid principal amount as
that of the surrendered Note or Notes. The holder requesting the exchange,
however, shall pay any transfer tax relating to such transaction. Each such
new Note shall be dated as of the date to which interest has been paid on the
unpaid principal amount of the surrendered Note or Notes, and shall be in the
principal amounts and registered in the same name or names the holder
designates in writing.
ARTICLE 17 - REPLACEMENT OF NOTES
If any Note held by a Person other than you is lost, stolen,
destroyed, or mutilated, and the Company receives evidence reasonably
satisfactory to it of such loss, theft, destruction, or mutilation, and such
Person delivers an indemnity bond in a reasonable amount determined by Company,
or a mutilated Note is surrendered and cancelled, Company will, at its expense,
execute and deliver a new replacement Note of like tenor, dated the date to
which interest has been paid on the replacement Note.
ARTICLE 18 - EVENTS OF DEFAULT; ACCELERATION
The following events shall constitute Events of Default:
(a) The Company defaults in the payment of any part of the
principal of or premium on any Note when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise;
(b) The Company defaults in the payment of any installment of
interest on any Note for more than 20 days after it has become due and payable;
(c) The Company defaults in the performance of or compliance with
any material term of this agreement, and such default is not remedied within 30
days after the holder of any Note gives the Company written notice thereof;
(d) The Company or any Subsidiary defaults (as principal,
guarantor, or other surety) in the payment of principal of, premium or interest
on, or any other payment of money due under, any other material obligation for
borrowed money (including any obligation secured by a purchase money mortgage)
beyond any provided period of grace, or in the performance of any other
material agreement, term, or condition contained in any agreement under which
such obligation is created if the effect of such default is to cause, or permit
the holder or holders of such obligation (or a trustee on their behalf) to
cause, the obligation to become due before its stated maturity;
(e) The Company or any Subsidiary (i) makes an assignment for the
benefit of creditors, (ii) admits in writing to its inability to pay its debts
as they become due, (iii) files a voluntary petition in bankruptcy, (iv) is
adjudicated a bankrupt or insolvent, (v) files any petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
statute, law, or regulation, (vi) files an answer admitting or not contesting
the material allegations of a material petition filed against the Company or
any Subsidiary in such proceeding,
23
<PAGE> 28
or (vii) seeks, consents to, or acquiesces in the appointment of any trustee,
receiver, or liquidator of the Company or any Subsidiary or of all or any
substantial part of the Company's or Subsidiary's property, or the Company or
its directors or majority stockholders take any action looking to its
dissolution or liquidation;
(f) An action is commenced against the Company or any Subsidiary
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law, or
regulation, and the action is not dismissed, or all orders or proceedings
thereunder affecting the Company's operations or business are not stayed within
60 days after commencement of such action, or the stay of any such order or
proceedings is thereafter set aside; or, a trustee, receiver, or liquidator is
appointed for the Company or any Subsidiary or of all or a substantial part of
the Company's or Subsidiary's properties without the Company's or Subsidiary's
consent or acquiescence, and the appointment is not vacated within 60 days
after the appointment; or
(g) A final judgment, against which the Company or any Subsidiary
is uninsured and which, together with other like outstanding judgments against
the Company and its Subsidiaries, exceeds a total of $500,000, is rendered
against the Company or a Subsidiary, and within 60 days after the entry
thereof, the judgment is not discharged or execution thereof stayed pending
appeal; or, within 60 days after the stay expires, the judgment is not
discharged.
Notwithstanding the above, or anything else contained in this
agreement, should the Company be in default under any Senior Debt, the Company
shall have the opportunity to cure the same and during such period no Note
payments shall become due and payable and shall be delayed until the Senior
Debt is satisfied in full.
If any of the above Events of Default occur, any holder or holders of
50 percent or more in aggregate principal amount of the Notes then outstanding
("50 percent holders") may at any time (unless all defaults have previously
been remedied), by written notice to the Company, and, to the extent they are
known to such holder or holders, to the other holders of Notes declare all the
Notes, to be due and payable. In such case, the Notes immediately shall mature
and become due and payable, together with interest accrued thereon. While an
Event of Default continues, however, and irrespective of whether the 50 percent
holders have declared all of the Notes to be due and payable, any original
purchaser of the Notes may, by written notice to the Company, declare the Notes
then held by it to be, and such Notes shall thereupon be and become,
immediately due and payable, together with interest accrued thereon. Any such
action by 50 percent holders, however, may be rescinded with the consent of the
holders of 66.66 percent or more in aggregate principal amount of the Notes
then outstanding, if the Company has cured the Event of Default.
ARTICLE 19 - SUBORDINATION OF NOTES
(a) The payment of the principal of and interest on the Notes is
hereby expressly subordinated, to the extent and in the manner hereinafter in
this Article 19 set forth, to the right of payment of the prior payment of
Senior Debt in full.
(b) Upon any distribution of the Company's assets upon its
dissolution, winding up, liquidation, or reorganization, whether in bankruptcy,
insolvency, reorganization or receivership
24
<PAGE> 29
proceedings, or upon an assignment for the benefit of creditors or any other
marshalling of the Company's assets and liabilities or otherwise:
(1) All principal, premium, if any, and interest due upon
all Senior Debt shall first be paid in full, or payment thereof provided for in
money or money's worth, before the holders of the Notes are entitled to receive
any payment upon the principal of, premium, if any, or interest on the Notes;
(2) Any payment or distribution of the Company's assets
of any kind or character, whether in cash, property or securities (other than
shares of the Company's stock as reorganized or readjusted or securities of
Company or any other corporation provided for by a plan of reorganization or
readjustment, the payment of which is subordinated to the payment of all Senior
Debt which may at the time be outstanding on terms not less favorable to the
holders thereof than those of this Article 19) to which the holders of the
Notes would be entitled except for the provisions of this Article 19 shall be
paid by the liquidating trustee or otherwise, directly to the holders of Senior
Debt (pro reedy to each such holder on the basis of the respective amounts of
Senior Debt held by each such holder), to the extent necessary to pay in full
all Senior Debt remaining unpaid, after giving effect to any prior or
concurrent payment or distribution, or provision therefor, to the holders of
Senior Debt on the Senior Debt;
(3) If, notwithstanding the foregoing, any payment or
distribution of the Company's assets of any kind or character, whether in cash,
property, or securities (other than shares of the Company's stock as
reorganized or readjusted or securities of Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated to the payment of all Senior Debt which may at the time be
outstanding on terms not less favorable to the holders thereof than those of
this Article 19) is received by the holders of the Notes before all Senior Debt
is paid in full, or provision made for its payment, such payment or
distribution shall be paid over to holders of Senior Debt (pro rata to each
such holder on the basis of the respective amounts of Senior Debt held by such
holder), for application to the payment of all Senior Debt remaining unpaid
until all such Senior Debt has been paid in full, or provision made for its
payment, after giving effect to any prior or concurrent payment or distribution
to the holders of the Senior Debt on the Senior Debt; and
(4) Each holder of the Notes agrees, in the event of any
proceeding described in this paragraph (b) of this Article 19, to proceed
promptly and with due diligence to enforce its claim, or to notify the Company
and the other holders of the Notes in writing of its intention not to so
enforce its claim, as a holder of the Notes against the Company.
(c) In the event and during the continuance of any default by the
Company in the payment of any Senior Debt when due (whether at a stated
maturity date, upon acceleration or otherwise), no payment of principal of,
premium, if any, or interest on the Notes shall be made by the Company.
(d) Subject to the payment in full of all Senior Debt, the holders
of the Notes shall be subrogated to the rights of the holders of the Senior
Debt to receive payments or distributions of the Company's assets applicable to
the Senior Debt until the principal of, premium, if any, and interest on the
Notes is paid in full. No such payments or distributions applicable to the
Senior Debt shall, as between the Company, its creditors other than the holders
of the Senior Debt, and the holders of the Notes, be deemed to be a payment by
the Company to or on account of the Notes.
25
<PAGE> 30
(e) The provisions of this Article 19 are solely for the purpose
of defining the rights of the holders of the Notes, on the one hand, relative
to the rights of the holders of the Senior Debt, on the other hand, and nothing
contained in this Article 19 or elsewhere in the Agreements or in the Notes is
intended to or shall:
(1) Impair, as between the Company, its creditors other
than the holders of Senior Debt, and the holders of the Notes, the Company's
obligation, which is unconditional and absolute, to pay to the holders of the
Notes the principal of, premium, if any, and interest on the Notes, as and when
the same becomes due and payable in accordance with the terms of the Notes, or
(2) Affect the rights of the holders of the Notes
relative to creditors of Company other than the holders of the Senior Debt, nor
shall anything in the Agreements or in the Notes prevent the holder of any
Notes from exercising all remedies otherwise permitted by applicable law upon
default under this agreement, subject to the rights, if any, under this Article
19 of the holders of the Senior Debt in respect to the Company's assets
received upon the exchange of any such remedy.
(f) Upon any payment or distribution of the Company's assets
referred to in this Article 19, the holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding up, liquidation, or reorganization proceedings
are pending or upon a certificate of the liquidating trustee or agent or other
person making any distribution to the holders of the Notes on the Notes for the
purpose of ascertaining the amount of the Senior Debt, the holders thereof, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 19.
(g) Nothing contained in this Article 19 or in the Agreements or
in the Notes, shall affect the Company's obligation to make, or prevent the
Company from making, at any time except as set forth in paragraphs (b), (c) and
(d) of this Article 19, payments of principal of, premium, if any, or interest
on the Notes.
(h) No modification, amendment, or waiver of any provision of this
Article 19 shall be made without the prior written consent of the holders
having a majority interest in the Notes.
ARTICLE 20 - REMEDIES ON DEFAULT, ETC.
If any one or more Events of Default occur and are continuing, the
holders of any Notes at the time outstanding may proceed to protect and enforce
their rights by an action at law, suit in equity, or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in such Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exchange of any power granted hereby
or thereby or by law. In case of a default in the payment of any principal of
or premium, if any, or interest on any Note, the Company will pay the holder a
further amount sufficient to cover the cost of collection, including (without
limitation) reasonable attorney's fees, expenses, and disbursements. If any
holder of any Note gives any notice or takes any other action in respect of a
claimed default, the Company will forthwith give written notice thereof to all
other holders of the Notes at the time outstanding describing the notice or
action and the nature of the claimed default. No course of dealing and no
delay by any holder of any Note in exercising any right, power, or remedy shall
operate as a waiver thereof or otherwise prejudice such holder's rights, powers
and remedies. No right, power, or remedy conferred hereby or by any Note upon
any holder thereof shall be exclusive of
26
<PAGE> 31
any other right, power, or remedy referred to herein or therein or now or
hereafter available by law, in equity, by statute or otherwise.
ARTICLE 21 - DEFINITIONS
As used herein, the following terms have the following respective
meanings:
21.1 Affiliate.
(a) Any Person owning or controlling 5 percent or more of any
class of stock or similar interests of Company or any
Subsidiary;
(b) Any spouse of any such Person;
(c) Any relative (within the third degree) of any such Person or
spouse;
(d) Any corporation, association, or other business entity in
which any such Person or spouse or relative has a substantial direct or
indirect interest; and
(e) Any corporation (other than a Subsidiary), association, or
other business entity 5 percent or more of any class of stock or similar
interests of which is owned or controlled by the Company or any Subsidiary.
21.2 The Exchange Formula. In a Net Issuable Exchange the formula
for determining the number of shares of Common Stock to be received in exchange
for a Warrant shall be determined as follows:
<TABLE>
<S> <C><C>
The Current Number of Shares at Any
Given Time To be Received in the Event X MP - EP = # of shares in exchange for a Warrant
of an Exchange of a Warrant with Full -------
Payment of the Exchange Price MP
MP = MARKET PRICE OF STOCK.
EP = EXERCISE PRICE.
</TABLE>
21.3 Common Stock. All shares now or hereafter authorized by the
class of the Company's Common Stock, par value $.001 per share, presently
authorized and stock of any other class into which such shares may hereafter
have been changed.
21.4 First Liquidity Event. A change of control in the Company
defined as a change in ownership of the majority of the Company's issued and
outstanding stock or the change in ownership of enough issued and outstanding
Company stock (i.e. less than a majority) to control the outcome of an election
of the Company's directors, a merger where the Company is not the surviving
entity, an initial public offering by the Company in excess of $15.0 million in
net proceeds, or a sale of substantially all of the Company's assets.
27
<PAGE> 32
21.5 Generally accepted accounting principles. As determined by
independent certified public accountants of recognized national standing
selected by the Company.
21.6 Indebtedness. As applied to a Person,
(a) All items which, in accordance with generally accepted
accounting principles, would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date of
which the Indebtedness is to be determined;
(b) All Indebtedness (other than Indebtedness owing to such
Person) secured by any mortgage, pledge, lien, security interest or conditional
sale, or other title retention agreement to which any property or asset owned
or held by such Person is subject, regardless of whether the Indebtedness
secured thereby has been assumed; and
(c) All Indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business), discounted, sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock purchase, capital contribution or otherwise) or otherwise
to become directly or indirectly liable.
21.7 Market Price. This Market Price of stock shall be the method
of determining a market price of stock in use for the Exchange Formula and in
determining Market Price on the date of a First Liquidity Event. Market Price
shall mean the average of the daily closing price of the Company's common stock
for the ten (10) consecutive business days immediately prior to the day in
question. The closing price for each day shall be (a) the last reported sales
price or, in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices, in either case on the principal
national securities exchange on which the common stock is listed or admitted to
trading or, if the common stock is not listed or admitted to trading on any
national securities exchange, on the National Association of Securities Dealers
Automated Quotation National Market System, or (b) if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted on
such National Market System, the average of the closing bid and asked prices in
the over-the-counter market as furnished by any New York Stock Exchange member
firm reasonably selected from time to time by the Company for that purpose, or
(c) if the common stock is neither listed or admitted to trading as aforesaid,
nor traded in the over-the-counter market, Market Price shall be determined in
the following manner: For a period of ten (10) days after the date the Company
is notified of a holder's desire to effect a Net Issuable Exchange or after the
date of a First Liquidity Event (the "Negotiation Period"), the holder's
effected (the "Participating Holder"), and the Company agree to negotiate in
good faith to reach agreement upon the Market Price of the Company's common
stock. In the event that the Participating Holder and the Company are unable
to agree upon the Market Price by the end of the Negotiation Period, the Market
Price of the Company's Common Stock shall be determined for purposes of Section
1.2 initially by an appraiser selected by the Company (the "Company Appraiser")
and whose appraisal (the "Company Appraisal") shall be furnished to the
Participating Holder within fifteen (15) days after the date of the notice
given under Section 1.2 hereof. If the Participating Holder does not object to
such determination within fifteen (15) days after receipt of such appraisal,
the fair market value determined by the Company Appraiser shall be the Market
Price. If the Participating Holder objects to the fair market value determined
by Company Appraiser, then the Participating Holder may select an Appraiser
(the "Holder's Appraiser") who shall review the determination of the Company
appraiser and issue a report thereon (the
28
<PAGE> 33
"Holder's Appraiser") within fifteen (15) days after delivery to the
Participating Holder of the Company Appraisal. Within ten (10) days after
delivery to the Company of the Holder's Appraisal, the Company Appraiser and
the Holder's Appraiser shall meet in order to resolve any questions or
differences with respect to the Market Price. If such Appraisers agree on a
Market Price of the Company's common stock, such price shall be the Market
Price. If no agreement is reached, such Appraisers shall select an appraiser
(the "Third Appraiser") within five (5) days after such meeting. The Market
Price of the common stock shall then be determined by the Third Appraiser
within thirty (30) days after delivery to the Company of the Holder's
Appraisal, and the determination of the Third Appraiser shall be conclusive and
binding on both the Company and the Participating Holders. Market Price of the
common stock shall in all cases be calculated by determining the Market Price
of the entire common stock equity interest of the Company taken as a whole,
without premium for control or discounts for minority interests or restrictions
on transfer. All expenses of the Company appraisal, the Holder's Appraisal and
the Third Appraisal shall be borne equally by the Company and the Participating
Holder(s) on a prorata basis.
21.8 Net Issuable Exchange. A cashless exchange of Warrant for
shares of Common Stock based upon The Exchange Formula.
21.9 Officer's certificate. A certificate signed in the name of
the Company by its Chairman of the Board of Directors, or its President or one
of its Vice Presidents and its Treasurer or one of its Assistant Treasurers.
21.10 Person. A corporation, an association, a partnership, an
organization, a business, an individual, or a government or political
subdivision thereof, or any governmental agency, but excluding a Subsidiary.
21.11 Public offering of common stock. The first underwritten
public offering of shares of the Company's Common Stock registered under the
Act, as a result of which Purchasers will no longer be entitled to
anti-dilution protection as to its ownership Warrants or Common Stock.
21.12 Senior Debt. The principal (and premium, if any, payable on
redemption) of and interest on all Indebtedness of the Company and its
Subsidiaries for any current and future liabilities or obligations of any kind,
and all current and future guaranties, direct or indirect, by the Company or
any Subsidiary of such Indebtedness of others and all renewals, extensions and
refundings of any such Indebtedness, and all such current and future guaranties
by the Company or any Subsidiary of renewals, extensions and refundings of any
such Indebtedness of others, whether such Indebtedness or guaranty is
outstanding on the date of this agreement or thereafter created, incurred or
assumed, unless by the terms of the future instrument creating or evidencing
such future Indebtedness or future guaranty or pursuant to which the same is
outstanding it is provided in effect that the Indebtedness or guaranty is not
superior in right of payment to the Notes. Notwithstanding anything contained
herein to the contrary, all debt that is not traditionally senior debt (senior
debt to include, but not be limited to current and future acquisition debt,
bank debt, institutional debt, trade debt, financing debt, (except Company
affiliates or insiders), shall be pari passu basis with this debt. As to the
current outstanding debt to the Company Director, the Company covenants and
agrees to provide Purchasers on an equal basis and at the same time on a pari
passu basis, for any payment on such debt to the Company Director or grant of
security to such Company Director. The Company agrees to immediately provide
Purchasers with notice of any demand or action by said Director to collect such
debt. In the event of a payment to Purchaser hereunder the Note shall be
reduced accordingly.
29
<PAGE> 34
21.13 Subsidiary. Any corporation, association, or other business
entity in which more that 50 percent of the stock of each class having ordinary
voting power is, at the time as of which any determination is being made, owned
or controlled, directly or indirectly, by the Company and/or one or more of its
Subsidiaries.
ARTICLE 22 - EXPENSES
Upon consummation of the transaction, the Company will pay:
(a) All the costs and expenses of this agreement, of the printing
and the issue of the Notes and Warrants and the Common Stock issuable upon
conversion of the Notes and Warrants, of any taxes (including any interest and
penalties in respect thereof) payable on such issue (Company agreeing to
indemnify you in respect thereof), of furnishing all opinions by the Company's
counsel (including any opinions requested by your special counsel as to any
legal matter arising hereunder) and all certificates on behalf of the Company,
and of the Company's performance of and compliance with all of its agreements
and conditions contained herein;
(b) The cost of delivering to you, insured to your satisfaction,
the Notes and Warrants purchased by you at Closing Time and any Notes and
Warrants or Common Stock or Warrants delivered to you upon any exchange,
delivery or exchange pursuant to the provisions of this agreement and of
delivering any Notes to the Company, insured to your satisfaction, if delivered
by you pursuant to the provisions of this agreement or upon any conversion or
prepayment of the Notes;
(c) Pay, indemnify, and hold you and each other holder of any Note
harmless from and against any and all liability and loss with respect to or
resulting from:
(1) All claims for or on account of brokers' or finders'
fees or commissions with respect to such transactions; and
(2) The nonpayment or delayed payment of all stamp and
other taxes, fees, and excises (other than transfer taxes), if any, including
any interest and penalties, which may be or be determined to be, payable in
connection with this transaction, or in connection with the original issue of
the Notes or any Common Stock issuable upon exchange of Notes or Warrants.
(d) All legal fees and costs incurred with Special Counsel of the
Purchaser in connection with this transaction. Special Counsel is Posternak,
Blankstein & Lund, L.L.P., 100 Charles River Plaza, Boston, Massachusetts
02114-2723.
ARTICLE 23 - SURVIVAL OF AGREEMENTS, REPRESENTATIONS, AND WARRANTIES, ETC.
All agreements, representations, and warranties contained herein or
made in writing by or on behalf of Company in connection with the transactions
contemplated hereby shall survive the execution and delivery of this agreement,
any investigation at any time made by you or on your behalf, your acquisition
of the Notes, and any disposition, or payment of the Notes. All statements
contained in any certificate or other instrument delivered by Company pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed representations and warranties by the Company hereunder.
30
<PAGE> 35
ARTICLE 24 - NOTICES, ETC.
All notices, requests, consents, and other communications hereunder
shall be in writing and mailed by first class registered or certified mail,
postage prepaid:
(a) If to you, at your address as set forth in SCHEDULE 1 to this
agreement, marked for attention as there indicated, or at any other address
furnished to Company by you in writing; or
(b) If to any other holder of any Note or Warrant, at any address
furnished to the Company in writing by such holder, or, until such other holder
furnishes to Company an address, then to, and at the address of, the last
holder of such Note or Warrant who has so furnished an address to Company; or
(c) If to the Company, Vision 21, Inc., 7209 Bryan Dairy Road,
Largo, Florida 34647, with a copy to Darrell C. Smith, Esquire, Shumaker, Loop
& Kendrick, LLP, 101 E. Kennedy Blvd. Suite 2800, Tampa, Florida 33602.
ARTICLE 25 - AMENDMENTS AND WAIVERS
Neither this agreement nor any Notes nor any term hereof or thereof
may be changed, waived, discharged or terminated orally or in writing, except
that any term of this agreement or of the Notes may be amended and the
observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) with (and only with) the
written consent of the holders of at least 51 percent in principal amount of
the Notes at the time outstanding, provided, however, that no such amendment or
waiver shall, without the written consent of the holders of all of the Notes at
the time outstanding, (a) change the amount or time of any payment or
prepayment of any Notes or any part thereof, or of any premium or interest
thereon, or (b) reduce the percentage of the principal amount of the Notes the
holders of which are required to consent to any amendment or waiver under this
Article 25.
ARTICLE 26 - HOME OFFICE PAYMENT
The Company agrees that, as long as you shall hold any Notes, it will
make payments of principal thereof and interest and premium, if any, thereon by
check duly mailed to you, or to your nominee, at the address set forth under
your name on SCHEDULE 1, or any other address you designate to the Company in
writing, notwithstanding any contrary provision herein or in any Note with
respect to the place of payment. You agree that, before disposing of any Note,
you will make a notation thereon of all principal payments previously made
thereon and of the date to which interest thereon had been paid, and will
notify the Company of the name and address of the transferee of such Note if
known to you.
ARTICLE 27 - MISCELLANEOUS
This agreement is being delivered and is intended to be performed in
the State of Florida and shall be construed and enforced in accordance with and
governed by the laws of such State. All the terms of this agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not, and,
in particular, shall inure to the benefit of and be enforceable by any holder
or holders at the time of the Notes. This agreement embodies the entire
agreement and understanding between you and the Company and supersedes all
prior agreements and understandings relating to the subject matter hereof. The
headings in this agreement are
31
<PAGE> 36
for convenience of reference only, and shall not limit or otherwise affect the
meaning hereof. This agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this letter and return the same to
the Company, whereupon this letter shall become a binding contract between you
and the Company.
Very truly yours,
VISION 21, INC.
By: /s/ Theodore N. Gillette
-------------------------------------
Theodore N. Gillette, President
(Corporate Seal)
Attest:
By: /s/ Richard T. Welch
-------------------------------------
Richard T. Welch, Chief Financial
Officer
32
<PAGE> 37
The foregoing agreement is hereby agreed to as of this date thereof.
/s/
- -----------------------------------
Purchaser
By:
--------------------------------
Purchaser's Facsimile Number:
---------------------------------
33
<PAGE> 38
The foregoing agreement is hereby agreed to as of this date thereof.
/s/
- -----------------------------------
Purchaser
By:
--------------------------------
Purchaser's Facsimile Number:
------------------------------
34
<PAGE> 39
The foregoing agreement is hereby agreed to as of this date thereof.
/s/
- ------------------------------------
Purchaser
By:
---------------------------------
Purchaser's Facsimile Number:
------------------------------
35
<PAGE> 40
The foregoing agreement is hereby agreed to as of this date thereof.
/s/
- --------------------------------
Purchaser
By:
-----------------------------
Purchaser's Facsimile Number:
------------------------------
36
<PAGE> 41
EXHIBIT A - FORM OF
10% SENIOR SUBORDINATED NOTE, DUE DECEMBER 19, 1999
$50,000 December 20, 1996
Largo, Florida
FOR VALUE RECEIVED, the undersigned Vision 21, Inc. ("the Company"), a
corporation organized and existing under the laws of the State of Florida,
hereby promises to pay to ______________________________________, or registered
assigns, interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid balance thereof at the rate of 10 percent per annum from
the date hereof, payable semiannually on the 19th day of December and the 19th
day of June each year commencing with June 19, 1997 until the principal hereof
has become due and payable, and thereafter at the rate of 12 percent per annum
until paid, and so far as may be lawful, with interest on any overdue
installment of interest at the rate of 12 percent per annum. The entire
principal sum of the Note in the amount of $50,000 and any accrued interest yet
unpaid shall become due and payable in full the earlier of December 19, 1999,
or the date of a First Liquidity Event as defined in the Note Purchase
Agreement.
Payments of both principal and interest are to be made at 7209 Bryan
Dairy Road, Largo, Florida 34647, or any other place the holder hereof
designates to the Company in writing, in lawful money of the United States of
America.
This Note is one of a number of the Company's Notes all of the same
tenor as this Note except for certain variations between series. This Note has
been, and such other Notes have been issued, pursuant to that Note Purchase
Agreement dated December 20, 1996, between the Company and the Purchasers of
said Notes and is entitled to the benefits of said Note Purchase Agreement. As
provided therein, this Note is subject to prepayment, in whole or in part,
without penalty or premium.
This Note and all payments hereon, including principal and interest,
are subordinated to all the Company's Senior Debt, as defined in said Note
Purchase Agreement, to the extent and in the manner specified in that
agreement.
If an event of default, as defined in the Note Purchase Agreement
occurs and is continuing, the principal of this Note may be declared due and
payable in the manner and with the effect provided in said Note Purchase
Agreement.
VISION 21, INC.
(Corporate Seal) By:
-------------------------------------
Theodore N. Gillette, President
Attest:
By:
-------------------------------------
Richard T. Welch, Chief Financial
Officer
S-1
<PAGE> 42
EXHIBIT B - FORM OF WARRANT
No. of Shares: 10,549 Warrant No.
----------
WARRANT EXCHANGEABLE TO
COMMON STOCK
EXPIRING DECEMBER 19, 2003
THIS CERTIFIES THAT, for value received, or registered assigns, is
entitled to exchange this Warrant with Vision 21, Inc., a Florida corporation
("the Company"), on or after January 1, 1997, and before 5 p.m., New York City
time, on December 19, 2003, for 10,549 shares of Common Stock, par value $_____
per share, of Company, at the Exchange Price (as hereinafter defined) in lawful
money of the United States of America or, except as restricted herein, pursuant
to a Net Issuable Exchange (or defined in the Note Purchase Agreement described
below). The number of shares of Common Stock to be received upon an exchange
of this Warrant and the Exchange Price are subject to adjustment as hereinafter
set forth.
This Warrant has been issued pursuant to the Note Purchase Agreement
dated as of December 20, 1996, between Company and the Purchasers defined
therein, (the "Note Purchase Agreement"). The applicable provisions of the
Note Purchase Agreement are incorporated herein by reference, and the holder
hereof is entitled to the benefit thereof. A conformed copy of the Note
Purchase Agreement will be furnished to the holder hereof by the Company upon
written request and without charge.
Section 1. Exchange of warrants. At any time up through December 19,
2003, subject to the terms hereof, the Warrants shall be exchangeable by the
holder of such Warrant. Each Warrant shall initially be exchangeable for
10,549 shares of Common Stock at an exchange price of $4.74 per share of Common
Stock or in a cashless exchange for a reduced number of shares (the "Net
Issuable Exchange") as determined by the Exchange Formula defined herein. The
Warrants will be exchangeable upon surrender of the Warrant to the Company at
its principal office in Florida at any time during usual business hours,
accompanied, if so required by the Company, by an instrument or instruments of
transfer in form satisfactory to the Company duly executed by the holder of
such Warrant. However, in the event that the Company has not completed an
initial public offering by September 30, 1997, and redeemed the Notes, or if a
First Liquidity Event as defined in the Note Purchase Agreement has not
occurred, the exchange price of the Warrants shall be adjusted to $4.00 per
share. The Warrants will expire by 5:00 p.m., December 19, 2003 if not
exchanged by such date. Should the mid- price offering price set forth in an
initial filed Form S-1 Registration Statement (and the Company warrants that
there will be a price range set forth in the initial Form S-1 Registration
Statement filed) for an initial public offering be less than $9.48 per share,
than the exchange price for the stock shall become one-half of that mid-price
offering price. Should the Market Price per share of Common Stock as defined
herein be less than $9.48 at the time of any First Liquidity Event other than
an IPO, then the exercise price for the stock shall become one-half of that
Market Price per share on such date. Notwithstanding anything contained herein
to the contrary, a holder may no longer exchange Warrants for shares of stock
after the date of a First Liquidity Event pursuant to a Net Issuable Exchange,
but may only exchange Warrants for shares of stock by payment of the exchange
price.
B-1
<PAGE> 43
Section 2. Issuance of common stock upon exchange. As promptly as
practicable after the surrender, as herein provided, of any Warrant, the
Company shall deliver or cause to be delivered to or upon the written order of
the holder of the Warrant the shares to be issued on exchange in accordance
with the provisions of this Section 2 certificates representing the numbers of
fully paid and nonassessable shares of Common Stock into which such Warrant is
exchangeable in accordance with the provisions of this Section 2. Subject to
the following provisions of this paragraph, such exchange shall be deemed to
have been made at the close of business on the date that such Warrant has been
exchanged, so that the rights of the holder of such Warrant exchanged shall
cease at such time and the person or persons entitled to receive the shares of
Common Stock upon exchange of such Warrant shall be treated for all purposes as
having become the record holder or holders of such shares of Common Stock at
such time and such exchange shall be at the exchange price in effect at such
time; provided, however, that no such surrender on any date when the stock
transfer books of the Company are closed shall be effective to constitute the
person or persons entitled to receive the shares of Common Stock upon such
exchange as the record holder or holders of such shares of Common Stock on such
date, but such surrender shall be effective to constitute the person or persons
entitled to receive such shares of Common Stock as the record holder or holders
thereof for all purposes at the close of business on the next succeeding day on
which such stock transfer books are open and such exchange shall be at the
exchange price in effect on the date that such Warrant has been surrendered for
exchange.
Section 3. Registered holder as owner; replacement. (a) The Company
may treat the registered holder hereof as the owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary.
a. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction, or mutilation of this
Warrant, and, in case of loss, theft or destruction, or indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will make and deliver a new Warrant of like
tenor, in lieu of this Warrant, provided, that if an original holder of Notes
or its nominee or nominees is such holder an agreement of indemnity shall be
sufficient for all purposes of this Section 3.
b. This Warrant shall be promptly cancelled by the Company upon
the surrender hereof in connection with any exchange, transfer, or replacement.
The Company shall pay all expenses, taxes (other than stock transfer taxes) and
other charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Section 3.
Section 4. Restrictions on transfer. This Warrant and the related
Warrant Shares shall not be transferrable or exchanged except upon the
conditions and to the extent specified in the Note Purchase Agreement.
Section 5. Adjustment of exchange price. The Exchange Price shall be
subject to adjustment from time to time in the manner as described in the Note
Purchase Agreement.
Section 6. Reduction of exchange price. The Company shall have the
right, at any time or from time to time, voluntarily to reduce the Exchange
Price then in effect for any period or periods of time its Board of Directors
may determine. In each such event Company shall mail to all Warrantholders a
certificate of an officer of Company stating (a) Company's election to reduce
the Exchange Price in
B-2
<PAGE> 44
accordance with this Section 6, (b) that such election is irrevocable during
the period below referred to, and (c) the period in which such reduced Exchange
Price shall be in effect, such period to commence not less than 30 days after
the certificate is mailed to the Warrantholders. Failure to receive such
certificate by mail, or any defect therein, shall not affect the validity of
the reduction of the Exchange Price during such period. No reduction of the
Exchange Price pursuant to the provisions of this Section 6 shall be deemed for
the purposes of Section 5 to alter or adjust the Exchange Price or to increase
the number of shares then purchasable upon the exchange of the Warrants.
Section 7. Special agreements of company. (a) The Company covenants
and agrees that it will reserve and set apart and have at all times a number of
shares of authorized but unissued Common Stock deliverable upon the exchange of
this Warrant or any other rights or privileges provided for herein sufficient
to enable it at any time to fulfill all its obligations hereunder. The Company
covenants and agrees that it will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of its terms hereunder, but
will at all times in good faith assist in carrying out all of the provisions of
this Warrant and in taking all necessary or appropriate action in order to
protect the rights of the holders of this Warrant against dilution or other
impairment.
a. This Warrant shall be binding upon any corporation succeeding
to the Company by merger, consolidation, or acquisition of all or substantially
all of the Company's assets.
Section 8. Notices. All notices and documents to Warrantholders
under this agreement shall be sent by registered or certified mail to the
holder at the address shown on the holder's warrant or any other address the
holder has furnished the Company in writing. All notices and documents to the
Company shall be sent by certified or registered mail to its principal office,
at Vision 21, Inc., 7209 Bryan Dairy Road, Largo, Florida 34647, or any other
address the Company has furnished the Warrantholders in writing with a copy to
Company counsel:
Darrell C. Smith, Esquire
Shumaker, Loop & Kendrick, LLP
Barnett Plaza, Suite 2800
101 E. Kennedy Boulevard
Tampa, Florida 33602
Section 9. No rights as shareholder; limitation of liability. This
Warrant shall not entitle the holder hereof to any of the rights of a
shareholder of the Company except as set forth in the Note Purchase Agreement.
No provision hereof, in the absence of affirmative action by the holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights
or privileges of the holder hereof, shall give rise to any liability of such
holder for the Exchange Price or as a shareholder of the Company, whether such
liability is asserted by the Company or by its creditors.
Section 10. Law governing. This Warrant shall be governed by, and
construed and enforced in accordance with the, the laws of the State of
Florida.
Section 11. Rights under Note Purchase Agreement. The holder hereof
shall be entitled to all rights accorded to a holder, as well as all
obligations as contained in the Note Purchase Agreement.
B-3
<PAGE> 45
Section 12. Expiration. This Warrant shall expire and become null
and void if not exchanged on or before 5:00 p.m. on December 19, 2003.
IN WITNESS WHEREOF, Vision 21, Inc. has caused this Warrant to be
signed by its duly authorized officer under its corporate seal, attested by its
duly authorized officer, and to be dated December 20, 1996.
VISION 21, INC.
By:
-------------------------------------
Theodore N. Gillette, President
Attest:
----------------------------------------
Richard Welch, Chief Financial Officer
B-4
<PAGE> 46
EXHIBIT C - ASSIGNMENT
To Be Executed by the Registered Holder if He Desires to
Transfer the Warrant
VISION 21, INC.
FOR VALUE RECEIVED, __________________________________________, hereby
sells, assigns, and transfers unto ________________________________________,
the right to purchase __________ shares of Common Stock, evidenced by the
within Warrant, and does hereby irrevocably constitute and appoint
_____________________________________________ as Attorney to transfer the said
Warrant on the books of the Company, with full power of substitution.
----------------------------------------
Signature
----------------------------------------
----------------------------------------
Address
Dated: , 19
--------------------- ----
In the presence of:
- -----------------------------------
- -----------------------------------
C-1
<PAGE> 47
SCHEDULE 1
COLUMN A
<TABLE>
<CAPTION>
COLUMN B COLUMN C
-------- --------
PRINCIPAL NUMBER OF SHARES OF
AMOUNT OF NUMBER OF COMMON STOCK INTO
NOTES WARRANTS WHICH WARRANTS ARE
NAME AND ADDRESS TO BE PURCHASER IS TO INITIALLY
OF PURCHASERS PURCHASED RECEIVE EXCHANGEABLE
---------------- ---------------- --------------- -------------------
<S> <C> <C> <C>
</TABLE>
S-1
<PAGE> 48
SCHEDULE 4.1
VISION 21, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
% OF OUTSTANDING
STOCK OWNED BY COMPANY
STATE OF DIRECTLY OR
CORPORATION INCORPORATION THROUGH A SUBSIDIARY
- ---------------------------------- ------------- --------------------
<S> <C> <C>
The Company Florida NA
Vision 21 Physician Practice Florida 100%
Management Co., Inc. (practice
management company)
Managed Eyecare of Tampa Bay, Inc. Florida 100%
(managed care organization)
</TABLE>
S-2
<PAGE> 49
SCHEDULE 4.3
Exceptions to Company's representation that there are no material adverse
changes in financial condition or affairs of the Company, its Subsidiaries and
Acquired Businesses.
The following practices described in the Memorandum have not closed as of
December 20, 1996:
1. Kennedy Eye Associates (have not determined as yet whether
acquisition will occur)
2. Four Seasons (will not be acquired)
3. Optometric Eyecare Centers, P.A. (while nothing definitive has
been executed and there can be no guarantee, they are expected
to be acquired the week of December 23, 1996)
Result on Company: See SCHEDULE A, Page 19 of Memorandum.
All other practices described on SCHEDULE A, Page 19 have closed on or before
December 20, 1996.
S-3
<PAGE> 50
NOTICE
The signature to the foregoing Assignment must correspond to the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder if He Desires to
Exchange the Warrant
VISION 21, INC.
The undersigned hereby exchanges the right to purchase __________
shares of Common Stock covered by this Warrant according to the conditions
thereof and herewith makes payment of the Exchange Price of such shares in
full.
----------------------------------------
Signature
----------------------------------------
----------------------------------------
Address
Dated: , 19
--------------- ----
<PAGE> 1
EXHIBIT 4.6
AMENDMENT NO. 1 TO
NOTE PURCHASE AGREEMENT DATED DECEMBER 20, 1996
Amendment No. 1 dated as of April 18, 1997 (the "Amendment") to that
certain Note Purchase Agreement dated December 20, 1996 (the "Note Purchase
Agreement") among VISION 21, INC. (the "Company"), and all Purchasers (as
defined in Article 2 of the Note Purchase Agreement) as the holders of the
warrants (the "Warrants") issued thereunder.
RECITALS:
1. The Company originally issued Warrants to the Purchasers in
conjunction with the Note Purchase Agreement;
2. The Company subsequently issued a warrant to Piper Jaffray
Health Care Fund II Limited Partnership ("Piper Jaffray") pursuant to a
substantially similar Note Purchase Agreement Dated February 28, 1997, between
the Company and Piper Jaffray (the "Piper Jaffray Agreement");
3. The Purchasers each consented in writing to the Piper Jaffray
Agreement with the understanding that their Warrants would be replaced with
warrants substantially similar in terms to the Piper Jaffray warrant;
4. The Company and Purchasers desire to replace the Warrants
issued to the Purchasers pursuant to the Note Purchase Agreement (the "Original
Warrants") with replacement warrants (the "Replacement Warrants") that are
substantially similar in terms to the Piper Jaffray warrant; and
5. The Company and the Purchasers also wish to amend the Note
Purchase Agreement, including the Form of Warrant attached thereto as Exhibit
B, in order to reflect the difference in terms resulting from the replacement
of the Original Warrants with the Replacement Warrants and the Company and the
Purchasers are permitted, pursuant to Article 25 of the Note Purchase
Agreement, to amend the Note Purchase Agreement at any time and from time to
time, by agreement between the Company and the holders of at least 51 percent
of the Notes, in any respect which they may deem necessary or desirable.
NOW, THEREFORE in consideration of the premises, the mutual agreements
contained herein and other good and valuable consideration, it is agreed by and
among the parties hereto that:
1. The factual recitals set forth at the beginning of this
Amendment are true and correct and are incorporated into this
Amendment.
<PAGE> 2
2. The Note Purchase Agreement be and it is hereby amended as
follows:
a. The Form of Warrant attached as Exhibit B to the Note
Purchase Agreement (the "Original Warrant") shall be
replaced in its entirety with the Form of Warrant
attached hereto as Exhibit "A" the ("Replacement
Warrant").
b. The word "charter" in Section 4.10 is replaced with
"Articles of Incorporation".
c. In the third sentence of Section 12(i)(1) beginning
with "Notwithstanding", the first "Company" is
replaced with the word "contrary".
d. In the second full paragraph under Section 13.1
beginning with the word "Prior", the phrase "and
there shall be no right of first refusal with respect
to an event that would be First Liquidity Event", is
hereby inserted at the end thereof.
e. Section 14.1 of the Note Purchase Agreement shall be
replaced in its entirety with the following:
Exchange of Warrants. For each Fifty-Thousand Dollar
($50,000) purchase of the Notes the Purchaser shall
receive a Warrant to purchase up to Fifty-Thousand
($50,000) worth of securities of the Company. At any
time after the date hereof to and including the
earlier of (i) December 19, 2003, and (ii) five years
from the closing date of an initial public offering
of the Company; Common Stock, subject to the terms
hereof, each Warrant shall be exchangeable by the
holder thereof. The Warrant shall initially be
exchangeable for 10,549 shares of Common Stock,
potentially increasing to up to 12,500 shares of
Common Stock so that the Purchaser will have the
right to purchase an aggregate of $50,000 worth of
Common Stock of the Company at an exchange price of
between $4.00 and $4.74 per share of Common Stock, as
hereinafter determined, or in a cashless exchange for
a reduced number of shares (the "Net Issuable
Exchange"), as determined by Section 9 of the
Warrant. The Warrant will be exchangeable upon
surrender of the Warrant to the Company at its
principal office in Florida at any time during usual
business hours, accompanied, if the Company so
requires, by an instrument or instruments of transfer
in form satisfactory to the Company and duly executed
by the holder of the Warrant. The Warrant will
expire on the earlier of (i) 5:00 p.m. on December
19, 2003 (or (ii) five years from the date of any
initial public offering by the Company, if not
exchanged by such date. Should the offering price of
the Company's Common Stock in an initial public
offering be less than
-2-
<PAGE> 3
$9.48 per share, then the Warrant exchange price
shall become one-half of that initial offering price,
but not less than $4.00 per share, subject to Section
14.3. Should the Market Price per share of Common
Stock as defined herein be less than $9.48 at the
time of any First Liquidity Event other than an IPO,
then the exercise price for the stock shall become
one-half of that Market Price per share on such date,
but not less than $4.00 per share, subject to Section
14.3.
f. In the lead in sentence in Section 14.3 of the Note
Purchase Agreement shall be replaced in its entirety
with the following:
The exchange price and the number of shares issuable
upon exchange shall, in addition to the preceding
paragraph 14.1, be subject to adjustment as follows
in the event the Company issues or is deemed to have
issued shares at less than the current exchange
price:
g. In Section 14.3(a) the words ", which is set as $4.74
as of the date hereof" are inserted after the word
"effect".
h. Section 14.3(c) of the Note Purchase Agreement shall
be replaced in its entirety with the following:
No adjustment of the exchange price shall be made as
a result of or in connection with any Approved
Transfer as defined in Section 13.1.
i. Section 21.2 of the Note Purchase Agreement shall be
replaced in its entirety with the following:
The Exchange Formula. In a Net Issuable Exchange,
the formula for determining the number of shares of
Common Stock to be received in exchange for a
Warrant shall be determined as provided in Section 9
of the Form of Warrant attached as Exhibit B.
j. Section 21.7 of the Note Purchase Agreement shall be
replaced in its entirety with the following:
Market Price. The Market Price of shares of stock
of the Company shall be determined as set forth in
Section 4(g) of the Form of Warrant attached as
Exhibit B.
-3-
<PAGE> 4
3. Except as expressly amended or modified by this Amendment, the
Note Purchase Agreement shall continue to be and shall remain in full
force and effect and the terms defined in the Note Purchase Agreement
shall have the same respective meanings when used herein.
4. Each Original Warrant issued by the Company to the Purchaser
shall be exchanged by the Purchasers for the Replacement Warrants
issued by the Company upon receipt of the Original Warrant from the
Purchaser. In the event that any Original Warrant is not returned to
the Company by a Purchaser within a reasonable period of time, then
the Company shall have the right to cancel the Original Warrant and
issue the Purchaser a Replacement Warrant.
5. This Amendment may be executed in separate counterparts and
such counterparts taken together shall be deemed to constitute one and
the same instrument.
IN WITNESS WHEREOF, VISION 21, INC. and each of the Purchasers have
duly executed this Amendment as of April 18, 1997.
VISION 21, INC.
By:/s/ Theodore N. Gillette
-----------------------------
-----------------------------
(Please Print Name)
Title: President
--------------------------
[THIS SPACE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 5
PURCHASER:
------------------------------------
By:
---------------------------------
------------------------------------
(Please Print Name)
Title:
------------------------------
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE> 6
EXHIBIT "A" TO AMENDMENT NO. 1
TO NOTE PURCHASE AGREEMENT DATED DECEMBER 20, 1996
EXHIBIT B - FORM OF STOCK PURCHASE WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF VISION 21, INC.
WARRANT NO.
------
THIS CERTIFIES THAT, for value received, ____________________________
(herein called "Purchaser"), or its registered assigns, is entitled to
subscribe for and purchase from Vision 21, Inc. (hereinafter called the
"Company"), a corporation organized and existing under the laws of the State
of Florida, at the price specified below (subject to adjustment as noted below)
at any time after the date hereof to and including the earlier of (i) December
19, 2003 and (ii) five years from the closing date of an initial public
offering ("IPO") of the Company's Common Stock (the "Expiration Date") Ten
Thousand Five Hundred Forty-Nine (10,549) fully paid and nonassessable shares
of the Company's Common Stock (hereinafter the "Common Stock") as provided
herein (subject to adjustment as noted below). This Warrant has been issued
pursuant to a Note Purchase Agreement dated as of December 20, 1996 and
amended April 18, 1997 (the "Note Purchase Agreement") between the Purchaser
and the Company and entitles the Purchaser to purchase $50,000 of Common Stock
of the Company. The applicable provisions of the Note Purchase Agreement are
incorporated herein by reference and to the extent that there is any
inconsistency between the Note Purchase Agreement and this Warrant, the terms
of the Note Purchase Agreement shall prevail. All capitalized terms not
otherwise defined in this Warrant shall have the same meaning as defined in
the Note Purchase Agreement.
For purposes of this Warrant, the term "Capital Stock" shall mean and
include the Company's presently authorized Common Stock and shall also include
any capital stock of any class of this Company, including preferred stock, and
any securities convertible or exchangeable into shares of the Company's Common
Stock or preferred stock.
This Warrant shall initially be exchangeable for 10,549 shares of
Common Stock, potentially increasing to up to 12,500 shares of Common Stock so
that the Purchaser will have the right to purchase an aggregate of $50,000
worth of Common Stock of the Company at an exchange price of between $4.00 and
$4.74 per share of Common Stock (the "Warrant Exchange Price"), as hereinafter
determined, or in a cashless exchange for a reduced number of shares (the "Net
Issuable Exchange"), as determined by section 9 of this Warrant. Should the
offering price of the Company's Common Stock in an initial public offering be
less than $9.48 per share, then the Warrant Exchange Price shall become
one-half of that initial offering price, but not less than $4.00 per share,
subject to section 4 below. Should the Market Price per share of Common Stock
as defined herein be less than $9.48 at the time of any First Liquidity Event
other than an IPO, then the exercise price for the stock shall become one-half
of that Market Price per share on such date, but not less than $4.00 per share,
subject to section 4 below.
B-1
<PAGE> 7
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise delivered to
the Company 20 days prior to the intended date of exercise and by the surrender
of this Warrant (properly endorsed if required) and payment of the Warrant
Exchange Price at the principal office of the Company. The Company agrees that
the shares so purchased shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for
such shares as aforesaid. Subject to the provisions of the next succeeding
paragraph, certificates for the shares of stock so purchased shall be delivered
to the holder hereof as promptly as practicable, after the rights represented
by this Warrant shall have been so exercised, and, unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with respect
to which this Warrant shall not then have been exercised shall also be
delivered to the holder hereof as promptly as practicable.
2. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for shares of stock upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. The Company represents and warrants that this Warrant has been
duly authorized by all necessary corporate action, has been duly executed and
delivered and is a legal and binding obligation of the Company. The Company
covenants and agrees that all shares which may be issued upon the exercise of
the rights represented by this Warrant according to the terms hereof or
represented by the Common Stock to be issued pursuant to the Warrant will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
4. The Warrant Exchange Price and the number of shares issuable
upon exchange shall, in addition to the above paragraphs, be subject to
adjustment as follows in the event the Company issues or is deemed to have
issued shares at less than the current exchange price:
(a) For the purposes of this section 4(a), the term "current
exchange price" is defined as meaning at any given time the Warrant Exchange
Price then in effect, which is set as $4.74 as of the date hereof; and the term
"current quotient" is defined as meaning on any given date the amount
determined at the close of business on such day by dividing:
(1) An amount equal to (A) the total number of shares of
Common Stock outstanding when the current exchange price became effective,
exclusive of any such shares
B-2
<PAGE> 8
which may have been issued after the date hereof as provided in this section
4(a), multiplied by the current exchange price, plus (B) the aggregate of the
amounts of all consideration, if any, received by the Company, (or, without
duplication, deemed to be received as provided in paragraph (viii) below) upon
all issuances of shares of Common Stock since the current exchange price became
effective and prior to the time of the determination of the current quotient
except shares of Common Stock issued as provided in Subdivision (c) hereof; by
(2) The total number of shares of Common Stock
outstanding immediately prior to the time of such determination, including any
such shares deemed to have been issued as provided in paragraph (viii) below
but excluding any such shares which may have been issued as provided in this
section 4(a). For the purposes of this paragraph, the Warrant Exchange Price
of $4.74 shall be deemed to have become effective at the close of business on
the date of this Warrant. In determining the current quotient, the result
shall be expressed to the nearest cent.
If at the close of business on any date after the date of this Warrant
on which any adjustment event hereunder takes place, the current exchange price
exceeds the current quotient by as much as one percent of the then effective
Warrant Exchange Price, the Warrant Exchange Price shall be reduced to the
price equal to the current quotient, effective at the close of business on such
date. In such case of a subdivision or combination of the outstanding shares
of Common Stock issuable upon exchange of the Warrant, the Warrant Exchange
Price shall be first reduced, effective immediately prior to an adjustment of
the Warrant Exchange Price pursuant to this section 4, by the amount, if any,
by which the current exchange price exceeds the current quotient.
For the purposes of this section 4, the following provisions shall
also be applicable:
i) If additional shares of Common Stock are issued for cash, the
consideration received by the Company therefor shall be deemed to be the amount
of cash received by the Company for such shares, before deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such shares.
ii) If additional shares of Common Stock are issued (otherwise
than upon the exchange of the Company's obligations or shares of stock or upon
the exchange of rights or options to subscribe for or to purchase shares of
Common Stock) for a full or partial consideration other than cash, the amount
of the non-cash consideration received by the Company for such shares shall be
deemed to be the value of such consideration as determined in good faith by the
Company's Board of Directors.
iii) If additional shares of Common Stock are issued upon
conversion or exchange of any obligations (including the Notes) or of any
shares of the Company's stock that are convertible into or exchangeable for
shares of Common Stock or upon the exchange of rights or options to subscribe
for or to purchase shares of Common Stock, the amount of the consideration
received by the Company for such additional shares of Common Stock shall be
deemed to be the total of:
B-3
<PAGE> 9
(a) the amount of consideration received by the Company upon the original
issuance of such obligations, shares, rights, or options, plus (b) any other
consideration received by the Company upon conversion, or exchange except in
adjustment of interest and dividends. If obligations, shares, rights, or
options, of the same class or series of a class as the obligations, shares,
rights, or options so converted, or exchanged have been originally issued for
different amounts of consideration, the amount of consideration received by the
Company upon the original issuance of each obligation, share, right, or option
so converted, or exchanged shall be deemed to be the average amount of the
consideration received by the Company upon the original issuance of all such
obligations, shares, rights, or options. The amount of the consideration,
obligations, shares, rights, or options so converted, or exchanged and the
amount of any other consideration received by the Company upon the original
issuance of the obligations, shares, rights, or options so converted, or
exchanged and the amount of any other consideration, received by the Company
upon such conversion, or exchange shall be determined in the same manner
provided in paragraphs (i) and (ii) above with respect to the consideration
received by the Company in case of the issuance of additional shares of Common
Stock. If such obligations, shares, rights, or options have been issued as a
dividend upon any stock of the Company, the amount of the consideration
received by the Company upon the original issuance thereof shall be deemed to
be zero.
iv) If additional shares of Common Stock are issued as a
dividend, the aggregate number of shares of Common Stock issuable in payment of
such dividend shall be deemed to have been issued and to be outstanding at the
close of business on the record date fixed for the determination of
stockholders entitled to such dividend. Shares of Common Stock issued
otherwise than as a dividend shall be deemed to have been issued and to be
outstanding at the close of business on the date of issue.
v) The term dividend shall mean a dividend or other distribution
upon stock of the Company.
vi) The number of shares of Common Stock at any time outstanding
shall not include all shares of Common Stock then owned or held by or for the
account of the Company.
vii) If the Company declares a dividend without fixing a record
date for determining the stockholders entitled thereto, the first business day
during which the Company's stock transfer books are closed for the purpose of
such determination shall be deemed to be the record date fixed for the
determination of stockholders entitled to such dividend.
viii) In case of (a) the issuance of shares of stock or obligations
convertible into or exchangeable for shares of Common Stock at an exchange
price per share less than the current exchange price in effect immediately
prior to the issuance of such convertible stock or obligations, or (b) the
issuance of any rights to subscribe for or to purchase, or any options for the
purchase of, additional shares of Common Stock, at a price per share for the
additional shares of Common Stock issuable upon the exchange of such rights or
options less than the current exercisable price in effect immediately prior to
the issuance of such rights or the granting of such
B-4
<PAGE> 10
options, then the issuance of such stock, obligations, rights, or options shall
be deemed to be an issuance (as of the date of issuance of such stock,
obligations, rights, or options) of the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such convertible
stock or obligations or upon the exchange of all such rights or options, as the
case may be. In such case, the amount received or receivable by the Company in
consideration of the issuance of such stock, obligations, rights, or options
(plus the minimum aggregate amount of premium or additional consideration
payable to the Company upon conversion or exchange of the stock or obligations
or upon the exchange of such rights or options) before deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such stock,
obligations, rights or options, shall be deemed to be the consideration
actually received (as of the date of issuance of such rights or options) for
the issuance of the additional shares of Common Stock.
The Consideration actually received by the Company for any shares of
Common Stock issued upon the exchange of such stock or obligations or upon the
exchange of such rights or options, which pursuant to this paragraph (viii) is
deemed to have been received, shall not be included in the (first paragraph of
this section 4(a) for the purpose of computing the current quotient and no
further adjustment of the exchange price shall be made in respect thereof
except that:
a) On the expiration of such rights or options or the
termination of the right to convert or exchange such stock or obligations, the
current quotient and the current exchange price shall forthwith be readjusted
to the current quotient and current exchange price which would have obtained
had the adjustments made on account of the issuance of such options, rights or
convertible or exchangeable securities been made upon the basis of the delivery
of only the number of shares of Common Stock actually delivered upon the
exchange of such rights or options or upon conversion or exchange of such
securities for the consideration actually received by the Company for such
options, rights or securities and upon the exchange, exchange or conversion
thereof; and
b) If the purchase or exchange price or exchange rate
provided for in any such options, rights, stock, or obligations changes or a
different purchase or exchange price or exchange rate becomes effective at any
time or from time to time (other than under or by reason of provisions
designated to protect against dilution) then, upon such change becoming
effective, the current quotient and current exchange price then in effect
hereunder shall forthwith be increased or decreased to such current quotient
and current exchange price as would have obtained had the adjustments made upon
the issuance of such options, rights or convertible or exchangeable securities
been made upon the basis of (A) the issuance of the number of shares of Common
Stock theretofore actually delivered upon the exchange, conversion or exchange
thereof, (B) the issuance of all Common Stock and all other options, rights or
convertible or exchangeable securities issued after the issuance of such
options, rights or convertible or exchangeable securities, and (C) the original
issuance at the time of such exchange of any such options, rights or
convertible or exchangeable securities then still outstanding.
B-5
<PAGE> 11
In case, however, such stock or obligations are convertible or
exchangeable at an exchange price or exchange rate or such rights or options
are exercisable at a purchase price per share equal to or in excess of the
current exchange price immediately prior to the issuance or sale of such
convertible stock or obligations or of such rights or options, then no
adjustment of the exchange price shall be made except in respect of additional
shares of Common Stock actually issued upon the conversion or exchange of any
such convertible stock or obligations or upon the exchange of any such rights
or options.
ix) No adjustment in the Warrant Exchange Price shall be made in
respect of the issuance or sales of Common Stock held in the Company's treasury
to the extent it acquired such Common Stock after the date of this Warrant,
except that if any such treasury shares are issued or sold for a consideration
per share which is less than the Warrant Exchange Price in effect immediately
prior to such issue or sale and which is less than the average cost per share
of such treasury shares, the Company shall be deemed for purposes of this
section 4, to have issued or sold shares of Common Stock equal in number to
such treasury shares for a consideration per share equal to the Warrant
Exchange Price in effect immediately prior to such issue or sale reduced by the
amount by which such average cost of such treasury share exceeds such
consideration per share.
(b) In case the Company at any time subdivides or issues a stock
dividend upon the outstanding shares of Common Stock the Warrant Exchange Price
in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the Warrant Exchange
Price in effect immediately prior to such combination shall be proportionately
increased. Any such adjustment shall become effective at the close of business
on the date that such subdivision, stock dividend or combination becomes
effective.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including without
limitation provisions for adjustments of the Warrant Exchange Price and of the
number of shares purchasable upon the exercise of this Warrant) shall
thereafter be
B-6
<PAGE> 12
applicable as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall
not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume, by written instrument executed and mailed to the
registered holder hereof at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase.
(d) Upon any adjustment of the Warrant Exchange Price, then and in
each such case the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company, which notice
shall state the warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
(e) In case any time:
(1) the Company shall declare any cash dividend on its
capital stock at a rate in excess of the rate of the last cash
dividend theretofore paid;
(2) the Company shall pay any dividend payable in stock
upon its capital stock or make any distribution (other than regular
cash dividends) to the holders of its capital stock;
(3) the Company shall offer for subscription pro rata to
the holders of its capital stock any additional shares of stock of any
class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company.
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as
shown on the books of the Company, of the date on which (aa) the books
of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (bb) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, or conversion or redemption
shall take place, as the case may be. Such notice shall also specify
the date
B-7
<PAGE> 13
as of which the holders of capital stock of record shall participate
in such dividend, distribution or subscription rights, or shall be
entitled to exchange their capital stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
or conversion or redemption, as the case may be. Such written notice
shall be given at least 20 days prior to the action in question and
not less than 20 days prior to the record date or the date on which
the Company's transfer books are closed in respect thereto.
(f) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this section 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant in accordance with the essential
intent and principles of such provisions, then the Board of Directors shall
make an adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as to protect such purchase rights as
aforesaid. In addition, if the Company issues any shares of Common Stock other
than for an Approved Transfer (as defined herein) at a price less than the
then-current exchange price as defined herein, then the Warrant Exchange Price
shall be adjusted as provided in this section 4.
(g) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon such
exercise) in respect of such fraction in an amount equal to the same fraction
of the Market Price per share of Common Stock as of the close of business on
the date of the notice required by paragraph 1 above. "Market Price" shall
mean, if the Common Stock is traded on a securities exchange or on the Nasdaq
National Market or Nasdaq SmallCap Market, the average of the closing prices of
the Common Stock on such exchange or on the Nasdaq National Market or Nasdaq
SmallCap Market on the 10 trading days ending on the trading day prior to the
date of determination, or, if the Common Stock is otherwise traded in the
over-the- counter market, the average of the closing bid prices on the 10
trading days ending on the trading day prior to the date of determination. If
at any time the Common Stock is not traded on an exchange or on the Nasdaq
National Market or Nasdaq SmallCap Market or otherwise traded in the
over-the-counter market, then the Market Price shall be deemed to be the
average closing prices or average closing bid prices of the Common Stock, as
the case may be, or, if such exercise occurs in connection with a public
offering of the Common Stock, the public offering price of the Common Stock. If
at any time the Common Stock is not traded on an exchange or the or on the
Nasdaq National Market or Nasdaq SmallCap Market or otherwise traded in the
over-the-counter market the Market Price shall be deemed to be the higher of
(i) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within 60 days preceding the
date as of which the determination is to be made, or (ii) the fair value
thereof determined in good faith by the Board of Directors of the Company as of
a date which is within 15 days of the date as of which the determination is to
be made.
B-8
<PAGE> 14
(h) No adjustment of the Warrant Exchange Price shall be made as a
result of or in connection with (i) shares issued in acquisitions to be made by
the Company, (ii) shares issued in establishing a strategic alliance, (which
includes any financial and lending arrangements with Prudential Securities
Incorporated ("Prudential"), or any affiliates or assigns thereof on terms
substantially similar to those set forth on Schedule 13.1 to the Note Purchase
Agreement), or (iii) for option shares issued to employees, contractors,
consultants or affiliated physicians approved by the Board of Directors and
pursuant to previous option grants or Warrants disclosed on the attached
Schedule 13.1 to the Note Purchase Agreement or related to future options
granted where shares issued are at a price equal to or higher than the current
exchange price as defined herein, ("Approved Transfers").
(i) The issuance of certificates for shares of Common Stock upon
the exchange of Warrants shall be made without charge to the Warrant holders
for any tax (other than federal or state income taxes) in respect to the
issuance of such certificates. Such certificates shall be issued in the
respective names of, or in the names directed by, the holder of the Warrant
exchanged. Company, however, shall not be required to pay any tax which may be
payable in respect to any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the holder of the Warrants
exchanged, or to issue or deliver such certificates until the person or persons
requesting the issuance thereof have paid the Company the amount of such tax or
have established to the satisfaction of the Company that such tax has been
paid.
5. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company. Unless otherwise
provided in the Note Purchase Agreement, no dividends are, or should be
payable, or shall accrue on or with respect to this Warrant or any interest
represented by this Warrant or on the shares purchasable upon exercise hereof
until or unless, and except to the extent that this Warrant is exercised.
6. The holder of this Warrant, by acceptance hereof, agrees to
give written notice to the Company before transferring this Warrant or
transferring any Common Stock issuable or issued upon the exercise hereof of
such holder's intention to do so, describing briefly the manner of any proposed
transfer of this Warrant or such holder's intention as to the disposition to be
made of shares of Common Stock issuable or issued upon the exercise hereof. In
addition the holder of this Warrant shall represent in such notice to the
Company that a copy of the Note Purchase Agreement has been provided to any
proposed transferree(s). Such holder shall also provide the Company with an
opinion of counsel satisfactory to the Company to the effect that the proposed
transfer of this Warrant or disposition of shares may be effected without
registration or qualification (under any Federal or State law) of this Warrant
or the shares of Common Stock issuable or issued upon the exercise hereof.
Upon receipt of such written notice and opinion by the Company, such holder
shall be entitled to transfer this Warrant, or to exercise this Warrant in
accordance with its terms and dispose of the shares received upon such exercise
or to dispose of shares of Common Stock received upon the previous exercise of
this Warrant, all in accordance with the terms of the notice delivered by such
holder to the Company, provided that an appropriate legend respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant or the certificates for such shares.
B-9
<PAGE> 15
7. Subject to the provisions of paragraph 6 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, at the
principal office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered holder hereof as the owner for
all purposes.
8. If permitted by federal and state securities laws, this
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the right to subscribe for and purchase the number of shares
which may be subscribed for and purchased hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number of shares as
shall be designated by said holder hereof at the time of such surrender.
9. (a) In addition to and without limiting the rights of the
holder of this Warrant under the terms of this Warrant the holder of this
Warrant shall have the right (the "Conversion Right") to convert this Warrant
or any portion thereof into shares of Common Stock as provided in this
paragraph 9 at any time or from time to time prior to its expiration. Upon
exercise of the Conversion Right with respect to a particular number of shares
subject to this Warrant (the "Converted Warrant Shares"), the Company shall
deliver to the holder of this Warrant, without payment by the holder of any
exercise price or any cash or other consideration, that number of shares of
Common Stock equal to the quotient obtained by dividing the Net Value (as
hereinafter defined) of the Converted Warrant Shares by the fair market value
(as defined in paragraph (c) below) of a single share of Common Stock,
determined in each case as of the close of business on the Conversion Date (as
hereinafter defined). The "Net Value" of the Converted Warrant Shares shall be
determined by subtracting the aggregate Warrant Exchange Price of the Converted
Warrant Shares from the aggregate fair market value of the Converted Warrant
Shares. No fractional shares shall be issuable upon exercise of the
Conversion Right and if the number of shares to be issued in accordance with
the foregoing formula is other than a whole number, the Company shall pay to
the holder of this Warrant an amount in cash equal to the fair market value of
the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of this
Warrant by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in paragraph (a) above as
the Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement or on such later date as is
specified therein (the "Conversion Date"), but not later than the expiration
date of this Warrant. Certificates for the shares of Common
B-10
<PAGE> 16
Stock issuable upon exercise of the Conversion Right together with a check in
payment of any fractional share and, in the case of a partial exercise, a new
warrant evidencing the shares remaining subject to this Warrant shall be issued
as of the Conversion Date and shall be delivered to the holder of this Warrant
within 15 days following the Conversion Date.
(c) For purposes of this paragraph 9, the "fair market value" of a
share of the Common Stock as of a particular date shall be its Market Price,
calculated as described in paragraph 4(g) hereof.
10. The holder of this Warrant shall have no registration rights
except for the registration rights specified in the Note Purchase Agreement.
11. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law, not the law of
conflicts, of the State of Florida.
B-11
<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer and this Warrant to be dated as of April 18,
1997.
VISION 21, INC.
By
---------------------------------------
Its
------------------------------------
RESTRICTION ON TRANSFER
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended, or the securities laws of any state and may
not be transferred without (i) the opinion of counsel satisfactory to this
corporation that such transfer may be lawfully made without registration under
the Federal Securities Act of 1933 and all applicable state securities laws or
(ii) such registration."
B-12
<PAGE> 1
EXHIBIT 4.7
VISION 21, INC.
NOTE PURCHASE AGREEMENT
DATED: FEBRUARY 28, 1997
10% SENIOR SUBORDINATED SERIES 1997 NOTES DUE DECEMBER 19, 1999
(DETACHABLE WARRANTS EXCHANGEABLE INTO COMMON STOCK)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C>
ARTICLE 1 - Authorizations of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 - Issuance and Sale of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 3 - Agreements with Purchasers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 4 - Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.2 Description of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.3 No material adverse change in financial condition or affairs . . . . . . . . . . . . . . . . . . . . 2
4.4 Tax returns and payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.5 No default on other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.6 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.7 Compliance with applicable laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4.8 Litigation, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.9 Adverse developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.10 Compliance with other instruments; none burdensome . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.11 No stockholder or governmental consent required . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.12 Offering of notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4.14 Authorization, execution and delivery of notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.15 Representations and warranties of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.16 Representations and warranties as to acquired businesses . . . . . . . . . . . . . . . . . . . . . . 4
4.17 Contracts and Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.18 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 5 - Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.1 Representations and warranties correct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.2 Reservation of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.3 No default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.4 Sale and delivery of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.5 Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.6 Compliance certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.7 Opinion of Company's Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.8 Authorizing Resolutions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.9 Charter Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5.10 Legality of investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.11 Proceedings and documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 6 - Purchase for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 7 - Accounting; Financial Statements and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 8 - Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 9 - Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.1 Prepayment without penalties or premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9.2 Notations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 10 - Insurance of Properties and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 11 - Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 12 - Agreement to Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE 13 - First Right of Refusal and Co-Sale Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.1 Purchase right of first refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
13.2 Co-sale rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 14 - Provisions Respecting Exchange of Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.1 Exchange of Warrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.2 Issuance of common stock upon exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.3 Adjustment to exchange price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
14.4 Fractional shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
14.5 Effect of reclassifications, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.6 Company to reserve stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.7 No dilution or impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.8 Taxes on exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
14.9 Notices of record date, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 15 - Transfers Not Registered Under Securities Act of 1933 . . . . . . . . . . . . . . . . . . . . . . . . . 23
15.1 Restrictive legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
15.2 Notice of proposed transfer, opinions of counsel . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 16 - Registration, Transfer, and Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 17 - Replacement of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 18 - Events of Default; Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 19 - Subordination of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE 20 - Remedies on Default, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE 21 - Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21.1 Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21.2 The Exchange Formula . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
21.3 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21.4 First Liquidity Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21.5 Generally accepted accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21.6 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21.7 Market Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.8 Net Issuable Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.9 Officer's certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.10 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.11 Public offering of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.12 Senior Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
21.13 Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 22 - Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE 23 - Survival of Agreements, Representations, and Warranties, etc. . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 24 - Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 25 - Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 26 - Home Office Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 27 - Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Exhibit A - Form of 10% Senior Subordinated Series 1997 Note, due December 19, 1999 . . . . . . . . . . . . . . . . . 1
Exhibit B - Form of Stock Purchase Warrant To Subscribe for and Purchase
Common Stock of Vision 21, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exhibit C - Form of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exhibit D - Form of Opinion of Shumaker, Loop & Kendrick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Schedule 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Schedule 4.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Schedule 4.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Schedule 4.15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Schedule 4.16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Schedule 4.17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Schedule 13.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
Schedule 19(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SUBSCRIPTION FORM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
<PAGE> 6
VISION 21, INC.
7209 BRYAN DAIRY ROAD
LARGO, FLORIDA 34647
<TABLE>
<S> <C>
[Name and Address of each
Purchaser; see SCHEDULE 1] February 28, 1997
</TABLE>
Dear Sirs:
Vision 21, Inc., a Florida corporation (the "Company"), agrees with
you as follows:
ARTICLE 1 - AUTHORIZATIONS OF NOTES
The Company has authorized the issue of up to $2,000,000 aggregate
principal amount of its 10% Senior Subordinated Series 1997 Notes due December
19, 1999 ("the Note"), such term to include all Notes issued in exchange
therefor or in replacement thereof substantially in the form attached as
EXHIBIT A. There shall be attached to each Note a detachable warrant
exchangeable into Common Stock of the Company which expires and becomes null
and void on December 19, 2003, substantially in the form attached as EXHIBIT B
hereto ("Warrant"), such term to include all warrants issued in exchange
therefor or in replacement thereof, exchangeable for shares of Common Stock of
the Company.
ARTICLE 2 - ISSUANCE AND SALE OF NOTES
The Company agrees to sell to Piper Jaffray Healthcare Fund II Limited
Partnership (the "Purchaser") and, subject to the terms and conditions herein
set forth, Purchaser agrees to purchase from the Company, a Note in the
principal amount set forth opposite Purchaser's name in SCHEDULE 1 hereto.
Such purchase and delivery of the Note shall be made concurrent with this Note
Purchase Agreement or at a time to be mutually agreed upon in writing (either
of which shall be the "Closing Time" for such purchase). At Closing Time, the
Company will deliver to Purchaser the Note to be purchased by you against
payment of the purchase price thereof by certified or official bank check or
wire transfer (at the election of the Company) payable to the order of Company
in same day U.S. funds. Such purchase price shall be an amount equal to 100
percent of the principal amount of the Note. The Note shall be dated as of the
Closing Time and payable to Purchaser as the purchaser thereof.
ARTICLE 3 - AGREEMENTS WITH PURCHASERS
The Company and Purchaser acknowledge that the Note is substantially
similar to $1,250,000 in principal of 10% Senior Subordinated Notes and
Detachable Warrants Exchangeable into Common Stock issued in December, 1996,
pursuant to the Note Purchase Agreement dated December 20, 1996 (the "December
1996 Notes). The Note Purchase Agreement dated December 20, 1996 provides the
holder of such Notes and Detachable Warrants with a right of first refusal or
to subsequent issuances of Common Stock of the Company, which right f first
refusal has been waived in connection with the transaction contemplated by this
Agreement.
1
<PAGE> 7
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1 Organization. The Company is and at Closing Time will be a
Corporation duly organized and validly existing and in good standing under the
laws of the State of Florida with all requisite corporate power and authority
to own and operate its properties and to carry on its business as now
conducted; the Company has and at Closing Time will have all requisite
corporate power and authority to enter into this agreement, to issue the Notes,
to issue the Warrants, to issue its Common Stock upon exchange of any Warrants,
and to carry out the terms hereof and thereof. The Company is the 100% owner
of its subsidiaries listed on SCHEDULE 4.1 hereto, each of which is duly
organized and validly existing and in good standing under the laws of the
jurisdiction of each incorporation and each has the requisite corporate power
and authority to own and operate its properties and carry on its business as
now conducted.
4.2 Description of business. The Confidential Offering Circular
of the Company of December 1996, and an Offering Circular Supplement dated
February 28, 1997, have heretofore been furnished to Purchaser by the Company
on or before the date of this Agreement. Such Offering Circular and Offering
Circular Supplement hereinafter referred to as the Memorandum, constitutes a
description of its business and properties, its Subsidiaries and its
acquisition and growth plans.
4.3 No material adverse change in financial condition or affairs.
There has not been any substantial material adverse change in the assets,
liabilities, financial condition or affairs of the Company, its Subsidiaries,
and the acquired businesses and assets ("Acquired Businesses") considered as a
single enterprise from that set forth or reflected in the Memorandum, except as
set forth in SCHEDULE 4.3 hereto.
4.4 Tax returns and payments. All required tax returns and
reports of the Company and its Subsidiaries have been duly filed, and all
taxes, assessments, fees, and other governmental charges upon the Company and
its Subsidiaries or upon any of their respective properties, assets, income,
which are due and payable, have been paid, other than those presently payable
without penalty or interest.
4.5 No default on other debt. Neither the Company nor any
Subsidiary is in default with respect to the payment of any Indebtedness as
defined herein or other observance of any covenant or condition set forth in
any instrument or agreement relating thereto and which would enable the
creditor to accelerate the maturity of its Indebtedness, which would be
material to the Company's business or financial condition.
4.6 Leases. The Company and its Subsidiaries and Acquired
Businesses enjoy peaceful and undisturbed possession under all material leases
under which they are lessees, all such leases are valid and binding obligations
of the lessors, and such lessors have title in fee simple to the properties
leased.
4.7 Compliance with applicable laws. The Company and its
Subsidiaries and Acquired Businesses are in material compliance insofar as is
required with all applicable laws that are necessary for the combined entity to
operate its businesses as described in the Memorandum. Notwithstanding the
foregoing, the Company is in the process of obtaining licenses with respect to
the applicability of laws relating to third party administrators in certain
states as well as obtaining a license with respect to employee leasing in
Florida.
2
<PAGE> 8
4.8 Litigation, etc. There are no actions, proceedings, or
investigations pending or to the best of the Company's knowledge, threatened
which, either individually or in the aggregate, might result in any material
adverse change in the business, prospects, condition, affairs, or operations of
the Company and its Subsidiaries and Acquired Businesses considered as one
enterprise, or in any of their properties or assets, or in any material
impairment of the right or ability of the Company and its Subsidiaries,
considered as one enterprise, to carry on operations as now conducted or in any
material liability by the Company and its Subsidiaries and Acquired Businesses,
considered as one enterprise, and there are no such actions, proceedings, or
investigations which question the validity of this Agreement or of the Notes or
Warrants or any action taken or to be taken in connection herewith or
therewith.
4.9 Adverse developments. Except to the extent, if any, disclosed
herein, since the date of the Memorandum, neither the business, prospects,
condition, affairs, or operations of the Company and its Subsidiaries and
Acquired Businesses considered as one enterprise, or any of their respective
properties or assets, have been materially adversely affected in any way as a
result of any legislative or regulatory change or any revocation of license or
right to do business, or any fire, explosion, flood, drought, windstorm,
earthquake, accident, casualty, labor trouble, riot, condemnation, requisition,
embargo, act of God or of the public enemy or of armed forces, or otherwise,
whether or not insured against.
4.10 Compliance with other instruments; none burdensome. Except to
the extent, if any, disclosed in the Memorandum neither the Company nor any
Subsidiary is in violation of any term of its Articles of Incorporation or
Bylaws or similar governing instrument, any mortgage, indenture, contract,
agreement, instrument, judgment, decree, order, statute, rule, or regulation,
the violation of which would have a material adverse affect on the Company, its
Subsidiaries, and Acquired Businesses considered as one enterprise; the
execution, delivery, and performance of and compliance with this agreement and
the Note will not result in any such violation of or constitute a default under
or be in conflict with any such term, or result in the creation of any
mortgage, lien, encumbrance, or charge upon any of the properties or assets of
the Company or any Subsidiary or Acquired Businesses pursuant to any such term;
and there is no such term which materially adversely affects or in the future
may (so far as the Company can now foresee) materially adversely affect the
business, prospects, condition, affairs, or operations of the Company and its
Subsidiaries or Acquired Businesses or any of their respective properties or
assets.
4.11 No stockholder or governmental consent required. No consent,
approval, or authorization by the holder of any shares of the Company's capital
stock or by any governmental authority is presently required in connection with
the execution and delivery of this agreement, or the offer, issue, sale, or
delivery of the Note, the issue of the Warrant, or the issue of Common Stock
upon exchange of the Warrant pursuant to this Agreement or the consummation of
any other transaction contemplated hereby other than the holder of the December
1996 Notes.
4.12 Offering of notes. Neither the Company nor anyone acting on
its behalf has directly or indirectly offered the Notes or the Common Stock
issuable upon exchange of a Warrant or any part thereof for sale to, nor has it
solicited any offer to buy any of the same from, anyone in a manner that would
be considered in violation of the Securities Act of 1933, as amended.
4.13 Disclosure. Neither any certificate nor any other statement
furnished to you in writing by or on behalf of the Company in connection with
the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
3
<PAGE> 9
statements contained therein not misleading. There is no fact known to the
Company which materially adversely affects or in the future may (so far as the
Company can now foresee) materially adversely affect the business, prospects,
condition, affairs, or operations of the Company and its Subsidiaries and
Acquired Businesses considered as one enterprise or their properties and assets
(considered as a whole).
4.14 Authorization, execution and delivery of notes. The Note and
Warrant (and shares exchangeable from the Warrant) have been duly and validly
authorized, and when executed and delivered in accordance with the provisions
of this Agreement will be the Company's valid obligations, legally binding upon
it in accordance with their terms, and entitled to the benefits of this
Agreement in accordance with the terms thereof, except as enforcement thereof
may be limited by bankruptcy, insolvency, or other laws affecting the
enforcement of creditors' rights.
4.15 Representations and warranties of the Company. The Company
represents that as of February 28, 1997, shareholders having rights to
immediate delivery of shares of the Company's Common Stock and common share
equivalents have rights to delivery of not more than those shares set forth on
SCHEDULE 4.15. The Company further represents that as of February 28, 1997,
all outstanding options and warrants of the Company's shares are described on
SCHEDULE 4.15.
4.16 Representations and warranties as to acquired businesses. The
above representations and warranties regarding the businesses acquired by the
Company in its roll-up of Founding Practices ("Acquired Practices") are limited
to the representations and warranties received by the Company from the Founding
Practices in such acquisitions and to the Company's knowledge. Attached hereto
as SCHEDULE 4.16 is a list of the businesses acquired by the Company.
4.17 Contracts and Commitments. Except as expressly contemplated
by this Agreement or referenced in any schedule to this Agreement, material
contracts, agreements or other arrangements to which the Company is a party and
the value of which exceeds $500,000 (the "Contracts"), are set forth in
SCHEDULE 4.17.
To the best knowledge of the Company, all of the Contracts are valid,
binding and enforceable in accordance with their respective terms, except (i)
as enforcement may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights in general and (ii) that the
enforceability of such obligations is subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). The Company has performed all material obligations required
to be performed by it under the Contracts and, except for any defaults relating
to the delivery of shares of the Company's stock which has been delayed pending
the receipt of all shareholder consents to the final adjusted share numbers
described in Schedule 4.15 of the Agreement and the purchase price and merger
consideration adjustments described in the acquisition agreements with the
founding practices, which have been delayed pending completion of the audit of
such founding practices' current accounts, is not in default under or in breach
of nor in receipt of any claim of default or breach under any Contract; no
event has occurred to the best knowledge of the Company which with the passage
of time or the giving of notice or both would result in a default, breach or
event of default under any Contract; and the Company has no knowledge of any
breach or anticipated breach by the other parties to any Contract. The
Contracts have been made available for inspection by the Purchaser.
4
<PAGE> 10
4.18 Closings. The Company represents that closings of Founding
Practices representing in excess of $30.0 million in practice revenues have
occurred.
ARTICLE 5 - CONDITIONS
Purchaser's obligations to purchase and pay for the Note to be
delivered at Closing Time is subject to the fulfillment, to Purchaser's
satisfaction before or at Closing Time, of the following conditions:
5.1 Representations and warranties correct. The Company's
representations and warranties contained in Article 4 or otherwise made in
writing by or on behalf of the Company in connection with the transactions
contemplated hereby shall have been materially correct when made and shall be
materially correct at and as of Closing Time, except as affected by the
transactions contemplated hereby.
5.2 Reservation of common stock. The Company shall have duly
authorized and reserved for issuance the shares of Common Stock issuable upon
the exchange of the Warrant.
5.3 No default. There shall not exist at Closing Time any
condition or event which constitutes an Event of Default as defined herein or
which, after notice or lapse of time or both, would constitute an Event of
Default.
5.4 Sale and delivery of Note. The Company shall have sold and
delivered to the Purchaser the Note to be acquired by it at Closing Time
pursuant to this Agreement and shall have received payment therefor.
5.5 Performance. The Company shall have performed and complied
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at Closing Time.
5.6 Compliance certificate. The Company shall have delivered to
Purchaser an Officer's Certificate, dated the date of Closing Time, certifying
as to the fulfillment of the conditions specified in this Article 5, Sections
5.1 to 5.5, inclusive.
5.7 Opinion of Company's Counsel. The Purchaser shall have
received from Shumaker, Loop & Kendrick, LLP, counsel for the Company, an
opinion substantially as set forth in EXHIBIT D attached hereto, subject to
certain assumptions, exceptions and qualifications, which shall be addressed to
the Purchaser and dated as of the Closing Date.
5.8 Authorizing Resolutions. The Purchaser shall have received
certified copies of resolutions duly adopted by the Company's Board of
Directors authorizing the execution, delivery and performance of this
Agreement, the Note and the Warrant and each of the other agreements
contemplated hereby, the issuance of the Note and Warrant, and all other
transactions contemplated by this Agreement.
5.9 Charter Documents. The Purchaser shall have received
certified copies of the Company's Articles of Incorporation and Bylaws, as
amended, each as in effect at the Closing Time (provided that facsimile copies
of the Articles of Incorporation may be delivered at Closing Time with
certified copies to follow).
5
<PAGE> 11
5.10 Legality of investment. The purchase of the Note at Closing
Time shall be permitted at Closing Time by the laws of the jurisdiction to
which Purchaser is subject and such acquisition shall not subject Purchaser to
any penalty or other onerous condition in or pursuant to any applicable law or
government regulation.
5.11 Proceedings and documents. All corporate and other proceedings
in connection with the transactions contemplated by this agreement and all
documents and instruments incident to such transactions shall be satisfactory
in form and substance to Purchaser and its counsel, and Purchaser and its
counsel shall have received all such counterpart originals or certified or
other copies of such documents requested by Purchaser or such counsel.
ARTICLE 6 - PURCHASE FOR INVESTMENT
Purchaser represents, and agrees in making this sale that: (a)
Purchaser is acquiring the Note, Warrant and the shares of Common Stock
issuable upon exchange of the Warrant, and (b) such Note, Warrant and Common
Stock are being acquired for the purpose of investment and not with a view to
or for sale in connection with any distribution thereof, provided, that the
disposition of Purchaser's property shall at all times be and remain within its
control. The consent of the holders of a majority in amount of the Note and
Warrant shall be required for any action which alters, changes or amends the
preferences, rights, or privileges of the Note and Warrant.
Purchaser represents and warrants that Purchaser is an "accredited
investor" as defined under the Securities Act of 1933 ("Securities Act") and
state "Blue Sky" laws. Purchaser also represents and warrants that Purchaser
shall be such an accredited investor at such time as the Warrant held by
Purchaser is exchanged.
Purchaser represents and warrants that the Note, Warrant and Shares of
Common Stock issuable upon exchange of any Warrant ("Securities") to be
acquired by Purchaser upon consummation of the transactions described in this
Agreement will be acquired by Purchaser for Purchaser's own account, not as a
nominee or agent, and without a view to resale or other distribution within the
meaning of the Securities Act and the rules and regulations thereunder, except
as contemplated in this Agreement, and that Purchaser will not distribute any
of the Securities in violation of the Securities Act. In addition, the
Securities shall bear any legend required by the securities or "Blue Sky" laws
of any state where Purchaser resides as well as any other legend deemed
appropriate by the Company or its counsel.
Purchaser represents and warrants that the address set forth below
Purchaser's name on SCHEDULE 1 is Purchaser's principal residence.
Purchaser (i) acknowledges that the Securities issued to Purchaser at
the Closing must be held indefinitely by Purchaser unless subsequently
registered under the Securities Act or an exemption from registration is
available, (ii) is aware that any routine sales of Securities made pursuant to
Rule 144 under the Securities Act may be made only in limited amounts and in
accordance with the terms and conditions of that Rule and that in such cases
where the Rule is not applicable, compliance with some other registration or
exemption will be required.
6
<PAGE> 12
Purchaser represents and warrants to the Company that Purchaser,
either alone or together with the assistance of Purchaser's own professional
advisor, has such knowledge and experience in financial and business matters
such that Purchaser is capable of evaluating the merits and risks of
Purchaser's investment in any of the Securities to be acquired by Purchaser
upon consummation of the transactions described in this agreement.
Purchaser confirms that Purchaser has received and read the Memorandum
of the Company. Purchaser also confirms that Purchaser has had the opportunity
to ask questions of and receive answers from the Company concerning the terms
and conditions of Purchaser's investment in the Securities, and the Purchaser
has received, to Purchaser's satisfaction, such additional information, in
addition to that set forth herein, about the Company's operations and the terms
and conditions of the offering as Purchaser has requested.
Purchaser also agrees that the certificates or instruments representing
the Securities to be issued to Purchaser pursuant to this Agreement may contain
a restrictive legend noting the restrictions on transfer and required by federal
and applicable state securities laws, and that appropriate "stop-transfer"
instructions will be given to the Company's transfer agent, if any, provided
that this Article 6 shall no longer be applicable to any Securities following
their transfer pursuant to a registration statement effective under the
Securities Act or in compliance with Rule 144 or if the opinion of counsel
referred to above is to the further effect that transfer restrictions and the
legend referred to herein are no longer required in order to establish
compliance with any provisions of the Securities Act.
Purchaser understands that although an Initial Public Offering is
contemplated by the Company, there are no assurances that an Initial Public
Offering will occur or if it does occur that it will be successful.
At all times following the registration of any of the Company's
securities under the Securities Act or the Securities Exchange Act of 1934 (the
"Exchange Act") pursuant to which the Company becomes subject to the reporting
requirements of the Exchange Act, the Company shall use commercially reasonable
efforts to comply with the requirements of Rule 144 under the Securities Act of
1933, as amended (the "Securities Act"), as such Rule may be amended from time
to time (or any similar rule or regulation hereafter adopted by the SEC)
regarding the availability of current public information to the extent required
to enable any holder of shares of Common Stock to sell such shares without
registration under the Securities Act pursuant to Rule 144 (or any similar rule
or regulation).
ARTICLE 7 - ACCOUNTING; FINANCIAL STATEMENTS AND OTHER INFORMATION
So long as any Note or Warrant remains outstanding, the Company will
maintain a system of accounting established and administered in accordance with
generally accepted accounting principles. The Company will deliver in
duplicate to Purchaser, so long as Purchaser holds the Note or Warrant:
(a) As soon as practicable after the end of each of the first
three quarterly fiscal periods in each fiscal year, and in any event within 45
days thereafter, a consolidated balance sheet of the Company and its
Subsidiaries as of the end of such period, consolidated statements of income
and retained earnings of the Company and its Subsidiaries for such period (and,
in the case of the second and third quarterly periods, for the period from the
beginning of the current fiscal year to the end of such quarterly period),
7
<PAGE> 13
and a consolidated statement of cash flows, all in reasonable detail and
certified as complete and correct in all material respects, subject to changes
resulting from year-end adjustments, by the Company's principal financial
officer.
(b) As soon as practicable after the end of each fiscal year, and
in any event within 120 days for the year ending December 31, 1996, within 90
days thereafter, commencing with the year ending December 31, 1997, a
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such year and consolidated statements of income and retained earnings of the
Company and its Subsidiaries for such year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail accompanied by an opinion of independent certified public accountants of
recognized national standing selected by the Company.
(c) Promptly upon receipt thereof, copies of all other reports
submitted to the Company by independent certified public accountants in
connection with any annual or interim audit of the books of the Company or any
of its Subsidiaries, made by such accountants in so far as they related
directly to financial statements submitted to Purchaser by the Company pursuant
to the agreement; and
(d) Promptly upon their becoming available, copies of
(1) All regular or periodic reports and filings
(including filings pursuant to the Securities Act or the Exchange Act), if any,
which the Company or any Subsidiary files with the Securities and Exchange
Commission or any governmental agency or agency substituted therefor, or any
similar or corresponding governmental department, commission, board, bureau or
agency, or with any national securities exchange; and
(2) All reports, proxy statements and financial
statements delivered or sent by the Company to its stockholders, provided,
however, that all material furnished pursuant hereto to the extent not
otherwise made public by the Company is furnished to Purchaser solely for the
purposes hereof and with the understanding that Purchaser will not disclose
such information to any third party, except for regulatory authorities and
other proper disclosures.
ARTICLE 8 - INSPECTION
So long as Purchaser holds the Note, the Company will permit any
authorized representative designated by Purchaser to visit and inspect, at
Purchaser's expense, any of the Company's or Subsidiary's properties, including
its books (and to make extracts or copies therefrom), and to discuss its
affairs, finances, and accounts with its officers, all at such reasonable times
and as often as is reasonably requested provided, however, that all material
furnished pursuant hereto to the extent not otherwise made public by the
Company is furnished to Purchaser solely for the purposes hereof and with the
understanding that Purchaser will not disclose such information to any third
party, except for regulatory authorities and other proper disclosures.
ARTICLE 9 - PREPAYMENT
9.1 Prepayment without penalties or premium. The Company may
prepay all or a portion of the Note at any time without penalty or a premium so
long as all accrued interest is also paid at such time.
8
<PAGE> 14
9.2 Notations, etc. Any holder of a Note shall endorse on such
Note prior to any transfer thereof the amount of principal prepaid thereon and
the last date to which interest thereon has been paid, and will notify the
Company of the name and address of the transferee of such Note.
ARTICLE 10 - INSURANCE OF PROPERTIES AND BUSINESS
The Company will maintain or cause to be maintained, with financially
sound and reputable insurers, insurance with respect to its properties and
business and the properties and businesses of its Subsidiaries against loss or
damage of the kind customarily insured against by corporations of established
reputation engaged in the same or a similar business and similarly situated, in
amounts sufficient to prevent the Company or any Subsidiary from becoming a co-
insurer within the terms of the policies in question.
ARTICLE 11 - ADDITIONAL COVENANTS
The Company agrees that so long as Purchaser holds the Note or
Warrant,
(a) The Company and its Subsidiaries will remain primarily in the
businesses of physician practice management, ownership of ambulatory surgical
centers, optical, managed care and related activities; and
(b) At all times after the date of any Public Offering of its
Common Stock, the Company shall take all necessary or appropriate steps to
cause to be made available adequate public information with respect to the
Company.
(c) Without limiting any other covenants and provisions hereof,
the Company covenants and agrees that, so long as any Warrant remains
outstanding, it will materially perform and observe the following covenants and
provisions and will cause each Subsidiary to materially perform and observe
such of the following covenants and provisions as are applicable to such
Subsidiary:
(1) Payment of Taxes and Trade Debt. Pay and discharge,
all material taxes, assessments and governmental charges or levies imposed upon
it or upon its income or profits or business, or upon any properties belonging
to it, prior to the date on which penalties attach thereto, and all lawful
claims, which, if unpaid, might become a lien or charge upon any properties of
the Company, provided that the Company shall not be required to pay any such
tax, assessment, charge, levy or claim that is being contested in good faith
and by appropriate proceedings if the Company shall have set aside on its books
and to the extent required by generally accepted accounting principles,
adequate reserves with respect thereto as shall be determined by its Board of
Directors. Pay when due, or in conformity with customary trade terms as
consistent with normal operations, all lease obligations, all trade debt, and
all other Indebtedness incident to the operations of the Company, except such
as are being contested in good faith and by appropriate proceedings if the
Company shall have set aside on its books and shall and to the extent required
by generally accepted accounting principles, adequate reserves with respect
thereto as shall be determined by its Board of Directors.
(2) Preservation of Corporate Existence. Preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain
9
<PAGE> 15
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership of its properties. Preserve and maintain all material licenses
and other rights to use patents, processes, licenses, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or possessed by it
and necessary in any material respect to the conduct of its business.
(3) Compliance with Laws. Comply in all material
respects with all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise, except non-compliance
being contested in good faith through appropriate proceedings so long as the
Company shall have set up sufficient reserves, if any, required under generally
accepted accounting principles with respect to such items.
(4) Keeping of Records and Books of Account. Keep
adequate records and books of account, in which complete entries will be made
in accordance with generally accepted accounting principles consistently
applied, reflecting all material financial transactions of the Company, and in
which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in connection
within its business shall be made.
(5) Maintenance of Properties, etc. Maintain and
preserve all of its properties necessary or useful in the proper conduct of its
business, in good repair, working order and condition, ordinary wear and tear
excepted, and from time to time make all necessary and proper repairs,
renewals, replacements, additions and improvements thereto. Comply with the
provisions of all material leases to which the Company is a party or under
which the Company occupies property so as to prevent any material loss or
forfeiture thereof or thereunder.
(6) Visitation Rights. Permit Purchaser or any legal or
financial representative thereof periodically upon reasonable notice during
normal business hours to examine the books and records of the Company at the
Company's premises and permit the Purchaser (or any legal or financial
representatives thereof) to meet, and to discuss the business affairs, finances
and accounts of the Company with any of its officers or directors and
independent accountants.
(d) The Company covenants and agrees that at all times from the
date of this Agreement until such date as the Company may effect a public
offering of its Common Stock, the Purchaser shall be entitled to receive notice
of, and a designated representative of Purchaser shall be entitled to the right
to attend as an observer, all meetings of the Company's Board of Directors
subject to the exclusion of such designated representative from any portions of
meetings of the Company's Board of Directors that the Board determines, in its
sole discretion, are to be kept confidential. The Company agrees to provide to
a person designated by Purchaser, such person initially to be Buzz Benson,
Managing Director of Piper Jaffray Ventures Incorporated, all information it
provides to directors subject to the exclusion of information which the Company
is bound by a Confidentiality Agreement with a third party. The person
designated by Purchaser shall not share such information unless agreed to by
the Company, and will return the information to the Company within 10 days upon
written request.
10
<PAGE> 16
ARTICLE 12 - AGREEMENT TO REGISTER
The Company agrees that:
(a) If at any time the Company determines to take action to
register any of its securities under the Securities Act, as then in effect, or
any similar federal statute (collectively the "Act"), otherwise than pursuant
to Form S-8, or any other form not applicable to an offering of Common Stock
issued or issuable upon the exchange of Warrants, it will notify in writing
each registered holder of any Notes, Warrants or any shares of Common Stock
issued upon exchange thereof of such determination and, upon written request
received within 15 days of the mailing of such notice will use its best efforts
to effect the registration under the Act of any shares of Common Stock issued
or issuable upon such conversion or exchange to which such request relates.
(b) The Company agrees at any time after six months from the date
of any Public Offering of its Common Stock, upon receipt from the registered
holders of at least 50 percent in principal amount of the then outstanding
Notes (or of any Warrants or shares of Common Stock issued in respect thereto)
of a request to register under the Act any shares of Common Stock issued upon
the exchange of any such Warrants, it will notify all other registered holders
thereof of such request and will use its best efforts to effect the
registration under the Act of the shares of Common Stock to which such request
relates. Such holders shall be entitled to make one request for registration
pursuant to this paragraph (b).
(c) If at any time a holder or holder of stock requests that the
Company file a registration statement on Form S-3 for a public offering of all
or any portion of the shares held by such requesting holder or holders, the
reasonably anticipated aggregate price to the public of which would exceed
$500,000, and the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use its best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method or disposition specified
in such notice, the number of shares of stock specified in such notice.
Whenever the Company is required by this Article 12 to use its best efforts to
effect the registration of stock, each of the procedures and requirements of
Article 12 (including but not limited to the requirement that the Company
notify all holders of stock from whom notice has not been received and provide
them with the opportunity to participate in the offering) shall apply to such
registration, provided, however, that there shall be only two registrations on
Form S-3 which may be requested and obtained under this Section.
(d) If the Company is required to use its best efforts to effect
the registration of any Common Stock under the Act, it will use its best
efforts to:
(1) Prepare and file with the Securities and Exchange
Commission (the "Commission"), within 90 days after the receipt of the written
request for registration a registration statement with respect to such shares
of Common Stock and cause such registration statement to become and remain
effective for at least a period of 120 days.
(2) Prepare and file with the Commission all amendments
and supplements to such registration statement and the prospectus used in
connection therewith necessary to keep such registration statement effective
for said 120 day period (if any stand-off period is imposed pursuant to this
Section, such 45 day period shall commence at the termination thereof) and to
comply with the provisions of the
11
<PAGE> 17
Act with respect to the disposition of all such shares of Common Stock covered
by such registration statement whenever the holders thereof desire to dispose
of the same;
(3) Furnish to the holders of such shares of Common Stock
whatever numbers of copies of prospectuses, including one or more preliminary
prospectuses, they need to comply with the Act, and all other documents they
reasonably request in order to facilitate the disposition of such shares; and
(4) Register or qualify the shares of Common Stock
covered by such registration statement under the other securities or blue sky
laws of any jurisdictions the holders thereof reasonably request, and do all
other necessary or advisable acts and things to enable such holders to
consummate the disposition of such shares in the applicable jurisdictions,
except that the Company shall not be required to file a general consent to
service in any such jurisdiction.
(e) The Company shall pay all expenses incurred by it in complying
with paragraph (d) of this Article 12 and all reasonable out-of-pocket expenses
(including the reasonable fees and disbursements of one attorney or law firm
representing all the holders of Common Stock covered by any such registration
statement) incurred by such holders in connection therewith (including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of the Company's counsel, and expenses of any special audits
incident to or required by any such registration, but not including, however,
any underwriting discounts, fees or commissions which are to be paid by such
holders).
(f) Notices and requests delivered to the Company pursuant to this
Article 12 shall contain all information regarding the shares of Common Stock
to be registered and the intended method of disposition thereof that is
reasonably required in connection with the action to be taken.
(g) In the event of any registration under the Act of any shares
of Common Stock pursuant to this Article 12, the Company hereby agrees to
indemnify and hold harmless each shareholder disposing of such shares, each
other person, if any, who controls such shareholder within the meaning of the
Act, and each other person, who participates in the offering of such shares,
against all losses, claims, damages or liabilities, joint or several, to which
such shareholder, controlling person, or participating person may become
subject under the Act or otherwise, in so far as such losses, claims, damages
or liabilities (or proceedings in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which such shares of Common Stock were registered under the Act, or in any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Company will reimburse such shareholder and each such controlling person or
participating person for all legal or any other expenses reasonably incurred by
such shareholders, controlling person, or participating person in connection
with investigating or defending any such loss, claim, damage, liability or
proceeding; provided, however, that the Company will not be liable in any such
case to the extent that any such losses, claims, damages or liabilities arise
out of or are based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, or said
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
shareholder specifically for use in the preparation thereof. Each such
shareholder will agree to indemnify the Company, each person who signed any
such registration statement, and each person, if any, who controls the Company
within the meaning of the Act, in the same manner
12
<PAGE> 18
and to the same extent that Company has agreed to indemnify in this paragraph.
Such indemnification, however, shall only relate to untrue statements or
alleged untrue statements or omissions or alleged omissions contained in any
such registration statement, or amendment or supplement thereto, based upon and
in conformity with written information furnished to the Company by an
instrument duly executed by such shareholder specifically for use in the
preparation thereof. (h) As a condition of the registration of any shares
of Common Stock, the Purchaser agrees:
(1) ("Market Stand-Off" Agreement). If requested by the
Company and an underwriter of Common Stock of the Company, the Purchaser shall
not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Purchaser (other than those included in
the registration) during the one hundred eighty (180) day period following the
effective date of a registration statement of the Company filed under the
Securities Act, provided that:
(a) such agreement shall only apply to the first
such registration statement of the Company, including securities to be sold on
its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company
enter into similar agreements.
The obligations described in this Section shall not apply to a
registration relating solely to employee benefit plans on Form S-8 or a similar
form that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period. If requested by the
Company, the Purchaser will execute a lock-up agreement memorializing this
obligation.
(2) To comply with all requirements of the Securities Act
and of the Commission in connection with the offering and sale of such shares
of Common Stock;
(3) To effect sales of all such shares of Common Stock,
if so required by the Company, in an organized manner through a single broker
or dealer, or a single syndicate or selling group of brokers and/or dealers,
provided that any such required arrangement shall not prejudice any plan of
distribution proposed by Purchaser;
(4) To cooperate with the Company in its compliance with
all federal and state securities laws, including without limitation providing
such information and signing such documents as are necessary to effect a
registration or reasonably requested by underwriters pursuant to this
Agreement;
(5) To pay its pro rata portion (calculated on the basis
of the ratio of the aggregate offering price attributable to the shares of
holder being registered and sold in relation to the aggregate offering price
attributable to the total number of securities being registered and sold,
including securities being registered and sold by other selling holders) of the
underwriting discounts and selling commissions and to pay all the fees and
disbursements of its counsel if other than the counsel specified in Section
12(e);
13
<PAGE> 19
(6) To cooperate with the Company in all respects in
connection with registration of the Common Stock, including timely supplying
all information and executing and returning all documents requested by the
Company and its managing underwriter;
(7) The Company shall not be required to include
any of Purchaser's shares of Common Stock in any
registration statement unless Purchaser accepts the terms of the underwriting
as agreed upon by the Company and underwriters which are selected by the
Company.
(8) The Company shall have the right to defer or suspend
the filing of any registration statement if the Board of Directors of the
Company determines in good faith that it would be seriously detrimental to the
Company and its Shareholders for such registration statement to be filed as
provided in Section 12(i)(4).
(i) Notwithstanding the above, the parties agree:
(1) The Company shall have the sole and exclusive right
to select the underwriters of any public offering of the Company's Common
Stock, including any public offering conducted pursuant to the demand
registration right set forth above. The use of underwriters in any demand
registration right set forth above is subject to the Company's ability to
engage underwriters under terms and conditions deemed reasonable by the
Company. Notwithstanding anything contained herein to the contrary, the demand
registration right set forth above shall be permitted to be exercised only on
three separate occasions (as provided in Section 12(b) and 12(c)), and the
Company may elect, upon receiving such demand to combine such registration with
any other registration of securities it may seek to file.
(2) If the managing underwriter of any public offering
advises the Company that the total number of shares of the Company's Common
Stock which the Company, the Purchaser and any other persons intend to include
in such public offering would adversely affect the success of such public
offering, then the amount of shares of Common Stock to be offered for the
account of Purchaser will be reduced to the extent necessary to reduce the
total number of shares of Common Stock to be included in such public offering
to the amount recommended by such managing underwriter. Such reduction will be
on a pro rata basis with all other shareholders holding registration rights for
the sale of shares in the offering. However, this cut back shall not be
applicable to the demand registrations.
(3) The Company shall not be required to (i) reduce the
amount of shares of Common Stock to be offered by the Company in such public
offering for any reason or (ii) include any shares of Common Stock of Purchaser
in any public offering for which a registration statement is or is proposed to
be filed if such shares of Common Stock are, at the time of effectiveness of
such registration statement, eligible to be sold under Rule 144 under the Act
or otherwise eligible for sale to the public without registration, provided
that the Purchaser is eligible to sell all its shares of Company Common Stock
in any one 90-day period.
(4) The Company shall have the right to extend, suspend
or delay the effectiveness of any registration statement for a period of up to
ninety (90) days if, upon the advice of counsel, such delay is advisable and in
the best interests of the Company or because of the existence of non-public
material information, or to allow the Company to complete any pending audit of
its financial statements,
14
<PAGE> 20
any public financing plan, any pending material acquisition or to release
audited financial statements of an acquiree in a pending acquisition.
ARTICLE 13 - FIRST RIGHT OF REFUSAL AND CO-SALE RIGHTS
13.1 Purchase right of first refusal. Prior to any First Liquidity
Event and, except for (i) shares issued in acquisitions to be made by the
Company, (ii) shares issued in establishing a strategic alliance, (which
includes any financial and lending arrangements with Prudential Securities
Incorporated ("Prudential"), or any affiliates or assigns thereof on terms
substantially similar to those set forth on SCHEDULE 13.1), or (iii) for option
shares issued to employees, contractors, consultants or affiliated physicians
approved by the Board of Directors and pursuant to previous option grants or
Warrants disclosed on the attached SCHEDULE 13.1 or related to future options
granted where shares issued are at a price equal to or higher than the current
exchange price as defined herein, no shares of the Company and no interest
therein shall be sold or transferred by the Company after the date hereof, in
any manner whatsoever without the prior written consent of the Purchaser of the
Note or without following the terms of this Article. All of the above
described sales or transfers of Company shares which may be made by the Company
without approval and without complying with this Article shall be deemed
"Approved Transfers."
Prior to making or upon receiving any bona fide offer, or counteroffer
that the Company intends to assert, with respect to any disposition of any
shares of the Company other than pursuant to an Approved Transfer, the Company
shall convey the Offer Terms with respect thereto to Purchaser and Purchaser
shall have the right to purchase all, and only all, of the shares that are the
subject of such offer or counteroffer on the Offer Terms pro rata with all
holders of the December 1996 holders and any subsequent holder with similar
purchase rights of first refusal. Pro rata Purchaser may exercise its right to
acquire such shares by written notice to the Company with respect to an offer,
within the 25 day period following receipt by the Purchaser of any initial
Offer Terms or (ii) with respect to a counteroffer, within 10 business days
after receipt by the Purchaser of the Offer Terms with respect thereto,
provided that Purchasers shall have previously received written notice of the
initial Offer Terms as hereinabove provided. The closing of such purchase
shall occur at the Company's offices or such other location as may be agreed
upon on the date indicated in the written notice delivered to such Purchaser
within the time specified by the most recently delivered Offer Terms. If
Purchaser does not purchase all such shares during such period, the Company
shall be free within the time period specified by the most recently delivered
Offer Terms, to sell or transfer such shares to the third party making or
receiving such offer or counteroffer on Offer Terms no more favorable to such
third party than those contained in the last offer or counteroffer delivered to
Purchaser. In the event more than one Purchaser wishes to acquire shares in
this Section, they shall be entitled to acquire their pro rata share of the
shares to be sold. Such Purchase Right of First Refusal described herein shall
expire upon a First Liquidity Event and there shall be no right of first
refusal with respect to an event that would be a First Liquidity Event.
13.2 Co-sale rights. Prior to any First Liquidity Event and except
for an Approved Transfer or any proposed First Liquidity Event, Theodore N.
Gillette or Richard L. Sanchez, or their affiliates (each individually a
"Seller"), shall not transfer, sell, or otherwise dispose of (collectively, a
"transfer") shares of the Company's Common Stock (either directly or
indirectly), which transfer together with all previous transfers, rather than
Approved Transfers, would be in excess of an aggregate of 15% (on a fully
diluted basis) of the outstanding shares of Common Stock held by such Seller,
to any person (such person being
15
<PAGE> 21
hereinafter referred to individually as a "Third Party" and collectively as
"Third Parties"), unless the terms and conditions of such transfer shall
include an offer at the most favorable price, and on the most favorable terms
and conditions, at which the Seller is then intending to transfer such Seller's
Common Stock (except that the only representation and warranty that the
Purchaser or any transferee of Purchaser's that acquired Common Stock pursuant
to this Agreement ("Transferees") shall be required to make in connection with
any transfer is a warranty with respect to its own ownership of the Common
Stock to be sold by it and its ability to convey title thereto free and clear
of liens, encumbrances or adverse claims) to Purchaser and any Transferee to
include, at their option, in the transfer to the Third Party, an amount of
Common Stock determined in accordance with this Section.
The Third Party shall purchase from Purchaser and any Transferee the
number of shares of Common Stock owned by Purchaser or such Transferee, as the
case may be, equalling the number derived by multiplying the total number of
shares to be purchased by the Third Party by a fraction, the numerator of which
is the total number of shares of Stock owned by Purchaser or such Transferee,
as the case may be, that Purchaser or such Transferee, as the case may be,
desires to require the Third Party to purchase and the denominator of which is
the sum of (A) the total number of shares of Stock owned by Purchaser and all
Transferees desiring to require the Third Party to purchase their shares and
(B) the total number of shares of Common Stock owned by Sellers and their
affiliates.
Unless the same is an Approved Transfer or a proposed First Liquidity
Event, before the Seller proposes to transfer any Common Stock, it shall
notify, or cause to be notified, Purchaser and any Transferee in writing of
each such proposed transfer. Such notice shall set forth: (i) the name of the
Third Party and the number of shares of Common Stock proposed to be
transferred, (ii) the address of the Third Party, (iii) the proposed amount and
form of consideration and terms and conditions of payment offered by the Third
Party (the "Third Party Terms") and (iv) whether the Third Party has been
informed of the "Co-Sale Right" provided for in this Section and has agreed to
purchase shares of Common Stock in accordance with the terms hereof.
The Co-Sale right may be exercised by delivery of a written notice to
the Seller (the "Co-Sale Notice") within 15 days following receipt of the
notice specified in the preceding sentence. The Co-Sale Notice shall state the
number of shares of Stock that Purchaser or such Transferee, as the case may
be, would be entitled to include in such transfer to the Third Party.
Upon the giving of a Co-Sale Notice, Purchaser and such Transferees
shall be entitled and obligated to sell the number of shares of Stock set forth
in the Co-Sale Notice to the Third Party on the Third Party Terms; provided,
however, that the Sellers shall not consummate the sale of any shares offered
by them if the Third Party does not purchase all shares which Purchaser and any
Transferee are entitled to and desire to sell pursuant hereto. After
expiration of the 15 day period referred to above, if the provisions of this
Section have been complied with in all respects, the Sellers shall have the
right for a 90 day period to transfer the shares of Common Stock to the Third
Party on the Third Party Terms without further notice to Purchaser or any
Transferee who have not given a Co-Sale Notice, but after such 90 day period,
no such transfer may be made without again giving notice to Purchaser and all
Transferees of the proposed transfer and complying with the requirements of
this Article.
16
<PAGE> 22
Notwithstanding anything to the contrary, any Approved Transfer may be
made without compliance with this Article 13. The Co-Sale Rights contained
herein shall terminate upon a First Liquidity Event.
ARTICLE 14 - PROVISIONS RESPECTING EXCHANGE OF WARRANTS
14.1 Exchange of Warrant. The Purchaser shall receive a Warrant to
purchase up to two million ($2,000,000) worth of securities of the Company (the
"Warrant"). At any time up through December 19, 2003, subject to the terms
hereof, the Warrant shall be exchangeable by the holder thereof. The Warrant
shall initially be exchangeable for 421,941 shares of Common Stock, potentially
increasing to up to 500,000 shares of Common Stock so that the Purchaser will
have the right to purchase an aggregate of $2,000,000 worth of Common Stock of
the Company at the Warrant Exchange Price at an exchange price of between $4.00
and $4.74 per share of Common Stock, as hereinafter determined, or in a cashless
exchange for a reduced number of shares (the "Net Issuable Exchange"), as
determined by Section 9 of the Warrant. The Warrant will be exchangeable upon
surrender of the Warrant to the Company at its principal office in Florida at
any time during usual business hours, accompanied, if the Company so requires,
by an instrument or instruments of transfer in form satisfactory to the Company
and duly executed by the holder of the Warrant. The Warrant will expire on the
earlier of (i) 5:00 p.m. on December 19, 2003 (or (ii) five years from the date
of any initial public offering by the Company, if not exchanged by such date.
Should the offering price of the Company's Common Stock in an initial public
offering be less than $9.48 per share, then the Warrant exchange price shall
become one-half of that initial offering price, but not less than $4.00 per
share, subject to Section 14.3, provided however, if the exchange price on any
Warrant subsequently issued to Prudential is less than the exchange price,
Purchaser's exchange price will be adjusted downward to the exchange price
granted by the Company on any Prudential Warrant. Should the Market Price per
share of Common Stock as defined herein be less than $9.48 at the time of any
First Liquidity Event other than an IPO, then the exercise price for the stock
shall become one-half of that Market Price per share on such date, but not less
than $4.00 per share, subject to Section 14.3, provided however, if the exchange
price on any Warrant subsequently issued to Prudential is less than the exchange
price, Purchaser's exchange price will be adjusted downward to the exchange
price granted by the Company on any Prudential Warrant.
14.2 Issuance of common stock upon exchange. As promptly as
practicable after the surrender, as herein provided, of any Warrant, the
Company shall deliver or cause to be delivered to or upon the written order of
the holder of the Warrant the shares to be issued on exchange in accordance
with the provisions of this Article 14 certificates representing the numbers of
fully paid and nonassessable shares of Common Stock into which such Warrant is
exchangeable in accordance with the provisions of this Article 14. Subject to
the following provisions of this paragraph, such exchange shall be deemed to
have been made at the close of business on the date that such Warrant has been
exchanged, so that the rights of the holder of such Warrant exchanged shall
cease at such time and the person or persons entitled to receive the shares of
Common Stock upon exchange of such Warrant shall be treated for all purposes as
having become the record holder or holders of such shares of Common Stock at
such time and such exchange shall be at the exchange price in effect at such
time; provided, however, that no such surrender on any date when the stock
transfer books of the Company are closed shall be effective to constitute the
person or persons entitled to receive the shares of Common Stock upon such
exchange as the record holder or holders of such shares of Common Stock on such
date, but such surrender shall be effective to constitute the person or persons
entitled to receive such shares of Common Stock as the record holder or
17
<PAGE> 23
holders thereof for all purposes at the close of business on the next
succeeding day on which such stock transfer books are open and such exchange
shall be at the exchange price in effect on the date that such Warrant has been
surrendered for exchange.
If the last day for the exchange right is a Sunday or is in Florida a
legal holiday or a day on which banking institutions are authorized by law to
close, such right to exchange may be exercised on the next succeeding day which
is not a legal holiday in Florida or a day on which banking institutions are
authorized by law to close.
14.3 Adjustment to exchange price. The exchange price and the
number of shares issuable upon exchange shall, in addition to the preceding
paragraph 14.1, be subject to adjustment as follows in the event the Company
issues or is deemed to have issued shares at less than the current exchange
price:
(a) For the purposes of this Section 14.3(a), the term "current
exchange price" is defined as meaning at any given time the exchange price then
in effect, which is set as $4.74 as of the date hereof; and the terms "current
quotient" is defined as meaning on any given date the amount determined at the
close of business on such day by dividing:
(1) An amount equal to (A) the total number of shares of
Common Stock outstanding when the current exchange price became effective,
exclusive of any such shares which may have been issued after the date hereof
as provided in this Section 14.3(a), multiplied by the current exchange price,
plus (B) the aggregate of the amounts of all consideration, if any, received by
the Company, (or, without duplication, deemed to be received as provided in
paragraph (viii) below) upon all issuances of shares of Common Stock since the
current exchange price became effective and prior to the time of the
determination of the current quotient except shares of Common Stock issued as
provided in Subdivision (c) hereof.
(2) The total number of shares of Common Stock
outstanding immediately prior to the time of such determination, including any
such shares deemed to have been issued as provided in paragraph (viii) below
but excluding any such shares which may have been issued as provided in this
Section 14.3(a). For the purposes of this paragraph, the exchange price of
$4.74 shall be deemed to have become effective at the close of business on the
date of Closing Time. In determining the current quotient, the result shall be
expressed to the nearest cent.
If at the close of business on any date after the date of Closing Time
on which any adjustment event hereunder takes place, the current exchange price
exceeds the current quotient by as much as one percent of the then effective
exchange price, the exchange price shall be reduced to the price equal to the
current quotient, effective at the close of business on such date. In such
case of a subdivision or combination of the outstanding shares of Common Stock
issuable upon exchange of the Warrants, the exchange price shall be first
reduced, effective immediately prior to an adjustment of the exchange price
pursuant to this Section 14.3(a), by the amount, if any, by which the current
exchange price exceeds the current quotient.
For the purposes of this Section 14.3(a), the following provisions
shall also be applicable:
18
<PAGE> 24
i) If additional shares of Common stock are issued for cash, the
consideration received by the Company therefor shall be deemed to be the amount
of cash received by the Company for such shares, before deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such shares.
ii) If additional shares of Common Stock are issued (otherwise
than upon the exchange of the Company's obligations or shares of stock or upon
the exchange of rights or options to subscribe for or to purchase shares of
Common Stock) for a full or partial consideration other than cash, the amount
of the non-cash consideration received by the Company for such shares shall be
deemed to be the value of such consideration as determined in good faith by the
Company's Board of Directors.
iii) If additional shares of Common Stock are issued upon
conversion or exchange of any obligations (including the Notes) or of any
shares of the Company's stock that are convertible into or exchangeable for
shares of Common Stock or upon the exchange of rights or options to subscribe
for or to purchase shares of Common Stock, the amount of the consideration
received by the Company for such additional shares of Common Stock shall be
deemed to be the total of: (a) the amount of consideration received by the
Company upon the original issuance of such obligations, shares, rights, or
options, plus (b) any other consideration received by the Company upon
conversion, exchange, or exchange except in adjustment of interest and
dividends. If obligations, shares, rights, or options, of the same class or
series of a class as the obligations, shares, rights, or options so converted,
exchanged or exchanged have been originally issued for different amounts of
consideration, the amount of consideration received by the Company upon the
original issuance of each obligation, share, right, or option so converted,
exchanged, or exchanged shall be deemed to be the average amount of the
consideration received by the Company upon the original issuance of all such
obligations, shares, rights, or options. The amount of the consideration,
obligations, shares, rights, or options so converted, exchanged, or exchanged
and the amount of any other consideration received by the Company upon the
original issuance of the obligations, shares, rights, or options so converted,
exchanged, or exchanged and the amount of any other consideration, received by
the Company upon such conversion, exchange, or exchange shall be determined in
the same manner provided in paragraphs (i) and (ii) above with respect to the
consideration received by the Company in case of the issuance of additional
shares of Common Stock. If such obligations, shares, rights, or options have
been issued as a dividend upon any stock of the Company, the amount of the
consideration received by the Company upon the original issuance thereof shall
be deemed to be zero.
iv) If additional shares of Common Stock are issued as a
dividend, the aggregate number of shares of Common Stock issuable in payment of
such dividend shall be deemed to have been issued and to be outstanding at the
close of business on the record date fixed for the determination of
stockholders entitled to such dividend. Shares of Common Stock issued
otherwise than as a dividend shall be deemed to have been issued and to be
outstanding at the close of business on the date of issue.
v) The term dividend shall mean a dividend or other distribution
upon stock of the Company.
vi) The number of shares of Common Stock at any time outstanding
shall not include all shares of Common Stock then owned or held by or for the
account of the Company.
19
<PAGE> 25
vii) If the Company declares a dividend without fixing a record
date for determining the stockholders entitled thereto, the first business day
during which the Company's stock transfer books are closed for the purpose of
such determination shall be deemed to be the record date fixed for the
determination of stockholders entitled to such dividend.
viii) In case of (a) the issuance of shares of stock or obligations
convertible into or exchangeable for shares of Common stock at a exchange price
per share less than the current exchange price in effect immediately prior to
the issuance of such convertible stock or obligations, or (b) the issuance of
any rights to subscribe for or to purchase, or any options for the purchase of,
additional shares of Common Stock, at a price per share for the additional
shares of Common Stock issuable upon the exchange of such rights or options less
than the current exercisable price in effect immediately prior to the issuance
of such rights or the granting of such options, then the issuance of such stock,
obligations, rights, or options shall be deemed to be an issuance (as of the
date of issuance of such stock, obligations, rights, or options) of the total
maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such convertible stock or obligations or upon the exchange of
all such rights or options, as the case may be. In such case, the amount
received or receivable by the Company in consideration of the issuance of such
stock, obligations, rights, or options (plus the minimum aggregate amount of
premium or additional consideration payable to the Company upon conversion or
exchange of the stock or obligations or upon the exchange of such rights or
options) before deducting therefrom any commissions or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in connection
with, the issuance of such stock, obligations, rights or options, shall be
deemed to be the consideration actually received (as of the date of issuance of
such rights or options) for the issuance of the additional shares of Common
Stock.
The Consideration actually received by the Company for any shares of
Common Stock issued upon the exchange of such stock or obligations or upon the
exchange of such rights or options, which pursuant to this paragraph (viii) is
deemed to have been received, shall not be included in the first paragraph of
this Section 14.3(a) for the purpose of computing the current quotient and no
further adjustment of the exchange price shall be made in respect thereof
except that:
(1) On the expiration of such rights or options or the
termination of the right to convert or exchange such stock or obligations, the
current quotient and the current exchange price shall forthwith be readjusted
to the current quotient and current exchange price which would have obtained
had the adjustments made on account of the issuance of such options, rights or
convertible or exchangeable securities been made upon the basis of the delivery
of only the number of shares of Common Stock actually delivered upon the
exchange of such rights or options or upon conversion or exchange of such
securities for the consideration actually received by the Company for such
options, rights or securities and upon the exchange, exchange or conversion
thereof; and
(2) If the purchase or exchange price or exchange rate
provided for in any such options, rights, stock, or obligations changes or a
different purchase or exchange price or exchange rate becomes effective at any
time or from time to time (other than under or by reason of provisions
designated to protect against dilution) then, upon such change becoming
effective, the current quotient and current exchange price then in effect
hereunder shall forthwith be increased or decreased to such current quotient
and current exchange price as would have obtained had the adjustments made upon
the issuance of such options, rights or convertible or exchangeable securities
been made upon the basis of (A) the issuance of
20
<PAGE> 26
the number of shares of Common Stock theretofore actually delivered upon the
exchange, conversion or exchange thereof, (B) the issuance of all Common Stock
and all other options, rights or convertible or exchangeable securities issued
after the issuance of such options, rights or convertible or exchangeable
securities, and (C) the original issuance at the time of such exchange of any
such options, rights or convertible or exchangeable securities then still
outstanding.
In case, however, such stock or obligations are convertible or
exchangeable at a exchange price or exchange rate or such rights or options are
exercisable at a purchase price, per share equal to or in excess of the current
exchange price immediately prior to the issuance or sale of such convertible
stock or obligations or of such rights or options, then no adjustment of the
exchange price shall be made except in respect of additional shares of Common
Stock actually issued upon the conversion or exchange of any such convertible
stock or obligations or upon the exchange of any such rights or options.
ix) No adjustment in the exchange price shall be made in respect
of the issuance or sales of Common Stock held in the Company's treasury to the
extent it acquired such Common Stock after the date of Closing Time, except
that if any such treasury shares are issued or sold for a consideration per
share which is less than the exchange price in effect immediately prior to such
issue or sale and which is less than the average cost per share of such
treasury shares, Company shall be deemed for purposes of this Section 14.3, to
have issued or sold shares of Common Stock equal in number to such treasury
shares for a consideration per share equal to the exchange price in effect
immediately prior to such issue or sale reduced by the amount by which such
average cost of such treasury share exceeds such consideration per share.
(b) If the Company at any time subdivides or issues a stock
dividend upon the outstanding shares of Common Stock, the exchange price in
effect immediately prior to such subdivision or stock dividend shall be
proportionately decreased, and if the Company at any time combines the
outstanding shares of Common Stock, the exchange price in effect immediately
prior to such combination shall be proportionately increased. Any such
adjustment shall become effective at the close of business on the date that
such subdivision, stock dividend or combination becomes effective.
(c) No adjustment of the exchange price shall be made as a result
of or in connection with any Approved Transfer as defined in Section 13.1:
(d) Whenever the exchange price is adjusted, as herein provided,
the Company shall promptly deliver to each holder of Warrants a computation
setting forth the exchange price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Such computation shall
be made by certified public accountants (who may be Company's regular auditors
or certified public accounts and shall be conclusive evidence of the
correctness of such adjustment.
(e) The adjustments to the exchange price provided for in this
Section 14.3 shall be applicable, as provided in the Warrants, to the Purchase
Price provided for in the Warrants.
14.4 Fractional shares. No fractional shares or script
representing fractional shares shall be issued upon the exchange of any
Warrants. If the exchange of any Warrants results in a fraction, an amount of
money equal to such fraction multiplied by the fair market value of one share
of Common
21
<PAGE> 27
Stock of the Company on the date on which such conversion or exchange is deemed
made shall be paid to the person otherwise entitled to such fraction.
14.5 Effect of reclassifications, etc. In case of any
reclassification or change of outstanding shares of Common Stock issuable upon
exchange of any Warrants (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination), or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as
an entirety, the Company, or such successor or purchasing corporation, as the
case may be, shall execute with each holder of Warrants a supplemental
agreement providing that the holder of each Warrant then outstanding shall have
the right thereafter to exchange such Warrant to purchase the kind and amount
of shares of stock and other securities and property receivable upon such
reclassification, change, sale or conveyance. Such supplemental agreement
shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 14. The above
provisions of this Section 14.5 shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive sales
or conveyances.
14.6 Company to reserve stock. The Company covenants that it will
at all times reserve and keep available out of its authorized Common Stock,
solely for the purpose of issue upon exchange of the Warrants as herein
provided, the number of shares of Common Stock that is then issuable upon the
exchange of all outstanding Warrants. The Company covenants that all shares of
Common Stock which are so issuable shall, when issued pursuant to the terms of
the Warrants and this agreement, be duly and validly issued and fully paid and
nonassessable.
14.7 No dilution or impairment. The Company will not, by amendment
of its Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue, or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any term of this agreement, the Notes, or Warrants, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action that is necessary or appropriate in order to protect the rights
of the holders of the Notes and Warrants against dilution or other impairment.
14.8 Taxes on exchange. The issuance of certificates for shares of
Common Stock upon the exchange of Warrants shall be made without charge to the
Warrant holders for any tax (other than federal or state income taxes) in
respect to the issuance of such certificates. Such certificates shall be
issued in the respective names of, or in the names directed by, the holder of
the Warrant exchanged. Company, however, shall not be required to pay any tax
which may be payable in respect to any transfer involved in the issuance and
delivery of any such certificate in a name other than that of the holder of the
Warrants exchanged, or to issue or deliver such certificates until the person
or persons requesting the issuance thereof have paid the Company the amount of
such tax or have established to the satisfaction of the Company that such tax
has been paid.
14.9 Notices of record date, etc.. If any of the following events
occur, the Company will mail or cause to be mailed a notice, as specified
below, to every holder of a Note or Warrant:
(a) Any taking by Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend at the same rate
as the rate of the last cash dividend theretofore paid) or other distribution,
or
22
<PAGE> 28
any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property or to receive any other right;
(b) Any capital reorganization of the Company, any
reclassification or recapitalization of the Company's capital stock, or any
transfer of all or substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any other Person;
(c) Any voluntary or involuntary dissolution, liquidation or
winding up of the Company; or
(d) Any proposed issue or grant by the Company of any shares of
stock of any class or any other securities (other than notes or other
obligations issued or incurred by Company in connection with the purchase of
real or personal property or the borrowing of money privately), or any right or
option to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any securities (other than the Public Offering of Common Stock or
any issue or grant referred to herein).
The above notice to the Note or Warrant holder shall specify:
(1) The date or expected date on which any such record is
to be taken for the purpose of such dividend, distribution, or right, and
stating the amount and character of such dividend, distribution, or right;
(2) The date or expected date on which any such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up is to take place, and the time,
if any is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock
(or other securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation, or winding-up; and
(3) The amount and character of any stock or other
securities, or rights or options with respect thereto, proposed to be issued or
granted, the date or expected date of such proposed issue or grant, and the
persons or class of persons to whom such proposed issue or grant is to be
offered or made. Such notice shall be mailed at least 20 days prior to the
date therein specified.
ARTICLE 15 - TRANSFERS NOT REGISTERED UNDER SECURITIES ACT OF 1933
15.1 Restrictive legends. Each Note, Warrant and certificate for
Common Stock issued upon the exchange of any Warrant, and each Note, Warrant,
and stock certificate issued upon the transfer of any such Note, Warrant or
Common Stock (except as otherwise permitted by this Article 15), shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"The securities represented hereby have not been registered
under the Securities Act of 1933. Such securities may not be
sold or transferred in the absence of such registration or an
exemption therefrom under said Act. Such securities may not
be transferred except upon the conditions specified in certain
agreements, dated as of February 28, 1997, between the Company
and certain Purchasers, complete and correct copies of
23
<PAGE> 29
which are available for inspection at the office of the Company and a
conformed copy of which will be furnished to the holder of such
securities upon written request and without charge. No transfer of
such securities shall be valid or effective unless and until the
conditions so specified have been complied with."
15.2 Notice of proposed transfer, opinions of counsel. Except as
provided in the last paragraph of this Section 15.2, prior to any transfer of
any such Notes, Warrants, or Common Stock, the holder thereof will give written
notice to Company of such holder's intention to effect such transfer and to
comply in all other respects with this Section 15.2. Each such notice shall
(a) describe the manner and circumstances of the proposed transfer in
sufficient detail to enable counsel to render the opinions referred to below,
and (b) designate counsel for the holder giving such notice (who may be house
counsel for such holder). The holder giving such notice will submit a copy
thereof to the counsel designated in such notice and Company will promptly
submit a copy thereof to its counsel, and the following provisions shall apply:
(1) If in the opinion of each such counsel, the proposed
transfer may be effected without registration under the Act of such Notes,
Warrants, or Common Stock, the Company will promptly notify the holder thereof
and such holder shall thereupon be entitled to transfer such Notes, Warrants,
or Common Stock in accordance with the terms of the notice delivered by such
holder to the Company. Each Note, Warrant, or certificate, if any, issued upon
or in connection with such transfer shall bear the appropriate restrictive
legend set forth in Section 15.1, unless in the opinion of each such counsel
such legend is no longer required to insure compliance with the Act. If for
any reason counsel for the Company (after having been furnished with the
required information under clause (a) of this Section 15.2) fails to deliver an
opinion to Company, or Company fails to notify such holder thereof as
aforesaid, within 20 days after counsel for such holder has delivered its
opinion to such holder (with a copy to Company), then for all purposes of this
agreement the opinion of the Company's counsel shall be deemed to be the same
as the opinion of counsel for such holder.
(2) If in the opinion of either or both of such counsel,
the proposed transfer may not be effected without registration under the Act of
such Notes, Warrants, or Common Stock, Company will promptly so notify the
holder thereof and thereafter such holder shall not be entitled to transfer
such Notes, Warrants, or Common Stock until receipt of a further notice from
Company under subdivision (1) above or, in the case of Common Stock, unless
registration of such Common Stock under the Act has become effective.
The Company will pay the reasonable fees and disbursements of counsel
(other than inside counsel) for any holder and of counsel for the Company in
connection with all opinions rendered by them pursuant to this Section 15.2.
ARTICLE 16 - REGISTRATION, TRANSFER, AND EXCHANGE OF NOTES
(a) The Company shall, at its expense (except for transfer taxes),
keep a register at its principal office in which, subject to reasonable
regulations, it shall provide for the registration and transfers of Notes.
24
<PAGE> 30
(b) Whenever any Note or Notes are surrendered at the Company's
principal office, either for transfer or exchange, accompanied (if so required
by the Company) by an instrument of transfer in a form satisfactory to Company
and duly executed by the holder thereof or the holder's attorney duly
authorized in writing, the Company shall execute and deliver in exchange
therefor (subject to the provisions of Article 15) a new printed Note or Notes
as requested by the holder, in the same aggregate unpaid principal amount as
that of the surrendered Note or Notes. The holder requesting the exchange,
however, shall pay any transfer tax relating to such transaction. Each such
new Note shall be dated as of the date to which interest has been paid on the
unpaid principal amount of the surrendered Note or Notes, and shall be in the
principal amounts and registered in the same name or names the holder
designates in writing.
ARTICLE 17 - REPLACEMENT OF NOTES
If any Note held by a Person other than Purchaser is lost, stolen,
destroyed, or mutilated, and the Company receives evidence reasonably
satisfactory to it of such loss, theft, destruction, or mutilation, and such
Person delivers an indemnity bond in a reasonable amount determined by Company,
or a mutilated Note is surrendered and cancelled, Company will, at its expense,
execute and deliver a new replacement Note of like tenor, dated the date to
which interest has been paid on the replacement Note.
ARTICLE 18 - EVENTS OF DEFAULT; ACCELERATION
The following events shall constitute Events of Default:
(a) The Company defaults in the payment of any part of the
principal of or premium on any Note when it becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or otherwise;
(b) The Company defaults in the payment of any installment of
interest on any Note for more than 20 days after it has become due and payable;
(c) The Company defaults in the performance of or compliance with
any material term of this agreement, and such default is not remedied within 30
days after the holder of any Note gives the Company written notice thereof;
(d) The Company or any Subsidiary defaults (as principal,
guarantor, or other surety) in the payment of principal of, premium or interest
on, or any other payment of money due under, any other material obligation for
borrowed money (including any obligation secured by a purchase money mortgage)
beyond any provided period of grace, or in the performance of any other
material agreement, term, or condition contained in any agreement under which
such obligation is created if the effect of such default is to cause, or permit
the holder or holders of such obligation (or a trustee on their behalf) to
cause, the obligation to become due before its stated maturity;
(e) The Company or any Subsidiary (i) makes an assignment for the
benefit of creditors, (ii) admits in writing to its inability to pay its debts
as they become due, (iii) files a voluntary petition in bankruptcy, (iv) is
adjudicated a bankrupt or insolvent, (v) files any petition or answer seeking
for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or similar relief under any present or future
statute, law, or regulation, (vi) files an answer admitting or not contesting
the
25
<PAGE> 31
material allegations of a material petition filed against the Company or any
Subsidiary in such proceeding, or (vii) seeks, consents to, or acquiesces in
the appointment of any trustee, receiver, or liquidator of the Company or any
Subsidiary or of all or any substantial part of the Company's or Subsidiary's
property, or the Company or its directors or majority stockholders take any
action looking to its dissolution or liquidation;
(f) An action is commenced against the Company or any Subsidiary
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any present or future statute, law, or
regulation, and the action is not dismissed, or all orders or proceedings
thereunder affecting the Company's operations or business are not stayed within
60 days after commencement of such action, or the stay of any such order or
proceedings is thereafter set aside; or, a trustee, receiver, or liquidator is
appointed for the Company or any Subsidiary or of all or a substantial part of
the Company's or Subsidiary's properties without the Company's or Subsidiary's
consent or acquiescence, and the appointment is not vacated within 60 days
after the appointment; or
(g) A final judgment, against which the Company or any Subsidiary
is uninsured and which, together with other like outstanding judgments against
the Company and its Subsidiaries, exceeds a total of $500,000, is rendered
against the Company or a Subsidiary, and within 60 days after the entry
thereof, the judgment is not discharged or execution thereof stayed pending
appeal; or, within 60 days after the stay expires, the judgment is not
discharged.
Notwithstanding the above, or anything else contained in this
agreement, should the Company be in default under any Senior Debt, the Company
shall have the opportunity to cure the same and during such period not to
exceed 30 days, no Note payments shall become due and payable and shall be
delayed until the Senior Debt is satisfied in full.
If any of the above Events of Default occur, any holder or holders of
50 percent or more in aggregate principal amount of the Notes then outstanding
("50 percent holders") may at any time (unless all defaults have previously
been remedied), by written notice to the Company, and, to the extent they are
known to such holder or holders, to the other holders of Notes declare all the
Notes, to be due and payable. In such case, the Notes immediately shall mature
and become due and payable, together with interest accrued thereon. While an
Event of Default continues, however, and irrespective of whether the 50 percent
holders have declared all of the Notes to be due and payable, any original
purchaser of the Notes or Transferee may, by written notice to the Company,
declare the Notes then held by it to be, and such Notes shall thereupon be and
become, immediately due and payable, together with interest accrued thereon.
Any such action by 50 percent holders, however, may be rescinded with the
consent of the holders of 66.66 percent or more in aggregate principal amount
of the Notes then outstanding, if the Company has cured the Event of Default.
ARTICLE 19 - SUBORDINATION OF NOTES
(a) The payment of the principal of and interest on the Note is
hereby expressly subordinated, to the extent and in the manner hereinafter in
this Article 19 set forth, to the right of payment of the prior payment of
Senior Debt in full. Attached as SCHEDULE 19(A) is a list of all Company
indebtedness and a delineation as to which of such debt is Senior Debt.
26
<PAGE> 32
(b) Upon any distribution of the Company's assets upon its
dissolution, winding up, liquidation, or reorganization, whether in bankruptcy,
insolvency, reorganization or receivership proceedings, or upon an assignment
for the benefit of creditors or any other marshalling of the Company's assets
and liabilities or otherwise:
(1) All principal, premium, if any, and interest due upon
all Senior Debt shall first be paid in full, or payment thereof provided for in
money or money's worth, before the holders of the Notes are entitled to receive
any payment upon the principal of, premium, if any, or interest on the Notes;
(2) Any payment or distribution of the Company's assets
of any kind or character, whether in cash, property or securities (other than
shares of the Company's stock as reorganized or readjusted or securities of
Company or any other corporation provided for by a plan of reorganization or
readjustment, the payment of which is subordinated to the payment of all Senior
Debt which may at the time be outstanding on terms not less favorable to the
holders thereof than those of this Article 19) to which the holders of the
Notes would be entitled except for the provisions of this Article 19 shall be
paid by the liquidating trustee or otherwise, directly to the holders of Senior
Debt (pro rata to each such holder on the basis of the respective amounts of
Senior Debt held by each such holder), to the extent necessary to pay in full
all Senior Debt remaining unpaid, after giving effect to any prior or
concurrent payment or distribution, or provision therefor, to the holders of
Senior Debt on the Senior Debt;
(3) If, notwithstanding the foregoing, any payment or
distribution of the Company's assets of any kind or character, whether in cash,
property, or securities (other than shares of the Company's stock as
reorganized or readjusted or securities of Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated to the payment of all Senior Debt which may at the time be
outstanding on terms not less favorable to the holders thereof than those of
this Article 19) is received by the holders of the Notes before all Senior Debt
is paid in full, or provision made for its payment, such payment or
distribution shall be paid over to holders of Senior Debt (pro rata to each
such holder on the basis of the respective amounts of Senior Debt held by such
holder), for application to the payment of all Senior Debt remaining unpaid
until all such Senior Debt has been paid in full, or provision made for its
payment, after giving effect to any prior or concurrent payment or distribution
to the holders of the Senior Debt on the Senior Debt; and
(4) Each holder of the Notes agrees, in the event of any
proceeding described in this paragraph (b) of this Article 19, to proceed
promptly and with due diligence to enforce its claim, or to notify the Company
and the other holders of the Notes in writing of its intention not to so
enforce its claim, as a holder of the Notes against the Company.
(c) In the event and during the continuance of any default by the
Company in the payment of any Senior Debt when due (whether at a stated
maturity date, upon acceleration or otherwise), no payment of principal of,
premium, if any, or interest on the Notes shall be made by the Company.
(d) Subject to the payment in full of all Senior Debt, the holders
of the Notes shall be subrogated to the rights of the holders of the Senior
Debt to receive payments or distributions of the Company's assets applicable to
the Senior Debt until the principal of, premium, if any, and interest on the
Notes is paid in full. No such payments or distributions applicable to the
Senior Debt shall, as
27
<PAGE> 33
between the Company, its creditors other than the holders of the Senior Debt,
and the holders of the Notes, be deemed to be a payment by the Company to or on
account of the Notes.
(e) The provisions of this Article 19 are solely for the purpose
of defining the rights of the holders of the Notes, on the one hand, relative
to the rights of the holders of the Senior Debt, on the other hand, and nothing
contained in this Article 19 or elsewhere in the Agreements or in the Notes is
intended to or shall:
(1) Impair, as between the Company, its creditors other
than the holders of Senior Debt, and the holders of the Notes, the Company's
obligation, which is unconditional and absolute, to pay to the holders of the
Notes the principal of, premium, if any, and interest on the Notes, as and when
the same becomes due and payable in accordance with the terms of the Notes, or
(2) Affect the rights of the holders of the Notes
relative to creditors of Company other than the holders of the Senior Debt, nor
shall anything in the Agreements or in the Notes prevent the holder of any
Notes from exercising all remedies otherwise permitted by applicable law upon
default under this agreement, subject to the rights, if any, under this Article
19 of the holders of the Senior Debt in respect to the Company's assets
received upon the exchange of any such remedy.
(f) Upon any payment or distribution of the Company's assets
referred to in this Article 19, the holders of the Notes shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which such dissolution, winding up, liquidation, or reorganization proceedings
are pending or upon a certificate of the liquidating trustee or agent or other
person making any distribution to the holders of the Notes on the Notes for the
purpose of ascertaining the amount of the Senior Debt, the holders thereof, the
amount or amounts paid or distributed thereon and all other facts pertinent
thereto or to this Article 19.
(g) Nothing contained in this Article 19 or in the Agreements or
in the Note, shall affect the Company's obligation to make, or prevent the
Company from making, at any time except as set forth in paragraphs (b), (c) and
(d) of this Article 19, payments of principal of, premium, if any, or interest
on the Notes.
(h) No modification, amendment, or waiver of any provision of this
Article 19 shall be made without the prior written consent of the holders
having a majority interest in the Note.
ARTICLE 20 - REMEDIES ON DEFAULT, ETC.
If any one or more Events of Default occur and are continuing, the
holders of any Notes at the time outstanding may proceed to protect and enforce
their rights by an action at law, suit in equity, or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or in such Note, or for an injunction against a violation of any of the
terms hereof or thereof, or in aid of the exchange of any power granted hereby
or thereby or by law. In case of a default in the payment of any principal of
or premium, if any, or interest on any Note, the Company will pay the holder a
further amount sufficient to cover the cost of collection, including (without
limitation) reasonable attorney's fees, expenses, and disbursements. If any
holder of any Note gives any notice or takes any other action in respect of a
claimed default, the Company will forthwith give written notice thereof to all
other holders
28
<PAGE> 34
of the Notes at the time outstanding describing the notice or action and the
nature of the claimed default. No course of dealing and no delay by any holder
of any Note in exercising any right, power, or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers and remedies. No
right, power, or remedy conferred hereby or by any Note upon any holder thereof
shall be exclusive of any other right, power, or remedy referred to herein or
therein or now or hereafter available by law, in equity, by statute or
otherwise.
ARTICLE 21 - DEFINITIONS
As used herein, the following terms have the following respective
meanings:
21.1 Affiliate.
(a) Any Person owning or controlling 5 percent or more of any
class of stock or similar interests of Company or any
Subsidiary;
(b) Any spouse of any such Person;
(c) Any relative (within the third degree) of any such Person or
spouse;
(d) Any corporation, association, or other business entity in
which any such Person or spouse or relative has a substantial direct or
indirect interest; and
(e) Any corporation (other than a Subsidiary), association, or
other business entity 5 percent or more of any class of stock or similar
interests of which is owned or controlled by the Company or any Subsidiary.
21.2 The Exchange Formula. In a Net Issuable Exchange, the formula
for determining the number of shares of Common Stock to be received in exchange
for a Warrant shall be determined as provided in Section 9 of the Form of
Warrant attached as EXHIBIT B.
21.3 Common Stock. All shares now or hereafter authorized by the
class of the Company's Common Stock, par value $.001 per share, presently
authorized and stock of any other class into which such shares may hereafter
have been changed.
21.4 First Liquidity Event. A change of control in the Company
defined as (i) a change in ownership of the majority of the Company's issued
and outstanding stock, (ii) or the change in ownership of enough issued and
outstanding Company stock (i.e. less than a majority) to control the outcome of
an election of the Company's directors, (iii) a merger where the Company is not
the surviving entity, (iv) an initial public offering by the Company in excess
of $15.0 million in net proceeds, or (v) a sale of substantially all of the
Company's assets.
21.5 Generally accepted accounting principles. As determined by
independent certified public accountants of recognized national standing
selected by the Company.
21.6 Indebtedness. As applied to a Person,
29
<PAGE> 35
(a) All items which, in accordance with generally accepted
accounting principles, would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date of
which the Indebtedness is to be determined;
(b) All Indebtedness (other than Indebtedness owing to such
Person) secured by any mortgage, pledge, lien, security interest or conditional
sale, or other title retention agreement to which any property or asset owned or
held by such Person is subject, regardless of whether the Indebtedness secured
thereby has been assumed; and
(c) All Indebtedness of others which such Person has directly or
indirectly guaranteed, endorsed (other than for collection or deposit in the
ordinary course of business), discounted, sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise acquire, or
in respect of which such Person has agreed to supply or advance funds (whether
by way of loan, stock purchase, capital contribution or otherwise) or otherwise
to become directly or indirectly liable.
21.7 Market Price. The Market Price of shares of stock of the
Company shall be determined as set forth in Section 4(g) of the Form of Warrant
attached as EXHIBIT B.
21.8 Net Issuable Exchange. A cashless exchange of the Warrant for
shares of Common Stock based upon The Exchange Formula.
21.9 Officer's certificate. A certificate signed in the name of
the Company by its Chairman of the Board of Directors, or its President or one
of its Vice Presidents and its Treasurer or one of its Assistant Treasurers.
21.10 Person. A corporation, an association, a partnership, an
organization, a business, an individual, or a government or political
subdivision thereof, or any governmental agency, but excluding a Subsidiary.
21.11 Public offering of common stock. The first underwritten
public offering of shares of the Company's Common Stock registered under the
Act, as a result of which Purchasers will no longer be entitled to
anti-dilution protection as to its ownership Warrants or Common Stock.
21.12 Senior Debt. The principal (and premium, if any, payable on
redemption) of and interest on all Indebtedness of the Company and its
Subsidiaries for any current and future liabilities or obligations of any kind,
and all current and future guaranties, direct or indirect, by the Company or
any Subsidiary of such Indebtedness of others and all renewals, extensions and
refundings of any such Indebtedness, and all such current and future guaranties
by the Company or any Subsidiary of renewals, extensions and refundings of any
such Indebtedness of others, whether such Indebtedness or guaranty is
outstanding on the date of this agreement or thereafter created, incurred or
assumed, unless by the terms of the future instrument creating or evidencing
such future Indebtedness or future guaranty or pursuant to which the same is
outstanding it is provided in effect that the Indebtedness or guaranty is not
superior in right of payment to the Notes. Notwithstanding anything contained
herein to the contrary, all debt that is not traditionally senior debt (senior
debt to include, but not be limited to current and future acquisition debt,
bank debt, institutional debt, trade debt, financing debt, (except Company
affiliates or insiders and the December 1996 Notes), shall be pari passu basis
with this debt. As to the current outstanding debt to the
30
<PAGE> 36
Company Director, the Company covenants and agrees to provide Purchasers on an
equal basis and at the same time on a pari passu basis, for any payment on such
debt to the Company Director or grant of security to such Company Director.
The Company agrees to immediately provide Purchasers with notice of any demand
or action by said Director to collect such debt. In the event of a payment to
Purchaser hereunder the Note shall be reduced accordingly.
21.13 Subsidiary. Any corporation, association, or other business
entity in which more that 50 percent of the stock of each class having ordinary
voting power is, at the time as of which any determination is being made, owned
or controlled, directly or indirectly, by the Company and/or one or more of its
Subsidiaries.
ARTICLE 22 - EXPENSES
Upon consummation of the transaction, the Company will pay:
(a) All the costs and expenses of this agreement, of the printing
and the issue of the Notes and Warrants and the Common Stock issuable upon
conversion of the Notes and Warrants, of any taxes (including any interest and
penalties in respect thereof) payable on such issue (Company agreeing to
indemnify Purchaser in respect thereof), of furnishing all opinions by the
Company's counsel (including any opinions reasonably requested by Purchaser's
special counsel as to any legal matter arising hereunder) and all certificates
on behalf of the Company, and of the Company's performance of and compliance
with all of its agreements and conditions contained herein;
(b) The cost of delivering to Purchaser, insured to your
satisfaction, the Notes and Warrants purchased by Purchaser at Closing Time and
any Notes and Warrants or Common Stock or Warrants delivered to Purchaser upon
any exchange, delivery or exchange pursuant to the provisions of this agreement
and of delivering any Notes to the Company, insured to Purchaser's
satisfaction, if delivered by Purchaser pursuant to the provisions of this
agreement or upon any conversion or prepayment of the Notes;
(c) Pay, indemnify, and hold Purchaser and each other holder of
any Note harmless from and against any and all liability and loss with respect
to or resulting from:
(1) All claims for or on account of brokers' or finders'
fees or commissions with respect to such transactions; and
(2) The nonpayment or delayed payment of all stamp and
other taxes, fees, and excises (other than transfer taxes), if any, including
any interest and penalties, which may be or be determined to be, payable in
connection with this transaction, or in connection with the original issue of
the Notes or any Common Stock issuable upon exchange of Notes or Warrants.
(d) All legal fees and costs incurred with Special Counsel of the
Purchaser in connection with this transaction up to $10,000. Special Counsel
is Lindquist & Vennum P.L.L.P., 4200 IDS Center, 80 South 8th Street,
Minneapolis, Minnesota 55402.
31
<PAGE> 37
ARTICLE 23 - SURVIVAL OF AGREEMENTS, REPRESENTATIONS, AND WARRANTIES, ETC.
All agreements, representations, and warranties contained herein or
made in writing by or on behalf of Company in connection with the transactions
contemplated hereby shall survive the execution and delivery of this agreement,
any investigation at any time made by Purchaser or on its behalf, Purchaser's
acquisition of the Note, and any disposition, or payment of the Note. All
statements contained in any certificate or other instrument delivered by Company
pursuant hereto or in connection with the transactions contemplated hereby shall
be deemed representations and warranties by the Company hereunder.
ARTICLE 24 - NOTICES, ETC.
All notices, requests, consents, and other communications hereunder
shall be in writing and mailed by first class registered or certified mail,
postage prepaid:
(a) If to Purchaser, at its address as set forth in SCHEDULE 1 to
this agreement, marked for attention as there indicated, or at any other
address furnished to Company by Purchaser in writing; or
(b) If to any other holder of any Note or Warrant, at any address
furnished to the Company in writing by such holder, or, until such other holder
furnishes to Company an address, then to, and at the address of, the last
holder of such Note or Warrant who has so furnished an address to Company; or
(c) If to the Company, Vision 21, Inc., 7209 Bryan Dairy Road,
Largo, Florida 34647, with a copy to Darrell C. Smith, Esquire, Shumaker, Loop
& Kendrick, LLP, 101 E. Kennedy Blvd. Suite 2800, Tampa, Florida 33602.
ARTICLE 25 - AMENDMENTS AND WAIVERS
Neither this agreement nor any Notes nor any term hereof or thereof
may be changed, waived, discharged or terminated orally or in writing, except
that any term of this agreement or of the Notes may be amended and the
observance of any such term may be waived (either generally or in a particular
instance and either retroactively or prospectively) with (and only with) the
written consent of the holders of at least 51 percent in principal amount of
the Notes at the time outstanding, provided, however, that no such amendment or
waiver shall, without the written consent of the holders of all of the Notes at
the time outstanding, (a) change the amount or time of any payment or
prepayment of any Notes or any part thereof, or of any premium or interest
thereon, or (b) reduce the percentage of the principal amount of the Notes the
holders of which are required to consent to any amendment or waiver under this
Article 25.
ARTICLE 26 - HOME OFFICE PAYMENT
The Company agrees that, as long as Purchaser shall hold any Notes,
the Company will make payments of principal thereof and interest and premium,
if any, thereon by check duly mailed to Purchaser, or to Purchaser's nominee,
at the address set forth under Purchaser's name on SCHEDULE 1, or any other
address you designate to the Company in writing, notwithstanding any contrary
provision herein or in any Note with respect to the place of payment.
Purchaser agrees that, before disposing of any Note, Purchaser will make a
notation thereon of all principal payments previously made thereon and of the
date
32
<PAGE> 38
to which interest thereon had been paid, and will notify the Company of the
name and address of the transferee of such Note if known to Purchaser.
ARTICLE 27 - MISCELLANEOUS
This agreement is being delivered and is intended to be performed in
the State of Florida and shall be construed and enforced in accordance with and
governed by the laws of such State. All the terms of this agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not, and,
in particular, shall inure to the benefit of and be enforceable by any holder
or holders at the time of the Notes. This agreement embodies the entire
agreement and understanding between Purchaser and the Company and supersedes
all prior agreements and understandings relating to the subject matter hereof.
The headings in this agreement are for convenience of reference only, and shall
not limit or otherwise affect the meaning hereof. This agreement may be
executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
33
<PAGE> 39
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this letter and return the same to
the Company, whereupon this letter shall become a binding contract between you
and the Company.
Very truly yours,
VISION 21, INC.
By: /s/ Theodore N. Gillette
-----------------------------------
Theodore N. Gillette, President
(Corporate Seal)
Attest:
By: /s/ Richard T. Welch
-----------------------------------
Richard T. Welch, Chief Financial
Officer
34
<PAGE> 40
The foregoing agreement is hereby agreed to as of this date thereof.
PIPER JAFFRAY HEALTHCARE FUND II
LIMITED PARTNERSHIP
By: Piper Jaffray Healthcare Management
Partnership, its General Partner
By: /s/ Buzz Benson
----------------------------------------
Buzz Benson, Managing Director of
Piper Jaffray Ventures Incorporated,
its General Partner
Address:
Buzz Benson, Managing Director
Piper Jaffray Ventures Incorporated
222 South Ninth Street
Minneapolis, MN 55402-3804
Phone: (612) 342-6335
Fax: (612) 342-1036
35
<PAGE> 41
EXHIBIT A - FORM OF
10% SENIOR SUBORDINATED SERIES 1997 NOTE, DUE DECEMBER 19, 1999
<TABLE>
<S> <C> <C>
$2,000,000 February 28, 1997
Largo, Florida
</TABLE>
FOR VALUE RECEIVED, the undersigned Vision 21, Inc. ("the Company"), a
corporation organized and existing under the laws of the State of Florida,
hereby promises to pay to Piper Jaffray Healthcare Fund II Limited Partnership,
or registered assigns, interest (computed on the basis of a 360-day year of
twelve 30-day months) on the unpaid balance thereof at the rate of 10 percent
per annum from the date hereof, payable semiannually on the 19th day of
December and the 19th day of June each year commencing with June 19, 1997 until
the principal hereof has become due and payable, and thereafter at the rate of
12 percent per annum until paid, and so far as may be lawful, with interest on
any overdue installment of interest at the rate of 12 percent per annum. The
entire principal sum of the Note in the amount of $2,000,000 and any accrued
interest yet unpaid shall become due and payable in full the earlier of
December 19, 1999, or the date of a First Liquidity Event as defined in the
Note Purchase Agreement.
Payments of both principal and interest are to be made at 7209 Bryan
Dairy Road, Largo, Florida 34647, or any other place the holder hereof
designates to the Company in writing, in lawful money of the United States of
America.
This Note has been issued, pursuant to that Note Purchase Agreement
dated February 28, 1997, between the Company and the Purchaser of said Note and
is entitled to the benefits of said Note Purchase Agreement. As provided
therein, this Note is subject to prepayment, in whole or in part, without
penalty or premium.
This Note and all payments hereon, including principal and interest,
are subordinated to all the Company's Senior Debt, as defined in said Note
Purchase Agreement, to the extent and in the manner specified in that
agreement.
If an event of default, as defined in the Note Purchase Agreement
occurs and is continuing, the principal of this Note may be declared due and
payable in the manner and with the effect provided in said Note Purchase
Agreement.
VISION 21, INC.
(Corporate Seal) By:
----------------------------------------------
Theodore N. Gillette, President
Attest:
By:
----------------------------------------------
Richard T. Welch, Chief Financial Officer
A-1
<PAGE> 42
EXHIBIT B - FORM OF STOCK PURCHASE WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF VISION 21, INC.
THIS CERTIFIES THAT, for value received, Piper Jaffray Healthcare Fund
II Limited Partnership (herein called "Purchaser"), or its registered assigns,
is entitled to subscribe for and purchase from Vision 21, Inc. (hereinafter
called the "Company"), a corporation organized and existing under the laws of
the State of Florida, at the price specified below (subject to adjustment as
noted below) at any time after the date hereof to and including the earlier of
(i) December 19, 2003 and (ii) five years from the closing date of an initial
public offering ("IPO") of the Company's Common Stock (the "Expiration Date")
Four Hundred Twenty-One Thousand Nine Hundred Forty-One (421,941) fully paid and
nonassessable shares of the Company's Common Stock (hereinafter the "Common
Stock") as provided herein (subject to adjustment as noted below). This Warrant
has been issued pursuant to a Note Purchase Agreement dated as of February 28,
1997 (the "Note Purchase Agreement") between the Purchaser and the Company and
entitles the Purchaser to purchase $2,000,000 of Common Stock of the Company.
The applicable provisions of the Note Purchase Agreement are incorporated herein
by reference and to the extent that there is any inconsistency between the Note
Purchase Agreement and this Warrant, the terms of the Note Purchase Agreement
shall prevail. All capitalized terms not otherwise defined in this Warrant
shall have the same meaning as defined in the Note Purchase Agreement.
For purposes of this Warrant, the term "Capital Stock" shall mean and
include the Company's presently authorized Common Stock and shall also include
any capital stock of any class of this Company, including preferred stock, and
any securities convertible or exchangeable into shares of the Company's Common
Stock or preferred stock.
This Warrant shall initially be exchangeable for 421,941 shares of
Common Stock, potentially increasing to up to 500,000 shares of Common Stock so
that the Purchaser will have the right to purchase an aggregate of $2,000,000
worth of Common Stock of the Company at an exchange price of between $4.00 and
$4.74 per share of Common Stock (the "Warrant Exchange Price"), as hereinafter
determined, or in a cashless exchange for a reduced number of shares (the "Net
Issuable Exchange"), as determined by section 9 of this Warrant. Should the
offering price of the Company's Common Stock in an initial public offering be
less than $9.48 per share, then the Warrant Exchange Price shall become
one-half of that initial offering price, but not less than $4.00 per share,
subject to section 4 below. Should the Market Price per share of Common Stock
as defined herein be less than $9.48 at the time of any First Liquidity Event
other than an IPO, then the exercise price for the stock shall become one-half
of that Market Price per share on such date, but not less than $4.00 per share,
subject to section 4 below, provided, however, if the exchange price on any
warrant subsequently issued to Prudential, as hereinafter defined, is less than
the Warrant Exchange Price, the Warrant Exchange Price will be adjusted
downward to the exchange price granted by the Company on any Prudential
warrant.
This Warrant is subject to the following provisions, terms and
conditions:
B-1
<PAGE> 43
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise delivered to
the Company 20 days prior to the intended date of exercise and by the surrender
of this Warrant (properly endorsed if required) and payment of the Warrant
Exchange Price at the principal office of the Company. The Company agrees that
the shares so purchased shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for
such shares as aforesaid. Subject to the provisions of the next succeeding
paragraph, certificates for the shares of stock so purchased shall be delivered
to the holder hereof as promptly as practicable, after the rights represented
by this Warrant shall have been so exercised, and, unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with respect
to which this Warrant shall not then have been exercised shall also be
delivered to the holder hereof as promptly as practicable.
2. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for shares of stock upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. The Company represents and warrants that this Warrant has been
duly authorized by all necessary corporate action, has been duly executed and
delivered and is a legal and binding obligation of the Company. The Company
covenants and agrees that all shares which may be issued upon the exercise of
the rights represented by this Warrant according to the terms hereof or
represented by the Common Stock to be issued pursuant to the Warrant will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
4. The Warrant Exchange Price and the number of shares issuable
upon exchange shall, in addition to the above paragraphs, be subject to
adjustment as follows in the event the Company issues or is deemed to have
issued shares at less than the current exchange price:
(a) For the purposes of this section 4(a), the term "current
exchange price" is defined as meaning at any given time the Warrant Exchange
Price then in effect, which is set as $4.74 as of the date hereof; and the term
"current quotient" is defined as meaning on any given date the amount
determined at the close of business on such day by dividing:
(1) An amount equal to (A) the total number of shares of
Common Stock outstanding when the current exchange price became effective,
exclusive of any such shares which may have been issued after the date hereof
as provided in this section 4(a), multiplied by the current exchange price,
plus (B) the aggregate of the amounts of all consideration, if any, received by
the Company, (or, without duplication, deemed to be received as provided in
paragraph (viii) below) upon all issuances of shares of Common Stock since the
current exchange
B-2
<PAGE> 44
price became effective and prior to the time of the determination of the
current quotient except shares of Common Stock issued as provided in
Subdivision (c) hereof; by
(2) The total number of shares of Common Stock
outstanding immediately prior to the time of such determination, including any
such shares deemed to have been issued as provided in paragraph (viii) below
but excluding any such shares which may have been issued as provided in this
section 4(a). For the purposes of this paragraph, the Warrant Exchange Price
of $4.74 shall be deemed to have become effective at the close of business on
the date of this Warrant. In determining the current quotient, the result
shall be expressed to the nearest cent.
If at the close of business on any date after the date of this Warrant
on which any adjustment event hereunder takes place, the current exchange price
exceeds the current quotient by as much as one percent of the then effective
Warrant Exchange Price, the Warrant Exchange Price shall be reduced to the
price equal to the current quotient, effective at the close of business on such
date. In such case of a subdivision or combination of the outstanding shares
of Common Stock issuable upon exchange of the Warrant, the Warrant Exchange
Price shall be first reduced, effective immediately prior to an adjustment of
the Warrant Exchange Price pursuant to this section 4, by the amount, if any,
by which the current exchange price exceeds the current quotient.
For the purposes of this section 4, the following provisions shall
also be applicable:
i) If additional shares of Common Stock are issued for cash, the
consideration received by the Company therefor shall be deemed to be the amount
of cash received by the Company for such shares, before deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such shares.
ii) If additional shares of Common Stock are issued (otherwise
than upon the exchange of the Company's obligations or shares of stock or upon
the exchange of rights or options to subscribe for or to purchase shares of
Common Stock) for a full or partial consideration other than cash, the amount
of the non-cash consideration received by the Company for such shares shall be
deemed to be the value of such consideration as determined in good faith by the
Company's Board of Directors.
iii) If additional shares of Common Stock are issued upon
conversion or exchange of any obligations (including the Notes) or of any
shares of the Company's stock that are convertible into or exchangeable for
shares of Common Stock or upon the exchange of rights or options to subscribe
for or to purchase shares of Common Stock, the amount of the consideration
received by the Company for such additional shares of Common Stock shall be
deemed to be the total of: (a) the amount of consideration received by the
Company upon the original issuance of such obligations, shares, rights, or
options, plus (b) any other consideration received by the Company upon
conversion, or exchange except in adjustment of interest and dividends. If
obligations, shares, rights, or options, of the same class or series of a class
as the obligations, shares, rights,
B-3
<PAGE> 45
or options so converted, or exchanged have been originally issued for different
amounts of consideration, the amount of consideration received by the Company
upon the original issuance of each obligation, share, right, or option so
converted, or exchanged shall be deemed to be the average amount of the
consideration received by the Company upon the original issuance of all such
obligations, shares, rights, or options. The amount of the consideration,
obligations, shares, rights, or options so converted, or exchanged and the
amount of any other consideration received by the Company upon the original
issuance of the obligations, shares, rights, or options so converted, or
exchanged and the amount of any other consideration, received by the Company
upon such conversion, or exchange shall be determined in the same manner
provided in paragraphs (i) and (ii) above with respect to the consideration
received by the Company in case of the issuance of additional shares of Common
Stock. If such obligations, shares, rights, or options have been issued as a
dividend upon any stock of the Company, the amount of the consideration received
by the Company upon the original issuance thereof shall be deemed to be zero.
iv) If additional shares of Common Stock are issued as a
dividend, the aggregate number of shares of Common Stock issuable in payment of
such dividend shall be deemed to have been issued and to be outstanding at the
close of business on the record date fixed for the determination of
stockholders entitled to such dividend. Shares of Common Stock issued
otherwise than as a dividend shall be deemed to have been issued and to be
outstanding at the close of business on the date of issue.
v) The term dividend shall mean a dividend or other distribution
upon stock of the Company.
vi) The number of shares of Common Stock at any time outstanding
shall not include all shares of Common Stock then owned or held by or for the
account of the Company.
vii) If the Company declares a dividend without fixing a record
date for determining the stockholders entitled thereto, the first business day
during which the Company's stock transfer books are closed for the purpose of
such determination shall be deemed to be the record date fixed for the
determination of stockholders entitled to such dividend.
viii) In case of (a) the issuance of shares of stock or obligations
convertible into or exchangeable for shares of Common Stock at an exchange
price per share less than the current exchange price in effect immediately
prior to the issuance of such convertible stock or obligations, or (b) the
issuance of any rights to subscribe for or to purchase, or any options for the
purchase of, additional shares of Common Stock, at a price per share for the
additional shares of Common Stock issuable upon the exchange of such rights or
options less than the current exercisable price in effect immediately prior to
the issuance of such rights or the granting of such options, then the issuance
of such stock, obligations, rights, or options shall be deemed to be an
issuance (as of the date of issuance of such stock, obligations, rights, or
options) of the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such convertible stock or obligations or upon
the exchange of all such rights or options, as the
B-4
<PAGE> 46
case may be. In such case, the amount received or receivable by the Company in
consideration of the issuance of such stock, obligations, rights, or options
(plus the minimum aggregate amount of premium or additional consideration
payable to the Company upon conversion or exchange of the stock or obligations
or upon the exchange of such rights or options) before deducting therefrom any
commissions or other expenses paid or incurred by the Company for any
underwriting of, or otherwise in connection with, the issuance of such stock,
obligations, rights or options, shall be deemed to be the consideration
actually received (as of the date of issuance of such rights or options) for
the issuance of the additional shares of Common Stock.
The Consideration actually received by the Company for any shares of
Common Stock issued upon the exchange of such stock or obligations or upon the
exchange of such rights or options, which pursuant to this paragraph (viii) is
deemed to have been received, shall not be included in the (first paragraph of
this section 4(a) for the purpose of computing the current quotient and no
further adjustment of the exchange price shall be made in respect thereof
except that:
(1) On the expiration of such rights or options or the
termination of the right to convert or exchange such stock or obligations, the
current quotient and the current exchange price shall forthwith be readjusted
to the current quotient and current exchange price which would have obtained
had the adjustments made on account of the issuance of such options, rights or
convertible or exchangeable securities been made upon the basis of the delivery
of only the number of shares of Common Stock actually delivered upon the
exchange of such rights or options or upon conversion or exchange of such
securities for the consideration actually received by the Company for such
options, rights or securities and upon the exchange, exchange or conversion
thereof; and
(2) If the purchase or exchange price or exchange rate
provided for in any such options, rights, stock, or obligations changes or a
different purchase or exchange price or exchange rate becomes effective at any
time or from time to time (other than under or by reason of provisions
designated to protect against dilution) then, upon such change becoming
effective, the current quotient and current exchange price then in effect
hereunder shall forthwith be increased or decreased to such current quotient
and current exchange price as would have obtained had the adjustments made upon
the issuance of such options, rights or convertible or exchangeable securities
been made upon the basis of (A) the issuance of the number of shares of Common
Stock theretofore actually delivered upon the exchange, conversion or exchange
thereof, (B) the issuance of all Common Stock and all other options, rights or
convertible or exchangeable securities issued after the issuance of such
options, rights or convertible or exchangeable securities, and (C) the original
issuance at the time of such exchange of any such options, rights or
convertible or exchangeable securities then still outstanding.
In case, however, such stock or obligations are convertible or
exchangeable at an exchange price or exchange rate or such rights or options
are exercisable at a purchase price per share equal to or in excess of the
current exchange price immediately prior to the issuance or sale of such
convertible stock or obligations or of such rights or options, then no
adjustment of the exchange
B-5
<PAGE> 47
price shall be made except in respect of additional shares of Common Stock
actually issued upon the conversion or exchange of any such convertible stock
or obligations or upon the exchange of any such rights or options.
ix) No adjustment in the Warrant Exchange Price shall be made in
respect of the issuance or sales of Common Stock held in the Company's treasury
to the extent it acquired such Common Stock after the date of this Warrant,
except that if any such treasury shares are issued or sold for a consideration
per share which is less than the Warrant Exchange Price in effect immediately
prior to such issue or sale and which is less than the average cost per share
of such treasury shares, the Company shall be deemed for purposes of this
section 4, to have issued or sold shares of Common Stock equal in number to
such treasury shares for a consideration per share equal to the Warrant
Exchange Price in effect immediately prior to such issue or sale reduced by the
amount by which such average cost of such treasury share exceeds such
consideration per share.
(b) In case the Company at any time subdivides or issues a stock
dividend upon the outstanding shares of Common Stock the Warrant Exchange Price
in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the Warrant Exchange
Price in effect immediately prior to such combination shall be proportionately
increased. Any such adjustment shall become effective at the close of business
on the date that such subdividision, stock dividend or combination becomes
effective.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of the shares of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case appropriate
provision shall be made with respect to the rights and interests of the holder
of this Warrant to the end that the provisions hereof (including without
limitation provisions for adjustments of the Warrant Exchange Price and of the
number of shares purchasable upon the exercise of this Warrant) shall
thereafter be applicable as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof.
The Company shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such
B-6
<PAGE> 48
assets shall assume, by written instrument executed and mailed to the
registered holder hereof at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase.
(d) Upon any adjustment of the Warrant Exchange Price, then and in
each such case the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company, which notice
shall state the warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
(e) In case any time:
(1) the Company shall declare any cash dividend on its
capital stock at a rate in excess of the rate of the last cash
dividend theretofore paid;
(2) the Company shall pay any dividend payable in stock
upon its capital stock or make any distribution (other than regular
cash dividends) to the holders of its capital stock;
(3) the Company shall offer for subscription pro rata to
the holders of its capital stock any additional shares of stock of any
class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company.
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the
registered holder of this Warrant at the address of such holder as
shown on the books of the Company, of the date on which (aa) the books
of the Company shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (bb) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, or conversion or redemption
shall take place, as the case may be. Such notice shall also specify
the date as of which the holders of capital stock of record shall
participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their capital stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
or conversion or
B-7
<PAGE> 49
redemption, as the case may be. Such written notice shall be given at
least 20 days prior to the action in question and not less than 20
days prior to the record date or the date on which the Company's
transfer books are closed in respect thereto.
(f) If any event occurs as to which in the opinion of the
Board of Directors of the Company the other provisions of this section 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant in accordance with the essential
intent and principles of such provisions, then the Board of Directors shall make
an adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such purchase rights as
aforesaid. In addition, if the Company issues any shares of Common Stock other
than for an Approved Transfer (as defined herein) at a price less than the
then-current exchange price as defined herein, then the Warrant Exchange Price
shall be adjusted as provided in this section 4.
(g) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon such
exercise) in respect of such fraction in an amount equal to the same fraction
of the Market Price per share of Common Stock as of the close of business on
the date of the notice required by paragraph 1 above. "Market Price" shall
mean, if the Common Stock is traded on a securities exchange or on the Nasdaq
National Market or Nasdaq SmallCap Market, the average of the closing prices of
the Common Stock on such exchange or on the Nasdaq National Market or Nasdaq
SmallCap Market on the 10 trading days ending on the trading day prior to the
date of determination, or, if the Common Stock is otherwise traded in the
over-the- counter market, the average of the closing bid prices on the 10
trading days ending on the trading day prior to the date of determination. If
at any time the Common Stock is not traded on an exchange or on the Nasdaq
National Market or Nasdaq SmallCap Market or otherwise traded in the
over-the-counter market, then the Market Price shall be deemed to be the
average closing prices or average closing bid prices of the Common Stock, as
the case may be, or, if such exercise occurs in connection with a public
offering of the Common Stock, the public offering price of the Common Stock. If
at any time the Common Stock is not traded on an exchange or the or on the
Nasdaq National Market or Nasdaq SmallCap Market or otherwise traded in the
over-the-counter market the Market Price shall be deemed to be the higher of
(i) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within 60 days preceding the
date as of which the determination is to be made, or (ii) the fair value
thereof determined in good faith by the Board of Directors of the Company as of
a date which is within 15 days of the date as of which the determination is to
be made.
(h) No adjustment of the Warrant Exchange Price shall be made as a
result of or in connection with (i) shares issued in acquisitions to be made by
the Company, (ii) shares issued in establishing a strategic alliance, (which
includes any financial and lending arrangements with Prudential Securities
Incorporated ("Prudential"), or any affiliates or assigns thereof on terms
substantially similar to those set forth on Schedule 13.1 to the Note Purchase
Agreement), or (iii)
B-8
<PAGE> 50
for option shares issued to employees, contractors, consultants or affiliated
physicians approved by the Board of Directors and pursuant to previous option
grants or Warrants disclosed on the attached Schedule 13.1 to the Note Purchase
Agreement or related to future options granted where shares issued are at a
price equal to or higher than the current exchange price as defined herein,
("Approved Transfers"), provided, however, if the exchange price on any warrant
subsequently issued to Prudential is less than the Warrant Exchange Price, the
Warrant Exchange Price will be adjusted downward to the exchange price granted
by the Company on any Prudential warrant.
(i) The issuance of certificates for shares of Common Stock upon
the exchange of Warrants shall be made without charge to the Warrant holders
for any tax (other than federal or state income taxes) in respect to the
issuance of such certificates. Such certificates shall be issued in the
respective names of, or in the names directed by, the holder of the Warrant
exchanged. Company, however, shall not be required to pay any tax which may be
payable in respect to any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the holder of the Warrants
exchanged, or to issue or deliver such certificates until the person or persons
requesting the issuance thereof have paid the Company the amount of such tax or
have established to the satisfaction of the Company that such tax has been
paid.
5. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company. Unless otherwise
provided in the Note Purchase Agreement, no dividends are, or should be
payable, or shall accrue on or with respect to this Warrant or any interest
represented by this Warrant or on the shares purchasable upon exercise hereof
until or unless, and except to the extent that this Warrant is exercised.
6. The holder of this Warrant, by acceptance hereof, agrees to
give written notice to the Company before transferring this Warrant or
transferring any Common Stock issuable or issued upon the exercise hereof of
such holder's intention to do so, describing briefly the manner of any proposed
transfer of this Warrant or such holder's intention as to the disposition to be
made of shares of Common Stock issuable or issued upon the exercise hereof. In
addition the holder of this Warrant shall represent in such notice to the
Company that a copy of the Note Purchase Agreement has been provided to any
proposed transferree(s). Such holder shall also provide the Company with an
opinion of counsel satisfactory to the Company to the effect that the proposed
transfer of this Warrant or disposition of shares may be effected without
registration or qualification (under any Federal or State law) of this Warrant
or the shares of Common Stock issuable or issued upon the exercise hereof.
Upon receipt of such written notice and opinion by the Company, such holder
shall be entitled to transfer this Warrant, or to exercise this Warrant in
accordance with its terms and dispose of the shares received upon such exercise
or to dispose of shares of Common Stock received upon the previous exercise of
this Warrant, all in accordance with the terms of the notice delivered by such
holder to the Company, provided that an appropriate legend respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant or the certificates for such shares.
B-9
<PAGE> 51
7. Subject to the provisions of paragraph 6 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, at the
principal office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer on
such books, the Company may treat the registered holder hereof as the owner for
all purposes.
8. If permitted by federal and state securities laws, this
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the right to subscribe for and purchase the number of shares
which may be subscribed for and purchased hereunder, each of such new Warrants
to represent the right to subscribe for and purchase such number of shares as
shall be designated by said holder hereof at the time of such surrender.
9. (a) In addition to and without limiting the rights of the
holder of this Warrant under the terms of this Warrant the holder of this
Warrant shall have the right (the "Conversion Right") to convert this Warrant
or any portion thereof into shares of Common Stock as provided in this
paragraph 9 at any time or from time to time prior to its expiration. Upon
exercise of the Conversion Right with respect to a particular number of shares
subject to this Warrant (the "Converted Warrant Shares"), the Company shall
deliver to the holder of this Warrant, without payment by the holder of any
exercise price or any cash or other consideration, that number of shares of
Common Stock equal to the quotient obtained by dividing the Net Value (as
hereinafter defined) of the Converted Warrant Shares by the fair market value
(as defined in paragraph (c) below) of a single share of Common Stock,
determined in each case as of the close of business on the Conversion Date (as
hereinafter defined). The "Net Value" of the Converted Warrant Shares shall be
determined by subtracting the aggregate Warrant Exchange Price of the Converted
Warrant Shares from the aggregate fair market value of the Converted Warrant
Shares. No fractional shares shall be issuable upon exercise of the
Conversion Right and if the number of shares to be issued in accordance with
the foregoing formula is other than a whole number, the Company shall pay to
the holder of this Warrant an amount in cash equal to the fair market value of
the resulting fractional share.
(b) The Conversion Right may be exercised by the holder of this
Warrant by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in paragraph (a) above as
the Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement or on such later date as is
specified therein (the "Conversion Date"), but not later than the expiration
date of this Warrant. Certificates for the shares of Common
B-10
<PAGE> 52
Stock issuable upon exercise of the Conversion Right together with a check in
payment of any fractional share and, in the case of a partial exercise, a new
warrant evidencing the shares remaining subject to this Warrant shall be issued
as of the Conversion Date and shall be delivered to the holder of this Warrant
within 15 days following the Conversion Date.
(c) For purposes of this paragraph 9, the "fair market value" of
a share of the Common Stock as of a particular date shall be its Market Price,
calculated as described in paragraph 4(g) hereof.
10. The holder of this Warrant shall have no registration rights
except for the registration rights specified in the Note Purchase Agreement.
11. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law, not the law of
conflicts, of the State of Florida.
B-11
<PAGE> 53
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer and this Warrant to be dated as of February 28,
1997.
VISION 21, INC.
By____________________________________
Its________________________________
RESTRICTION ON TRANSFER
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended, or the securities laws of any state and may
not be transferred without (i) the opinion of counsel satisfactory to this
corporation that such transfer may be lawfully made without registration under
the Federal Securities Act of 1933 and all applicable state securities laws or
(ii) such registration."
B-12
<PAGE> 54
EXHIBIT C - FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto________________________________________________________ this Warrant, and
appoints________________________________________________________ to transfer
this Warrant on the books of the Company with the full power of substitution in
the premises.
<TABLE>
<S> <C>
Dated:
---------------------------
In the presence of:
- ---------------------------------
---------------------------------------------------------------------
(Signature must conform in all respects to the name of the holder as
specified on the face of this Warrant without alteration, enlargement
or any change whatsoever, and the signature must be guaranteed in the
usual manner)
</TABLE>
C-1
<PAGE> 55
EXHIBIT D - FORM OF OPINION OF SHUMAKER, LOOP & KENDRICK
1. The Company has been duly incorporated and organized and is a
validly existing corporation in good standing under the laws of the State of
Florida. The Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such qualification
and in which the failure to qualify would have a materially adverse effect upon
the business of the Company. The Company has the corporate power and authority
to enter into the Agreement, to issue and sell the Note and Warrant, and to
carry out the provisions of the Agreement, and has the corporate power and
authority to own and hold its properties owned and leased and to carry on the
business in which it has engaged.
2. The Agreement, Note and Warrant each have been duly and
validly authorized, executed and delivered by the Company and constitute the
legal, valid and binding agreements and obligations of the Company enforceable
against the Company in accordance with their respective terms.
3. The authorized Capital Stock of the Company consists of sixty
million (60,000,000) shares of capital stock, $.001 par value, consisting of
(i) fifty million (50,000,000) shares designated as Common Stock, and, to our
knowledge, as of the date hereof, the Company is committed to issue such number
of shares of Common Stock as set forth in Schedule 4.15 of the Agreement, and
(ii) ten million (10,000,000) shares of Preferred Stock, of which, to our
knowledge, zero (-0-) shares are currently issued and outstanding as of the
date hereof. To our knowledge, there are currently outstanding options and
warrants to purchase such number of shares of Common Stock set forth in
Schedule 4.15 of the Agreement and such number of shares are reserved for
issuance upon the exercise of such outstanding options and warrants. All of
the outstanding shares have been duly authorized and are validly issued and
non-assessable and, to our knowledge, are free and clear of any encumbrances or
restrictions (except any securities law restrictions), shareholder preemption
or similar statutory rights or any contractual purchase rights. The shares
issuable upon conversion of the Note and exercise of the Warrant have been duly
authorized and reserved and, assuming due conversion of the Note and due
exercise of the Warrant and payment of the exercise price, will be duly
authorized, validly issued and non-assessable, free and clear of any
encumbrances or restrictions (except any securities law restrictions),
shareholder preemption or similar statutory rights or any contractual purchase
rights. Except for such securities and the Warrant to be delivered and such
options and warrants set forth in Schedule 4.15 of the Agreement, to our
knowledge, there are no outstanding securities convertible into Common Stock of
the Company or outstanding options, warrants or other rights to acquire
securities (or agreements for any such rights) of the Company. To our
knowledge, except as set forth in the Agreement, the Services Agreement dated
as of September 9, 1996 with Richard L. Lindstrom, M.D., the Agreement dated
May 10, 1996 with Bruce S. Maller, the Advisory Agreement dated as of October
20, 1996 with Bruce S. Maller and the Registration Rights Agreements dated as
of December 1, 1996, there are no agreements or understandings on the part of
the Company with respect to the registration of any securities of the Company
under the Securities Act, and there are no obligations on the part of the
Company to purchase or redeem
D-1
<PAGE> 56
any outstanding shares of capital stock of the Company. To our knowledge,
except as otherwise provided in (i) the Agreement; (ii) the Confidential
Information Memorandum dated December 1996, as amended, (iii) the Note Purchase
Agreement dated December 20, 1996; (iv) the Agreement and Plan of Reorganization
dated as of December 1, 1996, with Eye Institute of Southern Arizona, P.C.,
Jeffrey I. Katz, M.D. and Barry Kusman, M.D., and Vision 21 of Arizona, Inc.
which provides that, if certain conditions are satisfied, the Company will pay
Dr. Katz and Dr. Kusman 210,302 shares of stock of the Company in consideration
for the transfer of ambulatory surgical center assets to Dr. Katz and Dr.
Kusman's professional association; (v) the agreement with J&R Kennedy, O.D.,
P.A. regarding 9,314 shares of stock of the Company issuable as contingent
consideration for the acquisition of the practice if certain conditions are
satisfied; and (vi) the Stock Purchase Agreement with the shareholders of
Minnesota Eye Care Alliance, Inc. ("MECA"), which provides that the Company will
purchase the shares of MECA in exchange for $700,000, payable in cash or stock
on the date of any initial public offering of the Company, there are no
agreements or understandings among shareholders of the Company concerning
voting, rights of first refusal, repurchase or redemption rights, puts, calls or
similar rights to capital stock of the Company.
4. The execution, delivery and performance of the Agreement by
the Company and the issuance of the Note and Warrant pursuant thereto do not
violate any provision of the Company's Articles of Incorporation or Bylaws, as
amended, and, to our knowledge, do not constitute a default under the
provisions of any material agreement known to us to which the Company is a
party or by which it is bound, and do not violate or contravene (a) any
governmental statute, rule or regulation applicable to the Company or (b) any
order, writ, judgment, injunction, decree, determination or award which has
been entered against the Company and of which we are aware. To our knowledge,
the Company is not in default of any material agreements in which the Company
is a party or by which it is bound (except for any defaults relating to the
delivery of shares of the Company's stock which has been delayed pending the
receipt of all shareholder consents to the final adjusted share numbers
described in Schedule 4.15 of the Agreement and the purchase price and merger
consideration adjustments described in the acquisition agreements with the
founding practices, which have been delayed pending completion of the audit of
such founding practices' current accounts), or in violation of any laws,
statutes, rules or regulations known to us.
5. There is no action, proceeding or investigation pending or, to
our knowledge, overtly threatened against the Company or any of its officers or
directors before any court or authority or administrative agency that questions
the validity of the Agreement or the right of the Company to enter into the
Agreement or to consummate the transactions contemplated thereby or that might
result, either individually or in the aggregate, in any material adverse change
in the assets, business, properties, financial condition, prospects, or
operations of the Company or in any material change in the current equity
structure of the Company.
6. Assuming the continuing accuracy and validity of the
representations made by the Purchaser in the Agreement, the offer and sale of
the Note and Warrant is, and the issuance of
D-2
<PAGE> 57
the Common Stock upon exercise of the Warrant will be, exempt from the
registration requirements of the Securities Act, and in compliance with all
applicable state securities laws.
7. To our knowledge, no security holder of the Company or any
third party is entitled to preemptive or similar rights to subscribe for or to
purchase any shares of capital stock of the Company, nor will any security
holder of the Company be entitled to any such rights as a result of the
execution or delivery of the Warrant or the issuance of the Common Stock
issuable upon exercise of the Warrant.
8. The Company has obtained any approval or consent of all
governmental agencies or bodies or other third parties required to be obtained
by it for the legal and valid execution and delivery and performance of the
Agreement and the legal and valid offer, issuance and sale of the Note and
Warrant and the offer of the shares of Common Stock issuable upon exercise of
the Warrant to the Purchaser and we are not aware of any proceedings, or threat
thereof, that question the validity thereof.
This opinion is furnished to the Purchaser solely for its benefit in
connection with the purchase of the Note, and may not be relied upon by any
other person, nor quoted in whole or in part or otherwise referred to by you in
any document or instrument, nor is this opinion letter to be filed with any
governmental agency or other person, without the prior written consent of this
firm.
D-3
<PAGE> 58
SCHEDULE 1
<TABLE>
<CAPTION>
Column A COLUMN B COLUMN C
-------- -------- --------
NUMBER OF SHARES OF
COMMON STOCK INTO
PRINCIPAL NUMBER OF WARRANTS WHICH WARRANT IS
NAME AND ADDRESS AMOUNT OF NOTE PURCHASER IS TO INITIALLY
OF PURCHASERS TO BE PURCHASED RECEIVE EXCHANGEABLE
-------------------------------- ---------------- ------------------ --------------------
<S> <C> <C> <C>
PIPER JAFFRAY HEALTHCARE $ 2,000,000 1 421,941
FUND II LIMITED PARTNERSHIP,
PIPER JAFFRAY HEALTHCARE
MANAGEMENT LIMITED PARTNERSHIP,
ITS GENERAL PARTNER, C/O BUZZ
BENSON, MANAGING DIRECTOR OF
PIPER JAFFRAY VENTURES
INCORPORATED, ITS GENERAL
PARTNER,
PIPER JAFFRAY TOWER
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402
</TABLE>
S-1
<PAGE> 59
SCHEDULE 4.1
VISION 21, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
% OF OUTSTANDING
STOCK OWNED BY COMPANY
STATE OF DIRECTLY OR
CORPORATION INCORPORATION THROUGH A SUBSIDIARY
-------------------------------------- ------------- -----------------------
<S> <C> <C>
The Company Florida NA
Vision 21 Physician Practice Florida 100%
Management Company (practice
management company)
Vision 21 Managed Eye Care of Tampa Florida 100%
Bay, Inc. (managed care organization)
Vision 21 of Southern Arizona, Inc. Arizona 100%
</TABLE>
S-2
<PAGE> 60
SCHEDULE 4.3
Exceptions to Company's representation that there are no material adverse
changes in financial condition or affairs of the Company, its Subsidiaries and
Acquired Businesses.
Four Seasons, P.A. described in the Memorandum will not
be acquired. The Company does not expect the change resulting from the
foregoing to have a material adverse effect on the Company's earnings. For the
effect on the Company's earnings, see Schedule A, page 19 of the Memorandum.
S-3
<PAGE> 61
SCHEDULE 4.15
STOCK, OPTIONS AND WARRANTS OWNERSHIP SUMMARIES
LIST OF STOCK
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY OWNED AS PER BENEFICIALLY
PRELIMINARY BASKET OWNED AS PER FINAL
BENEFICIAL OWNER ALLOCATIONS BASKET ALLOCATIONS*
-------------------------------------- ------------------------ -------------------
<S> <C> <C>
Peter Fontaine 578,819 540,663
Bruce S. Maller 434,105 405,497
Dick Lindstrom 173,642 162,199
Richard Sanchez **1,157,614 965,005
Ted Gillette **3,001,365 2,772,309
Paul Smith 60,371 49,212
Dr. Smith & Associates #6966, P.A. 105,000 103,138
Dr. Smith & Associates #6958, P.A. 105,000 103,138
Jerald B. Turner, M.D. P.A. 216,988 219,957
Jeffrey I. Katz 304,118 297,459
Barry Kusman 304,117 297,459
Northwest Eye Specialists, P.L.L.C. 500,536 491,576
Daniel B. Feller 221,985 217,303
Eye Specialists of Arizona
Network, P.C. 109,463 107,505
Sharona Optical, Inc. 97,967 95,975
John W. Lahr 101,648 99,231
Mary Jo Lahr 17,554 17,100
J&R Kennedy, O.D., P.A. 104,826 103,863
Roseville Opticians, Inc. 11,620 11,480
Lindstrom, Samuelson & Hardten
Ophthalmology Associates P.A. 452,961 455,196
Optometric Eye Care Centers, P.A. 96,484 94,717
Gillette & Associates, #6965 P.A. 598,889 560,957
------------------------ -------------------
TOTAL SHARES: **8,755,072 8,170,939
======================== ===================
</TABLE>
_______________________________
* Vision 21, Inc. has not yet received the written consent of all of its
shareholders concerning the final number of shares that such
shareholders shall receive as modified by (i) the final allocation of
basketshares utilized as part of the consideration for the acquisition
of founding practices, and (ii) other adjustments such as an
allocation of certain operating expenses from Vision 21, Inc. to
Gillette, Beiler & Associates, P.A. Although the management of Vision
21, Inc. has received consent orally from many of such shareholders
and believes that ultimately all of such shareholders will consent to
the final number of share set forth above, there can be no assurances
S-4
<PAGE> 62
that all shareholders will agree to such final numbers. Messrs.
Gillette and Sanchez have already consented to the final number of
shares they will receive as set forth above. The final number of
shares of individuals and entities receiving shares as a result of
founding practice acquisitions are also subject to post-closing
adjustments which shall occur after completion of audits of such
founding practices' current accounts, all as more specifically
described in the acquisition agreements with respect to such
practices. The above list excludes 210,302 shares of Vision 21 common
stock which may be issued and paid as consideration to Jeffrey I.
Katz and Barry Kusman in the event that certain ambulatory surgical
center assets are transferred to their professional corporation.
** Messrs. Gillette and Sanchez have consented to the adjustment of the
final number of shares they will receive from 1,157,614 to 965,005 for
Mr. Sanchez and 3,001,365 to 2,772,309 for Mr. Gillette. This reduces
the aggregate amount of preliminary shares from 8,755,072 to
8,333,407.
<TABLE>
<CAPTION>
LIST OF OUTSTANDING OPTION AGREEMENTS
------------------------------------------------------------------------------
NAME NUMBER OF SHARES
-------------------------------------- -----------------------------
<S> <C>
Allwyn Holloway 25,000
Nicholas M. Arfaras 50,000
Gregory Engel 30,000
Lynn A. Heckler 35,000
Karen Persinger 15,000
Thomas Knox 35,000
Maria Chapman 15,000
Michelle Thomas 15,000
Nadine Allison 15,000
James J. Ravasio 75,000
Sara Nelson 25,000
Paul R. Smith, O.D. 50,000
Richard T. Welch 120,000
Other Employees and Non-Shareholder
Affiliated Professionals 395,000
--------
TOTAL OPTION SHARES: *900,000
========
- -------------------------
* Subject to adjustment pursuant to the terms of the Option Agreements.
</TABLE>
LIST OF WARRANTS
In connection with the Note Purchase Agreement dated December 20, 1996,
there are outstanding Warrants exchangeable for 263,725 shares of Common Stock
of the Company, subject to adjustment pursuant to the terms of the Agreement.
S-5
<PAGE> 63
SCHEDULE 4.16
The business assets of the following companies were acquired
as of December 1, 1996:
1. Cambridge Eye Clinic, P.A. and EE Optical Lab, Inc.
2. Eye Institute of Southern Arizona, P.C.
3. Daniel B. Feller, M.D., P.C., Eye Specialists of Arizona Network, P.C.
and Sharona Optical, Inc.
4. Northwest Eye Specialists, P.L.L.C.
5. Gillette & Associates, #6965 P.A.
6. J&R Kennedy, O.D., P.A. and Roseville Opticians, Inc.
7. Lindstrom, Samuelson & Hardten Ophthalmology Associates, P.A.
8. Optometric Eye Care Centers, P.A.
9. Dr. Smith & Associates, #6950 P.A., Dr. Smith & Associates, #6958
P.A. and Dr. Smith & Associates, #6966 P.A.
10. Jerald B. Turner, M.D., P.A.
S-6
<PAGE> 64
SCHEDULE 4.17
CONTRACTS
1. Business Management Agreement dated as of December 1, 1996
between Cambridge Eye Clinic, P.A. and John W. Lahr, O.D.,
P.A.
2. Business Management Agreement dated as of December 1, 1996
between Eye Institute of Southern Arizona and a newly-formed
Arizona professional association.
3. Business Management Agreement dated as of December 1, 1996
between Daniel B. Feller, M.D., P.C. and Millennium Vision,
P.C.
4. Business Management Agreement dated as of December 1, 1996
between Vision 21 and Northwest Eye Specialist, P.L.L.C.
5. Business Management Agreement dated as of December 1, 1996
between Vision 21 and Gillette & Associates, #6965 P.A.
6. Business Management Agreement dated as of December 1, 1996
between Vision 21 and J&R Kennedy, O.D., P.A.
7. Business Management Agreement dated as of December 1, 1996
between Vision 21 and Lindstrom, Samuelson & Hardten
Ophthalmology Associates, P.A.
8. Business Management Agreement dated as of December 1, 1996
between Vision 21 and Optometric Eye Care Centers, P.A.
9. Business Management Agreement dated as of December 1, 1996
between Dr. Smith & Associates, #6950 P.A. and a newly-formed
Florida professional association.
10. Business Management Agreement dated as of December 1, 1996
between Vision 21 and Dr. Smith & Associates #6958 P.A.
11. Business Management Agreement dated as of December 1, 1996
between Vision 21 and Dr. Smith & Associates #6966 P.A.
12. Business Management Agreement dated as of December 1, 1996
between Vision 21 and Jerald B. Turner, M.D., P.A.
13. Service Agreement, dated May 1, 1995, between HIP Health Plan
of Florida, Inc. and Vision 21, Inc.
14. Ancillary Provider Participation Agreement with a term of one
year beginning January 1, 1996, as renewed and amended from
time to time among Humana Medical Plan, Inc., Humana Health
Plan of Florida, Inc., Humana Health Insurance Company of
Florida, Inc., Human Insurance Company and Vision 21, Inc.
15. Managed Care Agreement between FHP and Eye Specialists of
Arizona Network, P.C.
16. Joint Venture Agreement dated as of May 1, 1996, between For
Eyes Managed Care, Inc. and Vision 21, Inc.
17. Consulting Agreement, effective date February 1, 1996, between
ECCA Managed Vision Care, Inc. and Vision 21 Managed Eye Care
Inc.
18. Services Agreement dated March 10, 1996, between BSM
Consulting Group and Vision 21, Inc.
S-7
<PAGE> 65
SCHEDULE 13.1
See Schedule 4.15 for Option Table. The Proposed transaction with
Prudential is as follows:
The Company is negotiating a $5,000,000 credit facility with Prudential
Securities Credit Corporation (the "Lender"). It is anticipated that the
credit facility will be a senior unsecured loan bearing interest at the rate of
10% per annum, payable monthly in arrears and maturing on the earlier of
September 30, 1997, the closing of the Company's initial public offering or
change of control. In addition it is anticipated that 300,000 Warrants will be
issued to the Lender for shares of the Company's Common Stock at a purchase
price of 80% of the initial public offering price. If the Company is not
public in six months, the purchase price is reduced to $4.00 per share. In
addition, the Lender will receive 150,000 additional Warrants for shares at a
price equal to the greater of 50% of the initial public offering price or $4.00
per share if the credit facility is not paid at maturity. The Lender will also
receive an additional 150,000 Warrants for shares at a price equal to the
greater of 50% of the initial public offering price or $4.00 per share if the
credit facility remains unpaid 271 days after the closing. There can be no
assurance that the credit facility will be consummated or, if consummated, that
the terms of the credit facility will be as set forth herein.
S-8
<PAGE> 66
SCHEDULE 19(A)
INDEBTEDNESS OUTSTANDING AS OF FEBRUARY 25, 1997
<TABLE>
<CAPTION>
PARI PASSU SENIOR
DEBT DEBT
---------- ------
<S> <C> <C>
Barnett Bank Senior Secured Credit Facility $ $ 2.0
June 1996 Promissory Note to Peter Fontaine 3.0
December 1996 10% Senior Subordinated Notes Due December 1999 1.2
Tax Notes Payable to Founding Practices 2.0
---------- -------
$ 4.2 $ 4.0
========== =======
</TABLE>
* ALL OTHER DEBT OF THE COMPANY EXISTING AS OF FEBRUARY 25, 1997 OTHER
THAN AS SET FORTH ABOVE IS CONSIDERED SENIOR DEBT TO THE NOTES.
S-9
<PAGE> 67
SUBSCRIPTION FORM
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: VISION 21, INC. (the "Company")
The undersigned ______________________________
Please insert Social Security or other
identifying number of Subscriber:
______________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ___________ shares of the Common Stock
(the "Common Stock") provided for therein and tenders payment herewith to the
order of the Company in the amount of $_________, such payment being made as
provided on the face of this Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name:
-------------------------------------------------------------------------
Address:
----------------------------------------------------------------------
Deliver to:
-------------------------------------------------------------------
Address:
----------------------------------------------------------------------
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under this Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated above.
Dated:
Signature
-----------------------------------
Note: The signature on this
Subscription Form must correspond
with the name as written upon the
face of this Warrant in every
particular, without alteration or
enlargement or any change whatever.
S-10
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of October 1, 1996 (the
"Agreement"), by and between VISION 21, INC., a Florida corporation, (the
"Company"), and THEODORE N. GILLETTE (the "Executive").
WHEREAS, the Company is presently engaged in the business of
providing physician practice management services and related services to
ophthalmologists, optometrists and other eye care providers;
WHEREAS, the Executive has had many years of experience in
this business and is currently the President and Chief Executive Officer of the
Company;
WHEREAS, the Company wishes to assure itself of the continued
services of the Executive for the period provided in this Agreement and the
Executive is willing to serve in the employ of the Company for such period upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive
upon the terms and conditions herein contained, and the Executive hereby agrees
to accept such employment for the term described below. The Executive agrees
to serve as the Company's Chief Executive Officer and President, and to perform
the duties and functions customarily performed by the Chief Executive Officer
and President of a publicly traded corporation during the term of this
Agreement. In such capacity, the Executive shall have such powers and
responsibilities consistent with his position as the Board may assign to him.
Throughout the term of this Agreement, the Executive shall
devote his best efforts and substantially all of his business time and services
to the business and affairs of the Company.
2. TERM OF AGREEMENT
The five (5) year initial term of the Executive employment
under this Agreement shall commence as of October 1, 1996 (the "Effective
Date"). After the expiration of such initial five year employment period, the
term of the Executive's employment hereunder shall automatically be extended
without further action by the parties for successive one (1) year renewal
terms, provided that if either party gives the other party at least thirty (30)
days advance written notice of his or its intention to not renew this Agreement
for an additional term, the Agreement shall terminate upon the expiration of
the current term.
Notwithstanding the foregoing, the Company shall be entitled
to terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Executive (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates his employment before the
current term of this Agreement expires, as described in Section 5(d).
3. SALARY AND BONUS
The Executive shall receive a base salary during the term of
this Agreement at a rate of not less than $220,000 per annum, payable in
installments consistent with the Company's normal payroll schedule. The
Compensation Committee of the Board shall review this base salary at annual
intervals, and may adjust the
<PAGE> 2
Executive's annual base salary from time to time as the Committee deems to be
appropriate.
The Executive shall also be eligible to receive an annual
incentive bonus from the Company for each fiscal year of the Company during the
term of this Agreement. If the Company has fully achieved such financial
performance targets as may be set for the fiscal year by the Compensation
Committee, the amount up to 50 percent of his annual base salary in effect on
the last day of the year. If the Company fails to fully achieve its financial
performance targets for the fiscal year, the portion of such bonus which shall
be paid to the Executive shall be such amount as may be determined to be
appropriate by the Compensation Committee of the Company's Board, based on the
Company's partial achievement of the performance measures. If, for any fiscal
year of the Company, the annual bonus anticipated to be payable for such fiscal
year, when added to the Executive's base salary and other remuneration from the
Company for such fiscal year, is expected to cause the total remuneration to
the Executive for such fiscal year to exceed $1,000,000, the Company's
Compensation Committee shall follow the following procedures with respect to
the performance-based portion of the bonus payable for such fiscal year:
(1) The performance goals for such bonus shall be
determined and approved by the Compensation Committee of the Board of
the Company, which for this purpose, shall be comprised solely of two
or more outside directors, during the first sixty (60) days of such
fiscal year;
(2) The material terms under which such annual
bonus is to be paid, including the performance goals, shall be
disclosed to shareholders and approved by a majority of the vote in a
separate shareholder vote before payment of such bonus is made;
(3) Before any payment of such annual bonus, the
Compensation Committee of the Board referred to above must certify
that the performance goals and any other material terms were in fact
satisfied.
The provisions of this paragraph are intended to comply with and shall be
interpreted in accordance with the requirements of Section 162(m) of the
Internal Revenue Code, and accordingly, if the Compensation Committee of the
Board follows the foregoing requirements and the annual bonus is disapproved
by the Compensation Committee of the Board or the shareholders in accordance
with said requirements, the Executive shall not be paid the performance-based
portion of the bonus for the fiscal year at issue.
4. ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional
compensation and welfare and fringe benefits:
(a) Stock Options. During the term of this Agreement,
the Executive shall be entitled to receive stock options or other stock awards
under the Company's Stock Incentive Plan to the extent that the Compensation
Committee of the Company's Board determines such awards to be appropriate.
(b) Life and Disability Insurance. During the term of
this Agreement, the Company shall continue to maintain as a minimum the same
split-dollar life insurance plan for the Executive in effect on the date of
this Agreement, as well as a disability policy for Executive with a monthly
benefit in an amount of not less than $120,000 per year, or, if less, the
maximum amount for which a reputable insurance broker mutually acceptable to
the Company and the Executive will provide a quote on standard terms. The
Executive will submit to such medical examination and supply such information
as is necessary for the Company to obtain such insurance coverage.
(c) Medical Insurance. The Company shall provide the
Executive and his dependents with health insurance coverage no less favorable
than that from time to time made available to other key employees.
-2-
<PAGE> 3
(d) Automobile. The Company shall provide Executive with
the use of a recent model automobile of the Executive's choice, provided that
the Company's obligation shall not exceed $680 per month, plus the cost of fuel
and maintenance.
(e) Educational Leave and Expenses. The Executive shall
be entitled to up to ten (10) days educational leave annually to devote to
continuing medical education or other attendance at other seminars related to
his professional development. The Company shall reimburse the Executive for
expenses of up to $3,000 per year incurred by the Executive while attending
educational meetings.
(f) Vacation. The Executive shall be entitled to up to
four weeks of vacation during each year during the term of this Agreement and
any extensions thereof, prorated for partial years.
(g) Business Expenses. The Company shall reimburse the
Executive for all reasonable expenses he incurs in promoting the Company's
business, including expenses for travel, entertainment of business associates
and similar items, upon presentation by the Executive from time to time of an
itemized account of such expenditures.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 4, the Executive shall be eligible to participate in
such other executive compensation and retirement plans of the Company as are
applicable generally to other officers, and in such welfare benefit plans,
programs, practices and policies of the Company as are generally applicable to
other key employees.
5. PAYMENTS UPON TERMINATION
(a) Involuntary Termination. If the Executive's employment
is terminated by the Company during the term of this Agreement, the Executive
shall be entitled to receive his base salary accrued through the date of
termination. The Executive shall also receive any nonforfeitable benefits
already earned and payable to him under the terms of any deferred compensation,
incentive or other benefit plan maintained by the Company, payable in
accordance with the terms of the applicable plan.
If the termination is not for death, disability as described
in paragraph (b), for Cause as described in paragraph (c) or a voluntary
termination by the Executive as described in paragraph (d), the Company shall
also be obligated to make a series of monthly payments to the Executive for
each month during the remaining term of this Agreement, but not less than
twenty-four (24) months. Each monthly payment shall be equal to one-twelfth
(1/12th) of the Executive's annual base salary, as in effect on the date of
termination.
(b) Disability. The Company shall be entitled to
terminate this Agreement, if the Board determines that the Executive has been
unable to attend to his duties for at least ninety (90) days because of a
medically diagnosable physical or mental condition, and has received a written
opinion from a physician acceptable to the Board that such condition prevents
the Executive from resuming full performance of his duties and is likely to
continue for an indefinite period. Upon such termination, the Company shall
pay to Executive a monthly disability benefit equal to one-twenty-fourth
(1/24th) of his current annual base salary at the time he became permanently
disabled. Payment of such disability benefit shall commence on the last day of
the month following the date of the termination by reason of permanent
disability and cease with the earliest of (i) the month in which the Executive
returns to active employment, either with the Company or otherwise, (ii) the
end of the initial term of this Agreement, or the current renewal term, as the
case may be, or (iii) the twenty-fourth month after the date of the
termination. Any amounts payable under this Section 5(b) shall be reduced by
any amounts paid to the Executive under any long-term disability plan or other
disability program or insurance policies maintained or provided by the Company.
(c) Termination for Cause. If the Executive's employment
is terminated by the Company for Cause, the amount the Executive shall be
entitled to receive from the Company shall be limited to his base salary
accrued through the date of termination, and any nonforfeitable benefits
already earned and payable to the Executive under the terms of deferred
compensation or incentive plans maintained by the Company.
-3-
<PAGE> 4
For purposes of this Agreement, the term "Cause" shall be
limited to (i) any action by the Executive involving willful disloyalty to the
Company, such as embezzlement, fraud, misappropriation of corporate assets or a
breach of the covenants set forth in Sections 9 and 10 below; or (ii) the
Executive being convicted of a felony; or (iii) the Executive being convicted
of any lesser crime or offense committed in connection with the performance of
his duties hereunder or involving moral turpitude; or (iv) the intentional and
willful failure by the Executive to substantially perform his duties hereunder
as directed by the Board (other than any such failure resulting from the
Executive's incapacity due to physical or mental disability).
(d) Voluntary Termination by the Executive. If the
Executive resigns or otherwise voluntarily terminates his employment before the
end of the current term of this Agreement, the amount the Executive shall be
entitled to receive from the Company shall be limited to his base salary
accrued through the date of termination, and any nonforfeitable benefits
already earned and payable to the Executive under the terms of any deferred
compensation or incentive plans of the Company.
For purposes of this paragraph, a resignation by the Executive
shall not be deemed to be voluntary if the Executive resigns during the period
of three months after the date he is (1) assigned to a position other than the
Chief Executive Officer or President of the Company (other than for Cause, or
by reason of permanent disability), (2) assigned duties materially inconsistent
with such position, or (3) directed to report to anyone other than the
Company's Board of Directors.
6. EFFECT OF CHANGE IN CORPORATE CONTROL
(a) In the event of a Change in Corporate Control, the
vesting of any stock options or other awards granted to the Executive under the
terms of the Company's 1996 Stock Incentive Plan shall become immediately
vested in full and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control,
the Executive is involuntarily terminated (other than for Cause) by the
Company, the Executive shall be entitled to receive as severance pay in lieu of
the monthly payments described in Section 5(a) above, a series of thirty-six
(36) equal monthly payments, each equal to one-twelfth (1/12th) of the sum of
(i) the Executive's annual base salary in effect at the time of the Change in
Corporate Control plus (ii) the annual bonus paid to the Executive with respect
to the last fiscal year of the Company ending prior to the Change in Corporate
Control.
(b) For purposes of this Agreement, a "Change in Corporate
Control" shall include any of the following events:
(1) The acquisition in one or more transactions
of more than thirty percent of the Company's outstanding Common Stock
by any corporation, or other person or group (within the meaning of
Section 14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company
into or with another corporation in which the Company is not the
surviving entity, or any transfer or sale of substantially all of the
assets of the Company or any merger or consolidation of the Company
into or with another corporation in which the Company is the surviving
entity and, in connection with such merger or consolidation, all or
part of the outstanding shares of Common Stock shall be changed into
or exchanged for other stock or securities of any other person, or
cash, or any other property.
(3) Any election of persons to the Board of
Directors which causes a majority of the Board of Directors to consist
of persons other than (i) persons who were members of the Board of
Directors on September 1, 1996, and (ii) persons who were nominated
for election as members of the Board by the Board of Directors (or a
Committee of the Board) at a time when the majority of the Board (or
of such Committee) consisted of persons who were members of the Board
of Directors on September 1, 1996; provided, that any person nominated
for election by the Board of Directors
-4-
<PAGE> 5
composed entirely of persons described in (i) or (ii), or of persons
who were themselves nominated by such Board, shall for this purpose be
deemed to have been nominated by a Board composed of persons described
in (i).
(4) Any person, or group of persons, announces a
tender offer for at least thirty percent (30%) of the Company's Common
Stock.
provided that, no acquisition of stock by any person in a public offering or
private placement of the Company's common stock or other transaction approved
by the Company's Board of Directors shall be considered a Change in Corporate
Control.
(c) Notwithstanding anything else in this Agreement, the
amount of severance compensation payable to the Executive as a result of a
Change in Corporate Control under this Section 6, or otherwise, shall be
limited to the maximum amount the Company would be entitled to deduct pursuant
to Section 280G of the Internal Revenue Code of 1986, as amended.
7. DEATH
If the Executive dies during the term of this Agreement, the
Company shall pay to the Executive's estate a lump sum payment equal to the sum
of the Executive's base salary accrued through the date of death plus the total
unpaid amount of any bonuses earned with respect to the fiscal year of the
Company most recently ended. In addition, the death benefits payable by reason
of the Executive's death under any retirement, deferred compensation or other
employee benefit plan maintained by the Company shall be paid to the
beneficiary designated by the Executive in accordance with the terms of the
applicable plan or plans.
8. WITHHOLDING
The Company shall, to the extent permitted by law, have the
right to withhold and deduct from any payment hereunder any federal, state or
local taxes of any kind required by law to be withheld with respect to any such
payment.
9. PROTECTION OF CONFIDENTIAL INFORMATION
The Executive agrees that he will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade
secrets) confidential, and that he will not (except with the Company's prior
written consent), while in the employ of the Company or thereafter, disclose
any such confidential information to any person, firm, corporation, association
or other entity, other than in furtherance of his duties hereunder, and then
only to those with a "need to know." The Executive shall not make use of any
such confidential information for his own purposes or for the benefit of any
person, firm, corporation, association or other entity (except the Company)
under any circumstances during or after the term of his employment. The
foregoing shall not apply to any information which is already in the public
domain, or is generally disclosed by the Company or is otherwise in the public
domain at the time of disclosure.
The Executive recognizes that because his work for the Company
will bring him into contact with confidential and proprietary information of
the Company, the restrictions of this Section 9 are required for the reasonable
protection of the Company and its investments and for the Company's reliance on
and confidence in the Executive.
10. COVENANT NOT TO COMPETE
The Executive hereby agrees that he will not, either during
the Employment Term or during the period of twenty-four (24) months from the
time the Executive's employment under this Agreement is terminated, engage in
any business activities on behalf of any enterprise which competes with the
Company in
-5-
<PAGE> 6
the business of managing ophthalmology or optometry practices or related eye
care or medical facilities. The Executive will be deemed to be engaged in such
competitive business activities if he participates in such a business
enterprise as an employee, officer, director, consultant, agent, partner,
proprietor, or other participant; provided that neither (i) the ownership of no
more than 2 percent of the stock of a publicly traded corporation engaged in a
competitive business, nor (ii) the practice of optometry on his own behalf,
without management of other optometry practices, shall be deemed to be engaging
in competitive business activities.
The Executive agrees that he shall not, for a period of one
year from the time his employment under this Agreement ceases (for whatever
reason), or, if later, during any period in which he is receiving monthly
severance payments under Section 5 or Section 6 of this Agreement,
(i) solicit any employee or full-time consultant of the
Company for the purposes of hiring or retaining such employee
or consultant, or
(ii) contact any present or prospective client of the Company
to solicit such a person to enter into a management contract
with any organization other than the Company or a related
entity.
For this purpose, the Executive shall be considered to be receiving monthly
severance payments under Section 5 of this Agreement during any period for
which he would be entitled to receive such severance payments.
11. INJUNCTIVE RELIEF
The Executive acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce such provisions
in any action or proceeding instituted in the United States District Court for
the Western District of Florida or in any court in the State of Florida having
subject matter jurisdiction. This provision with respect to injunctive relief
shall not, however, diminish the Company's right to claim and recover damages.
It is expressly understood and agreed that although the
parties consider the restrictions contained in this Agreement to be reasonable,
if a court determines that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction on the activities
of the Executive, no such provision of this Agreement shall be rendered void
but shall be deemed amended to apply as to such maximum time and territory and
to such extent as such court may judicially determine or indicate to be
reasonable.
12. SEPARABILITY
If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
13. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by the Executive.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties
and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Executive. The Agreement may be
amended at any time by mutual written agreement of the parties hereto.
-6-
<PAGE> 7
15. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and the Executive has hereunto set his hand, as of the day
and year first above written.
Attest: VISION 21, INC.
/s/ By /s/ Richard L. Sanchez
- ------------------------------ -------------------------
Secretary Title: Chief Development Officer
Witness: EXECUTIVE:
/s/ /s/ Theodore N. Gillette
- ------------------------------ ---------------------------
THEODORE N. GILLETTE
-7-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of October 1, 1996 (the
"Agreement"), by and between VISION 21, INC., a Florida corporation, (the
"Company"), and RICHARD L. SANCHEZ (the "Executive").
WHEREAS, the Company is presently engaged in the business of
providing physician practice management services and related services to
ophthalmologists, optometrists and other eye care providers;
WHEREAS, the Executive has experience in this business and is
currently the Senior Vice President of the Company;
WHEREAS, the Company wishes to assure itself of the continued
services of the Executive for the period provided in this Agreement and the
Executive is willing to serve in the employ of the Company for such period upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive
upon the terms and conditions herein contained, and the Executive hereby agrees
to accept such employment for the term described below. The Executive agrees
to serve as the Company's Chief Development Officer and to perform the duties
and functions customarily performed by the Chief Development Officer of a
publicly traded corporation during the term of this Agreement. In such
capacity, the Executive shall have such powers and responsibilities consistent
with his position as the Chief Development Officer and which the Board of
Directors may assign to him.
Throughout the term of this Agreement, the Executive shall
devote his best efforts and substantially all of his business time and services
to the business and affairs of the Company.
2. TERM OF AGREEMENT
The five (5) year initial term of employment under this
Agreement shall commence as of October 1, 1996 (the "Effective Date"). After
the expiration of such five year initial employment period, the term of the
Executive's employment hereunder shall automatically be extended without
further action by the parties for successive one (1) year renewal terms,
provided that if either party gives the other party at least thirty (30) days
advance written notice of his or its intention to not renew this Agreement for
an additional term, the Agreement shall terminate upon the expiration of the
current term.
Notwithstanding the foregoing, the Company shall be entitled
to terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Executive (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates his employment before the
current term of this Agreement expires, as described in Section 5(d).
<PAGE> 2
3. SALARY AND BONUS
The Executive shall receive a base salary during the term of
this Agreement at a rate of not less than $180,000 per annum, payable in
installments consistent with the Company's normal payroll schedule. The
Compensation Committee of the Board shall consult with the President and
review this base salary at annual intervals, and may adjust the Executive's
annual base salary from time to time as the Committee deems to be appropriate.
The Executive shall also be eligible to receive an annual
incentive bonus from the Company for each fiscal year of the Company during the
term of this Agreement. If the Company has fully achieved such financial
performance targets as may be set for the fiscal year by the Compensation
Committee, the amount payable to the Executive shall be 50 percent of his
annual base salary in effect on the last day of the year. If the Company fails
to fully achieve its financial performance targets for the fiscal year, the
portion of such bonus which shall be paid to the Executive shall be, such
amount as may be determined to be appropriate by the Compensation Committee of
the Company's Board, based on the Company's partial achievement of the
performance measures. If, for any fiscal year of the Company, the annual bonus
anticipated to be payable for such fiscal year, when added to the Executive's
base salary and other remuneration from the Company for such fiscal year, is
expected to cause the total remuneration to the Executive for such fiscal year
to exceed $1,000,000, the Company's Compensation Committee shall follow the
following procedures with respect to any bonus payable for such fiscal year:
(1) The performance goals for such bonus shall be
determined and approved by the Compensation Committee of the Board of
the Company, which for this purpose, shall be comprised solely of two
or more outside directors, during the first sixty (60) days of such
fiscal year;
(2) The material terms under which such annual bonus is
to be paid, including the performance goals, shall be disclosed to
shareholders and approved by a majority of the vote in a separate
shareholder vote before payment of such bonus is made;
(3) Before any payment of such annual bonus, the
Compensation Committee of the Board referred to above must certify
that the performance goals and any other material terms were in fact
satisfied.
The provisions of this paragraph are intended to comply with and shall be
interpreted in accordance with the requirements of Section 162(m) of the
Internal Revenue Code, and accordingly, if the Compensation Committee of the
Board follows the foregoing requirements and the annual bonus is disapproved
by the Compensation Committee of the Board or the shareholders in accordance
with said requirements, the Executive shall not be paid the performance-based
portion of the bonus for the fiscal year at issue.
4. ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional
compensation and welfare and fringe benefits:
(a) Stock Options. During the term of this Agreement, the
Executive shall be entitled to receive stock options or other stock
awards under the Company's Stock Incentive Plan to the extent that the
Compensation Committee of the Company's Board determines such awards
to be appropriate.
(b) Life and Disability Insurance. During the term of
this Agreement, the Company shall continue to maintain as a minimum
the same split-dollar life insurance plan for the Executive in effect
on the date of this Agreement, as well as a disability policy for
Executive with a monthly benefit in an amount of not less than
$120,000 per year, or, if less, the maximum amount for which a
reputable
-2-
<PAGE> 3
insurance broker mutually acceptable to the Company and the Executive
will provide a quote on standard terms. The Executive will submit to
such medical examination and supply such information as is necessary
for the Company to obtain such insurance coverage.
(c) Medical Insurance. The Company shall provide the
Executive and his dependents with health insurance coverage no less
favorable than that from time to time made available to other key
employees.
(d) Vacation. The Executive shall be entitled to up to
four weeks of vacation during each year during the term of this
Agreement and any extensions thereof, prorated for partial years.
(e) Automobile. The Company shall provide Executive with
the use of a recent model automobile of the Executive's choice,
provided the Company's obligation shall not exceed $680 per month,
plus the cost of fuel and maintenance.
(f) Business Expenses. The Company shall reimburse the
Executive for all reasonable expenses he incurs in promoting the
Company's business, including expenses for travel, entertainment of
business associates and similar items, upon presentation by the
Executive from time to time of an itemized account of such
expenditures.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 4, the Executive shall be eligible to participate in
such other executive compensation and retirement plans of the Company as are
applicable generally to other officers, and in such welfare benefit plans,
programs, practices and policies of the Company as are generally applicable to
other key employees.
5. PAYMENTS UPON TERMINATION
(a) Involuntary Termination. If the Executive's employment
is terminated by the Company during the term of this Agreement, the Executive
shall be entitled to receive his base salary accrued through the date of
termination. The Executive shall also receive any nonforfeitable benefits
already earned and payable to him under the terms of any deferred compensation,
incentive or other benefit plan maintained by the Company, payable in
accordance with the terms of the applicable plan.
If the termination is not for death, disability as described
in paragraph (b), for Cause as described in paragraph (c) or a voluntary
termination by the Executive as described in paragraph (d), the Company shall
also be obligated to make a series of monthly payments to the Executive for
each month during the remaining term of this Agreement, but not less than
twenty-four (24) months. Each monthly payment shall be equal to one-twelfth
(1/12th) of the Executive's annual base salary, as in effect on the date of
termination.
(b) Disability. The Company shall be entitled to
terminate this Agreement, if the Board determines that the Executive has been
unable to attend to his duties for at least ninety (90) days because of a
medically diagnosable physical or mental condition, and has received a written
opinion from a physician acceptable to the Board that such condition prevents
the Executive from resuming full performance of his duties and is likely to
continue for an indefinite period. Upon such termination, the Company shall
pay to Executive a monthly disability benefit equal to one-twenty-fourth
(1/24th) of his current annual base salary at the time he became permanently
disabled. Payment of such disability benefit shall commence on the last day of
the month following the date of the termination by reason of permanent
disability and cease with the earliest of (i) the month in which the Executive
returns to active employment, either with the Company or otherwise, (ii) the
end of the initial term of this Agreement, or the current renewal term, as the
case may be, or (iii) the twenty-fourth month after the date of the
termination. Any amounts payable under this Section 5(b) shall be reduced by
any amounts paid to the Executive under any long-term disability plan or other
disability program or insurance policies maintained or provided by the Company.
-3-
<PAGE> 4
(c) Termination for Cause. If the Executive's employment
is terminated by the Company for Cause, the amount the Executive shall be
entitled to receive from the Company shall be limited to his base salary
accrued through the date of termination, and any nonforfeitable benefits
already earned and payable to the Executive under the terms of deferred
compensation or incentive plans maintained by the Company.
For purposes of this Agreement, the term "Cause" shall be
limited to (i) any action by the Executive involving willful disloyalty to the
Company, such as embezzlement, fraud, misappropriation of corporate assets or a
breach of the covenants set forth in Sections 9 and 10 below; or (ii) the
Executive being convicted of a felony; or (iii) the Executive being convicted
of any lesser crime or offense committed in connection with the performance of
his duties hereunder or involving moral turpitude; or (iv) the intentional and
willful failure by the Executive to substantially perform his duties hereunder
as directed by the Board (other than any such failure resulting from the
Executive's incapacity due to physical or mental disability).
(d) Voluntary Termination by the Executive. If the
Executive resigns or otherwise voluntarily terminates his employment before the
end of the current term of this Agreement, the amount the Executive shall be
entitled to receive from the Company shall be limited to his base salary
accrued through the date of termination, and any nonforfeitable benefits
already earned and payable to the Executive under the terms of any deferred
compensation or incentive plans of the Company.
For purposes of this paragraph, a resignation by the Executive
shall not be deemed to be voluntary if the Executive resigns during the period
of three months after the date he is (1) assigned to a position of lesser rank
(other than for Cause, or by reason of permanent disability), (2) assigned
duties materially inconsistent with such position, or (3) directed to report to
anyone other than the Company's Chief Executive Officer or Board of Directors.
6. EFFECT OF CHANGE IN CORPORATE CONTROL
(a) In the event of a Change in Corporate Control, the
vesting of any stock options or other awards granted to the Executive under the
terms of the Company's 1996 Stock Incentive Plan shall become immediately
vested in full and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control,
the Executive is involuntarily terminated (other than for Cause) by the
Company, the Executive shall be entitled to receive as severance pay in lieu of
the monthly payments described in Section 5(a) above, a series of thirty-six
(36) equal monthly payments, each equal to one-twelfth (1/12th) of the sum of
(i) the Executive's annual base salary in effect at the time of the Change in
Corporate Control plus (ii) the annual bonus paid to the Executive with respect
to the last fiscal year of the Company ending prior to the Change in Corporate
Control.
(b) For purposes of this Agreement, a "Change in Corporate
Control" shall include any of the following events:
(1) The acquisition in one or more transactions
of more than thirty percent of the Company's outstanding Common Stock
by any corporation, or other person or group (within the meaning of
Section 14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company
into or with another corporation in which the Company is not the
surviving entity, or any transfer or sale of substantially all of the
assets of the Company or any merger or consolidation of the Company
into or with another corporation in which the Company is the surviving
entity and, in connection with such merger or consolidation, all or
part of the outstanding shares of Common Stock shall be changed into
or exchanged for other stock or securities of any other person, or
cash, or any other property.
-4-
<PAGE> 5
(3) Any election of persons to the Board of
Directors which causes a majority of the Board of Directors to consist
of persons other than (i) persons who were members of the Board of
Directors on September 1, 1996, and (ii) persons who were nominated
for election as members of the Board by the Board of Directors (or a
Committee of the Board) at a time when the majority of the Board (or
of such Committee) consisted of persons who were members of the Board
of Directors on September 1, 1996; provided, that any person nominated
for election by the Board of Directors composed entirely of persons
described in (i) or (ii), or of persons who were themselves nominated
by such Board, shall for this purpose be deemed to have been nominated
by a Board composed of persons described in (i).
(4) Any person, or group of persons, announces a
tender offer for at least thirty percent (30%) of the Company's Common
Stock.
provided that, no acquisition of stock by any person in a public offering or
private placement of the Company's common stock or other transaction approved
by the Company's Board of Directors shall be considered a Change in Corporate
Control.
(c) Notwithstanding anything else in this Agreement, the
amount of severance compensation payable to the Executive as a result of a
Change in Corporate Control under this Section 6, or otherwise, shall be
limited to the maximum amount the Company would be entitled to deduct pursuant
to Section 280G of the Internal Revenue Code of 1986, as amended.
7. DEATH
If the Executive dies during the term of this Agreement, the
Company shall pay to the Executive's estate a lump sum payment equal to the sum
of the Executive's base salary accrued through the date of death plus the total
unpaid amount of any bonuses earned with respect to the fiscal year of the
Company most recently ended. In addition, the death benefits payable by reason
of the Executive's death under any retirement, deferred compensation or other
employee benefit plan maintained by the Company shall be paid to the
beneficiary designated by the Executive in accordance with the terms of the
applicable plan or plans.
8. WITHHOLDING
The Company shall, to the extent permitted by law, have the
right to withhold and deduct from any payment hereunder any federal, state or
local taxes of any kind required by law to be withheld with respect to any such
payment.
9. PROTECTION OF CONFIDENTIAL INFORMATION
The Executive agrees that he will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade
secrets) confidential, and that he will not (except with the Company's prior
written consent), while in the employ of the Company or thereafter, disclose
any such confidential information to any person, firm, corporation, association
or other entity, other than in furtherance of his duties hereunder, and then
only to those with a "need to know." The Executive shall not make use of any
such confidential information for his own purposes or for the benefit of any
person, firm, corporation, association or other entity (except the Company)
under any circumstances during or after the term of his employment. The
foregoing shall not apply to any information which is already in the public
domain, or is generally disclosed by the Company or is otherwise in the public
domain at the time of disclosure.
-5-
<PAGE> 6
The Executive recognizes that because his work for the Company
will bring him into contact with confidential and proprietary information of
the Company, the restrictions of this Section 9 are required for the reasonable
protection of the Company and its investments and for the Company's reliance on
and confidence in the Executive.
10. COVENANT NOT TO COMPETE
The Executive hereby agrees that he will not, either during
the Employment Term or during the period of twenty-four (24) months from the
time the Executive's employment under this Agreement is terminated, engage in
any business activities on behalf of any enterprise which competes with the
Company in the business of managing ophthalmology or optometry practices or
related eye care or medical facilities. The Executive will be deemed to be
engaged in such competitive business activities if he participates in such a
business enterprise as an employee, officer, director, consultant, agent,
partner, proprietor, or other participant; provided that the ownership of no
more than 2 percent of the stock of a publicly traded corporation engaged in a
competitive business shall not be deemed to be engaging in competitive business
activities.
The Executive agrees that he shall not, for a period of one
year from the time his employment under this Agreement ceases (for whatever
reason), or, if later, during any period in which he is receiving monthly
severance payments under Section 5 or Section 6 of this Agreement,
(i) solicit any employee or full-time consultant of the Company for
the purposes of hiring or retaining such employee or consultant, or
(ii) contact any present or prospective client of the Company to
solicit such a person to enter into a management contract with any
organization other than the Company or a related entity.
For this purpose, the Executive shall be considered to be receiving monthly
severance payments under Section 5 of this Agreement during any period for
which he would be entitled to receive such severance payments.
11. INJUNCTIVE RELIEF
The Executive acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce such provisions
in any action or proceeding instituted in the United States District Court for
the Western District of Florida or in any court in the State of Florida having
subject matter jurisdiction. This provision with respect to injunctive relief
shall not, however, diminish the Company's right to claim and recover damages.
It is expressly understood and agreed that although the
parties consider the restrictions contained in this Agreement to be reasonable,
if a court determines that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction on the activities
of the Executive, no such provision of this Agreement shall be rendered void
but shall be deemed amended to apply as to such maximum time and territory and
to such extent as such court may judicially determine or indicate to be
reasonable.
12. SEPARABILITY
If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
-6-
<PAGE> 7
13. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by the Executive.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties
and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Executive. The Agreement may be
amended at any time by mutual written agreement of the parties hereto.
15. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and the Executive has hereunto set his hand, as of the day
and year first above written.
Attest: VISION 21, INC.
/s/ By /s/ Theodore N. Gillette
- ----------------------------- -------------------------------
Secretary Title: President
Witness: EXECUTIVE:
/s/ /s/ Richard L. Sanchez
- ----------------------------- --------------------------------
RICHARD L. SANCHEZ
-7-
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of September 1, 1996 (the
"Agreement"), by and between VISION 21, INC., a Florida corporation, (the
"Company"), and RICHARD T. WELCH (the "Executive").
WHEREAS, the Company is presently engaged in the business of
providing physician practice management services and related services to
ophthalmologists, optometrists and other eye care providers;
WHEREAS, the Executive has experience in this business and is
currently the Chief Financial Officer of the Company;
WHEREAS, the Company wishes to assure itself of the continued
services of the Executive for the period provided in this Agreement and the
Executive is willing to serve in the employ of the Company for such period upon
the terms and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive
upon the terms and conditions herein contained, and the Executive hereby agrees
to accept such employment for the term described below. The Executive agrees
to serve as the Company's Chief Financial Officer and to perform the duties and
functions customarily performed by the Chief Financial Officer of a publicly
traded corporation during the term of this Agreement. In such capacity, the
Executive shall have such powers and responsibilities consistent with his
position as the Chief Executive Officer and which the Board of Directors may
assign to him.
Throughout the term of this Agreement, the Executive shall
devote his best efforts and substantially all of his business time and services
to the business and affairs of the Company.
2. TERM OF AGREEMENT
The two (2) year initial term of employment under this
Agreement shall commence as of September 1, 1996 (the "Effective Date"). After
the expiration of such two year initial employment period, the term of the
Executive's employment hereunder shall automatically be extended without
further action by the parties for successive one (1) year renewal terms,
provided that if either party gives the other party at least thirty (30) days
advance written notice of his or its intention to not renew this Agreement for
an additional term, the Agreement shall terminate upon the expiration of the
current term.
Notwithstanding the foregoing, the Company shall be entitled
to terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Executive (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates his employment before the
current term of this Agreement expires, as described in Section 5(d).
3. SALARY AND BONUS
The Executive shall receive a base salary during the term of
this Agreement at a rate of not less than $150,000 per annum, payable in
installments consistent with the Company's normal payroll schedule. The
Compensation Committee of the Board shall consult with the President and
review this base salary at
<PAGE> 2
annual intervals, and may adjust the Executive's annual base salary from time
to time as the Committee deems to be appropriate.
The Executive shall also be eligible to receive an annual
incentive bonus from the Company for each fiscal year of the Company during the
term of this Agreement. If the Company has fully achieved such financial
performance targets as may be set for the fiscal year by the Compensation
Committee, the amount payable to the Executive shall be 50 percent of his
annual base salary in effect on the last day of the year. If the Company fails
to fully achieve its financial performance targets for the fiscal year, the
portion of such bonus which shall be paid to the Executive shall be such amount
as may be determined to be appropriate by the Compensation Committee of the
Company's Board, based on the Company's partial achievement of the performance
measures. If, for any fiscal year of the Company, the annual bonus anticipated
to be payable for such fiscal year, when added to the Executive's base salary
and other remuneration from the Company for such fiscal year, is expected to
cause the total remuneration to the Executive for such fiscal year to exceed
$1,000,000, the Company's Compensation Committee shall follow the following
procedures with respect to any bonus payable for such fiscal year:
(1) The performance goals for such bonus shall be
determined and approved by the Compensation Committee of the Board of
the Company, which for this purpose, shall be comprised solely of two
or more outside directors, during the first sixty (60) days of such
fiscal year;
(2) The material terms under which such annual bonus is
to be paid, including the performance goals, shall be disclosed to
shareholders and approved by a majority of the vote in a separate
shareholder vote before payment of such bonus is made;
(3) Before any payment of such annual bonus, the
Compensation Committee of the Board referred to above must certify
that the performance goals and any other material terms were in fact
satisfied.
The provisions of this paragraph are intended to comply with and shall be
interpreted in accordance with the requirements of Section 162(m) of the
Internal Revenue Code, and accordingly, if the Compensation Committee of the
Board follows the foregoing requirements and the annual bonus is disapproved
by the Compensation Committee of the Board or the shareholders in accordance
with said requirements, the Executive shall not be paid the performance-based
portion of the bonus for the fiscal year at issue.
4. ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional
compensation and welfare and fringe benefits:
(a) Stock Options. As of the Effective Date of this
Agreement, the Executive shall be granted nonstatutory stock options
with respect to 120,000 shares of common stock pursuant to the terms
of the Company's 1996 Stock Incentive Plan, with options to vest in a
series of four equal installments. During the remaining term of the
Agreement, any additional stock option or restricted stock awards
under the 1996 Stock Incentive Plan shall be at the discretion of the
Compensation Committee of the Company's Board.
(b) Medical Insurance. The Company shall provide the
Executive and his dependents with health insurance coverage no less
favorable than that from time to time made available to other key
employees.
(c) Vacation. The Executive shall be entitled to up to
four weeks of vacation during each year during the term of this
Agreement and any extensions thereof, prorated for partial years.
-2-
<PAGE> 3
(d) Business Expenses. The Company shall reimburse the
Executive for all reasonable expenses he incurs in promoting the
Company's business, including expenses for travel, entertainment of
business associates and similar items, upon presentation by the
Executive from time to time of an itemized account of such
expenditures.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 4, the Executive shall be eligible to participate in
such other executive compensation and retirement plans of the Company as are
applicable generally to other officers, and in such welfare benefit plans,
programs, practices and policies of the Company as are generally applicable to
other key employees.
5. PAYMENTS UPON TERMINATION
(a) Involuntary Termination. If the Executive's employment
is terminated by the Company during the term of this Agreement, the Executive
shall be entitled to receive his base salary accrued through the date of
termination. The Executive shall also receive any nonforfeitable benefits
already earned and payable to him under the terms of any deferred compensation,
incentive or other benefit plan maintained by the Company, payable in
accordance with the terms of the applicable plan.
If the termination is not for death, disability as described
in paragraph (b), for Cause as described in paragraph (c) or a voluntary
termination by the Executive as described in paragraph (d), the Company shall
also be obligated to make a series of monthly payments to the Executive for
each month during the remaining term of this Agreement, but not less than
twelve (12) months. Each monthly payment shall be equal to one-twelfth
(1/12th) of the Executive's annual base salary, as in effect on the date of
termination.
(b) Disability. The Company shall be entitled to
terminate this Agreement, if the Board determines that the Executive has been
unable to attend to his duties for at least ninety (90) days because of a
medically diagnosable physical or mental condition, and has received a written
opinion from a physician acceptable to the Board that such condition prevents
the Executive from resuming full performance of his duties and is likely to
continue for an indefinite period. Upon such termination, the Company shall
pay to Executive a monthly disability benefit equal to one- twenty-fourth
(1/24th) of his current annual base salary at the time he became permanently
disabled. Payment of such disability benefit shall commence on the last day of
the month following the date of the termination by reason of permanent
disability and cease with the earliest of (i) the month in which the Executive
returns to active employment, either with the Company or otherwise, (ii) the
end of the initial term of this Agreement, or the current renewal term, as the
case may be, or (iii) the twenty-fourth month after the date of the
termination. Any amounts payable under this Section 5(b) shall be reduced by
any amounts paid to the Executive under any long-term disability plan or other
disability program or insurance policies maintained or provided by the Company.
(c) Termination for Cause. If the Executive's employment
is terminated by the Company for Cause, the amount the Executive shall be
entitled to receive from the Company shall be limited to his base salary
accrued through the date of termination, and any nonforfeitable benefits
already earned and payable to the Executive under the terms of deferred
compensation or incentive plans maintained by the Company.
For purposes of this Agreement, the term "Cause" shall be
limited to (i) any action by the Executive involving willful disloyalty to the
Company, such as embezzlement, fraud, misappropriation of corporate assets or a
breach of the covenants set forth in Sections 9 and 10 below; or (ii) the
Executive being convicted of a felony; or (iii) the Executive being convicted
of any lesser crime or offense committed in connection with the performance of
his duties hereunder or involving moral turpitude; or (iv) the intentional and
willful failure by the Executive to substantially perform his duties hereunder
as directed by the Board (other than any such failure resulting from the
Executive's incapacity due to physical or mental disability).
(d) Voluntary Termination by the Executive. If the
Executive resigns or otherwise voluntarily terminates his employment before the
end of the current term of this Agreement, the amount the Executive shall be
entitled to receive from the Company shall be limited to his base salary
accrued through the
-3-
<PAGE> 4
date of termination, and any nonforfeitable benefits already earned and payable
to the Executive under the terms of any deferred compensation or incentive
plans of the Company.
For purposes of this paragraph, a resignation by the Executive
shall not be deemed to be voluntary if the Executive resigns during the period
of three months after the date he is (1) assigned to a position of lesser rank
(other than for Cause, or by reason of permanent disability), (2) assigned
duties materially inconsistent with such position, or (3) directed to report to
anyone other than the Company's Chief Executive Officer or Board of Directors.
6. EFFECT OF CHANGE IN CORPORATE CONTROL
(a) In the event of a Change in Corporate Control, the
vesting of any stock options or other awards granted to the Executive under the
terms of the Company's 1996 Stock Incentive Plan shall become immediately
vested in full and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control,
the Executive is involuntarily terminated (other than for Cause) by the
Company, the Executive shall be entitled to receive as severance pay in lieu of
the monthly payments described in Section 5(a) above, a series of twelve (12)
equal monthly payments, each equal to one-twelfth (1/12th) of the sum of (i)
the Executive's annual base salary in effect at the time of the Change in
Corporate Control plus (ii) the annual bonus paid to the Executive with respect
to the last fiscal year of the Company ending prior to the Change in Corporate
Control.
(b) For purposes of this Agreement, a "Change in Corporate
Control" shall include any of the following events:
(1) The acquisition in one or more transactions
of more than thirty percent of the Company's outstanding Common Stock
by any corporation, or other person or group (within the meaning of
Section 14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company
into or with another corporation in which the Company is not the
surviving entity, or any transfer or sale of substantially all of the
assets of the Company or any merger or consolidation of the Company
into or with another corporation in which the Company is the surviving
entity and, in connection with such merger or consolidation, all or
part of the outstanding shares of Common Stock shall be changed into
or exchanged for other stock or securities of any other person, or
cash, or any other property.
(3) Any election of persons to the Board of
Directors which causes a majority of the Board of Directors to consist
of persons other than (i) persons who were members of the Board of
Directors on September 1, 1996, and (ii) persons who were nominated
for election as members of the Board by the Board of Directors (or a
Committee of the Board) at a time when the majority of the Board (or
of such Committee) consisted of persons who were members of the Board
of Directors on September 1, 1996; provided, that any person nominated
for election by the Board of Directors composed entirely of persons
described in (i) or (ii), or of persons who were themselves nominated
by such Board, shall for this purpose be deemed to have been nominated
by a Board composed of persons described in (i).
(4) Any person, or group of persons, announces a
tender offer for at least thirty percent (30%) of the Company's Common
Stock.
provided that, no acquisition of stock by any person in a public offering or
private placement of the Company's common stock or other transaction approved
by the Company's Board of Directors shall be considered a Change in Corporate
Control.
-4-
<PAGE> 5
(c) Notwithstanding anything else in this Agreement, the
amount of severance compensation payable to the Executive as a result of a
Change in Corporate Control under this Section 6, or otherwise, shall be
limited to the maximum amount the Company would be entitled to deduct pursuant
to Section 280G of the Internal Revenue Code of 1986, as amended.
7. DEATH
If the Executive dies during the term of this Agreement, the
Company shall pay to the Executive's estate a lump sum payment equal to the sum
of the Executive's base salary accrued through the date of death plus the total
unpaid amount of any bonuses earned with respect to the fiscal year of the
Company most recently ended. In addition, the death benefits payable by reason
of the Executive's death under any retirement, deferred compensation or other
employee benefit plan maintained by the Company shall be paid to the
beneficiary designated by the Executive in accordance with the terms of the
applicable plan or plans.
8. WITHHOLDING
The Company shall, to the extent permitted by law, have the
right to withhold and deduct from any payment hereunder any federal, state or
local taxes of any kind required by law to be withheld with respect to any such
payment.
9. PROTECTION OF CONFIDENTIAL INFORMATION
The Executive agrees that he will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade
secrets) confidential, and that he will not (except with the Company's prior
written consent), while in the employ of the Company or thereafter, disclose
any such confidential information to any person, firm, corporation, association
or other entity, other than in furtherance of his duties hereunder, and then
only to those with a "need to know." The Executive shall not make use of any
such confidential information for his own purposes or for the benefit of any
person, firm, corporation, association or other entity (except the Company)
under any circumstances during or after the term of his employment. The
foregoing shall not apply to any information which is already in the public
domain, or is generally disclosed by the Company or is otherwise in the public
domain at the time of disclosure.
The Executive recognizes that because his work for the Company
will bring him into contact with confidential and proprietary information of
the Company, the restrictions of this Section 9 are required for the reasonable
protection of the Company and its investments and for the Company's reliance on
and confidence in the Executive.
10. COVENANT NOT TO COMPETE
The Executive hereby agrees that he will not, either during
the Employment Term or during the period of twelve (12) months from the time
the Executive's employment under this Agreement is terminated, engage in any
business activities on behalf of any enterprise which competes with the Company
in the business of managing ophthalmology or optometry practices or related eye
care or medical facilities. The Executive will be deemed to be engaged in such
competitive business activities if he participates in such a business
enterprise as an employee, officer, director, consultant, agent, partner,
proprietor, or other participant; provided that the ownership of no more than 2
percent of the stock of a publicly traded corporation engaged in a competitive
business shall not be deemed to be engaging in competitive business activities.
The Executive agrees that he shall not, for a period of one
year from the time his employment under this Agreement ceases (for whatever
reason), or, if later, during any period in which he is receiving monthly
severance payments under Section 5 or Section 6 of this Agreement,
-5-
<PAGE> 6
(i) solicit any employee or full-time consultant of the Company for
the purposes of hiring or retaining such employee or consultant, or
(ii) contact any present or prospective client of the Company to
solicit such a person to enter into a management contract with any
organization other than the Company or a related entity.
For this purpose, the Executive shall be considered to be receiving monthly
severance payments under Section 5 of this Agreement during any period for
which he would be entitled to receive such severance payments.
11. INJUNCTIVE RELIEF
The Executive acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce such provisions
in any action or proceeding instituted in the United States District Court for
the Western District of Florida or in any court in the State of Florida having
subject matter jurisdiction. This provision with respect to injunctive relief
shall not, however, diminish the Company's right to claim and recover damages.
It is expressly understood and agreed that although the
parties consider the restrictions contained in this Agreement to be reasonable,
if a court determines that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction on the activities
of the Executive, no such provision of this Agreement shall be rendered void
but shall be deemed amended to apply as to such maximum time and territory and
to such extent as such court may judicially determine or indicate to be
reasonable.
12. SEPARABILITY
If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
13. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by the Executive.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties
and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Executive. The Agreement may be
amended at any time by mutual written agreement of the parties hereto.
15. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and the Executive has hereunto set his hand, as of the day
and year first above written.
Attest: VISION 21, INC.
/s/ By /s/ Theodore N. Gillette
- ------------------------------ -----------------------------
Secretary Title: President
Witness: EXECUTIVE:
/s/ /s/ Richard T. Welch
- ------------------------------ --------------------------------
RICHARD T. WELCH
-7-
<PAGE> 1
EXHIBIT 10.4
SERVICES AGREEMENT
THIS SERVICES AGREEMENT, entered into as of the 9th day of September,
1996, is by and between Vision 21, Inc. ("Vision 21") and Richard L.
Lindstrom, M.D. ("Lindstrom").
RECITALS
A. Lindstrom is a nationally recognized medical doctor
specializing in ophthalmology;
B. Lindstrom has provided services to Vision 21 in assisting in
developing a business plan for Vision 21 to develop the Midwestern United
States region of its business; and
C. Vision 21 also desires to obtain future services from
Lindstrom and Lindstrom desires to provide services to Vision 21, all upon the
terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
Section 1. Services to be Provided. Lindstrom agrees to provide
the following services to Vision 21 throughout the term of this Agreement:
(a) provide consulting services to assist with the
clinical operations and management of Vision 21's affiliated regional
ophthalmology and optometry practices.
(b) render advisory services to Vision 21 in connection
with identifying potential ophthalmology and optometry practices for
integration into Vision 21's integrated eye care system.
(c) serve as Vision 21's National Medical Director.
(d) serve as a member of Vision 21's Board of Directors
beginning approximately in December 1996.
(e) perform such other services as may from time to time
be requested by Vision 21.
Section 2. Term. This Agreement shall remain in effect for a
period of five (5) years; provided, however, it may be sooner terminated by
Vision 21 or Lindstrom "with cause" upon prior written notice describing the
basis therefor. For purposes of this Agreement termination by Vision 21 "with
cause" shall mean any of the following: (i) a breach of any material term of
this Agreement by Lindstrom which breach remains uncured after thirty (30) days
notice thereof; (ii) the death or disability of Lindstrom; (iii) restriction,
suspension or revocation of Lindstrom's license to practice medicine by any
governmental or administrative body; or (iv) misconduct of Lindstrom involving
fraud, moral turpitude or dishonesty. A termination by Lindstrom "with cause"
shall mean any of the following: (i) a breach of any material term of this
Agreement by Vision 21 which remains uncured after thirty (30) days notice
thereof; or (ii) the filing of a petition in bankruptcy by or against Vision 21
or if Vision 21 becomes
<PAGE> 2
insolvent, makes an assignment for the benefit of creditors or generally
becomes unable to pay its debts as they become due. In the event of a
termination of this Agreement by Vision 21 with cause, Vision 21 shall be
obligated to pay Lindstrom only such compensation that is due through the date
of termination.
Section 3. Time Devoted to Services. It is anticipated that
Lindstrom will not be devoting all of his time fulfilling his obligations under
this Agreement, however, Lindstrom is expected to devote a minimum average of
twelve days per three month periods under this Agreement.
Section 4. Compensation. As compensation for the services
rendered by Lindstrom, Vision 21 agrees to pay Lindstrom an initial annual sum
of $60,000 during the term of this Agreement. Payment shall begin September,
1996 and shall be paid in equal monthly installments at the end of each month.
Each year at the anniversary of this Agreement, Vision 21's Compensation
Committee shall consider what, if any, addition to annual compensation shall be
made, and its determination shall be binding. In addition to the annual cash
payments, Lindstrom shall be granted immediately 173,642 shares of Vision 21
common stock representing three (3%) of the outstanding common stock of the
Company prior to the acquisition of the founding practices. Forty percent
(40%) of such shares granted shall be non-forfeitable at the time of this
grant. Should Vision 21 terminate this Agreement with cause at any time during
the term hereof, the following shares shall be forfeited and returned to Vision
21:
<TABLE>
<CAPTION>
TERMINATION % OF SHARES
OCCURS DURING FORFEITED
---------------- ---------
<S> <C>
9/1/96 - 8/31/97 60%
9/1/97 - 8/31/98 45%
9/1/98 - 8/31/99 30%
9/1/99 - 8/31/00 15%
</TABLE>
It is further agreed that if all or substantially all of the
outstanding shares of Vision 21 are acquired by an outside entity, then one
hundred percent (100%) of Lindstrom's shares shall be non-forfeitable.
The appropriate number of shares will be lettered to reflect the
forfeiture restrictions. The parties agree that Lindstrom is an independent
contractor and, as such, shall be responsible for the payment of all federal,
state and local withholding, income and unemployment taxes or charges due or
assessed against all compensation paid hereunder.
A. Warranties, Representations and Agreements by Lindstrom
Regarding the Shares. In connection with the Shares, Lindstrom hereby warrants
and represents (i) that the Shares are being acquired for his own account and
for investment, and not with a view to, or in connection with, any distribution
or sale thereof, (ii) that he has not made any agreement with any other person
or entity concerning such Shares, (iii) that his financial condition is such
that it will not be necessary for him to dispose of such Shares in the
foreseeable future, and (iv) that he is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Act. Furthermore,
Lindstrom agrees to indemnify and hold Vision 21 harmless from and against any
claim, liability, cost or expense, including
-2-
<PAGE> 3
reasonable attorneys' fees, arising from any alleged unlawful sale or offer to
sell or transfer any of the Shares by Lindstrom.
Lindstrom also represents he is aware that the Shares have not been
registered under either federal law or the applicable law of any state or other
jurisdiction, and that the sale or resale of the Shares will not be permitted
under federal or state law unless such Shares are first registered or the sale
is a transaction that is exempt from registration under both federal and state
laws. Furthermore, Lindstrom agrees to refrain from any sale of the Shares
except pursuant to registration or exemption from registration.
Lindstrom agrees that if, contrary to his foregoing stated intentions,
he should later desire to dispose of or transfer any of the Shares in any
manner, he will not do so without first obtaining (a) an opinion of independent
counsel satisfactory to Vision 21 to the effect that the proposed disposition
or transfer may lawfully be made without registration of the Shares pursuant to
the Act, including but not limited to Rule 144 promulgated under the Act, and
applicable state securities laws, or (b) such registration (it being expressly
understood that Vision 21 will have no obligation to register the Shares for
this purpose). Lindstrom also consents to the placing of a stop transfer
notification on Vision 21's securities records with respect to the Shares.
Lindstrom consents to the placement of the following restrictive
legend on all stock certificates representing the Shares:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state. The securities have been
acquired for investment and may not be sold, offered for sale
or transferred in the absence of an effective registration
under the Securities Act of 1933, as amended, and any
applicable state securities laws or an opinion of counsel
satisfactory in form and substance to counsel for Vision 21
that the transaction will not result in a violation of federal
or state securities laws."
"The securities represented by this Certificate are subject
to forfeiture in accordance with the terms of the Services
Agreement dated as of September 1, 1996."
Lindstrom also represents that he has been fully appraised of, and is
totally aware of the nature of, the investment in Vision 21 being made and the
financial risks thereof. In addition, Lindstrom has been offered access to all
of Vision 21's books, records, information, agreements and documents that he
has deemed necessary and appropriate under the circumstances and has had the
opportunity to ask questions of and receive answers from management of Vision
21. Lindstrom represents that Vision 21 has made no representation of any kind
as to the value of the Shares.
B. Registration Rights. Lindstrom shall have the following
registration rights with respect to those Shares that are no longer subject to
forfeiture hereunder:
(a) Piggyback Registration. If Vision 21 at any time
proposes to register on Form S-1 any of its securities under the Act in order
to consummate a public offering of any of its securities
-3-
<PAGE> 4
in the form of an underwritten offering, Vision 21 shall request that the
managing underwriter of such underwritten offering include the Shares in such
registration. If such managing underwriter agrees to include any of the Shares
in the underwritten offering, Vision 21 shall give prompt written notice to
Lindstrom specifying the form and manner and other relevant facts involved in
such proposed registration. Upon the written request of Lindstrom, delivered
to Vision 21 within 30 days of receipt of Vision 21's notice (which request
shall specify the number of Shares intended to be included in such offering),
Vision 21 shall include such Shares in such registration, provided, however,
that:
(i) If, at any time after giving such written
notice of its intention to register any of its securities and prior to the
effective date of the registration statement filed in connection with such
registration, Vision 21 shall determine for any reason not to register such
securities at its sole election, Vision 21 may give written notice of such
determination to Lindstrom and thereupon shall be relieved of its obligation to
register any Shares in connection with such registration;
(ii) If the managing underwriter in such
underwritten offering shall advise Vision 21 that it declines to include a
portion or all of the Shares requested by Lindstrom to be included in the
registration, then distribution of all or a specified portion of the Shares
shall be excluded from such registration and Vision 21 shall give Lindstrom
prompt notice of the number of Shares excluded; and
(iii) The maximum number of Shares that Lindstrom
may request to include in any single offering shall be twenty percent (20%) of
the Shares.
(b) Demand Registration. In the event Lindstrom has not
sold all of the maximum allowable Shares (20%) pursuant to above section (a)
and if Vision 21 shall receive, at any time after 180 days after the effective
date of Vision 21's registration statement filed pursuant to the Act, a written
request from Lindstrom that Vision 21 file a registration statement under the
Act covering the registration of the Shares, Vision 21 shall, as soon as
practicable, effect the registration of the Shares pursuant to the Act;
provided, however, that the maximum number of Shares that Lindstrom may request
to be registered shall be twenty percent (20%) of the Shares and the minimum
number of Shares that Lindstrom may request to be registered shall be ten
percent (10%) of the Shares. Vision 21 shall be obligated to effect only one
such registration under this section(b).
(c) S-8 Registration. In the event that the Shares are
eligible for registration on Form S-8 under the Act, Vision 21 may, in lieu of
(a) or (b) above, effect the registration of the Shares on Form S-8.
(d) In no event shall Vision 21 be required to register
any Shares at any time that (i) Vision 21 has no equity securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended, (ii)
registration is not required to effect public sale of the Shares; or (iii) the
Shares are subject to forfeiture.
(e) Lindstrom agrees to cooperate with Vision 21 in all
respects in connection with any registration of the Shares, including, timely
supplying all information and executing and returning all documents requested
by Vision 21 and its managing underwriter in connection with the registration
and sale of the Shares.
-4-
<PAGE> 5
(f) Vision 21 shall not be required to include any of the
Shares in an underwritten offering of Vision 21's securities unless Lindstrom
accepts the terms of the underwriting as agreed upon between Vision 21 and the
underwriters selected by it, and agrees to execute and/or deliver such
documents in connection with such registration as Vision 21 or the managing
underwriter may request.
(g) Lindstrom agrees to indemnify and hold Vision 21, its
officers, directors, shareholders, representatives and underwriters harmless
from and against any claim, liability, cost or expense (including reasonable
attorneys' fees) arising from or based upon any acts, omissions or statements
by Lindstrom in connection with any registration of the Shares.
(h) Lindstrom shall pay all (or a pro rata portion in the
case of piggyback registration) expenses related to the registration of the
Shares including, but not limited to, printing expenses, registration fees,
blue sky fees, listing fees, fees and disbursements of counsel for Vision 21,
underwriting discounts and selling commissions.
(i) Vision 21 shall not be obligated to keep any
registration statement effective for more than forty (40) days.
(j) Any registration statement provided herein may be
extended, suspended or delayed by Vision 21 for a period of up to ninety (90)
days if, upon the advice of counsel, at the time such registration statement is
required to be filed, or at the time Vision 21 is required to cause such
registration statement to become effective, such delay is advisable and in the
best interests of Vision 21.
(k) The registration rights set forth in this Agreement
shall expire upon termination or expiration of this Agreement.
Section 5. Confidentiality.
(a) Lindstrom acknowledges that, in the course of
providing services hereunder, Lindstrom staff will learn certain confidential
information about Vision 21's business. Lindstrom agrees that it will keep all
such information strictly confidential, and that he will cause his employees,
contractors, advisors and agents to do the same.
(b) The parties acknowledge that the provisions of
paragraphs (a) of this Section 5 shall not apply to any information which (i)
had been rightfully in the possession of the recipient prior to its disclosure
to the recipient; (ii) had been in the public domain prior to its disclosure to
the recipient; (iii) has become part of the public domain by publication or by
any other means except an unauthorized act or omission on the part of the
recipient; (iv) had been supplied to the recipient without restriction by a
third party who is under no obligation to maintain such information in
confidence; or (v) is required to be disclosed pursuant to the order of a court
of competent jurisdiction.
(c) The terms of this Section 5 shall survive the
expiration or termination of this Agreement.
Section 6. Covenant Not To Compete. Lindstrom agrees that for
the term of this Agreement and for a period of two years after termination
hereof. Lindstrom shall not give advice or assistance to, render services for,
or own any interest in, any competitor of Vision 21.
-5-
<PAGE> 6
Expressly excepted from the non-compete are the relationships between
Lindstrom and Laser Vision Centers, Inc., Midwest Surgical Services, Inc.,
Ocular Surgery News, Chiron, Inc., Storz, Visitec, Lindstrom Cleaning and
Construction, Ophthalmology Consultants, and CIBA.
Section 7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO SUCH STATE'S RULES
CONCERNING CONFLICTS OF LAWS. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT IS WAIVED.
Section 8. Arbitration. Any dispute or disagreement arising
between the parties hereto in connection with this Agreement, which is not
settled to the mutual satisfaction of the parties within thirty (30) days (or
such longer period as may be mutually agreed upon) from the date that either
party informs the other in writing that such dispute or disagreement exists,
shall be submitted to arbitration in Tampa, Florida to a member of the American
Arbitration Association ("AAA") to be mutually appointed by the parties (or, in
the event the parties cannot agree on a single such member, to a panel of three
members selected in accordance with the rules of the AAA). The dispute or
disagreement shall be settled in accordance with the Commercial Arbitration
Rules of the AAA and the decision of the arbitrator(s) shall be final and
binding upon the parties and judgment may be obtained thereon in a court of
competent jurisdiction. The prevailing party shall be entitled to recover from
the other party the fees and expenses of the arbitrator(s) as well as
reasonable attorneys' fees, costs and expenses incurred by the prevailing
party.
Section 9. Entire Agreement. This Agreement reflects the entire
agreement between the parties hereto with respect to the subject matter hereof
and no provision hereof may be modified or waived unless such modification or
waiver is in writing and is signed by both of the parties hereto.
Section 10. Binding Effect. The provisions of this Agreement
shall be binding upon and inure to the benefit of Vision 21, its successors and
assigns. This Agreement shall not be assignable by Lindstrom.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LINDSTROM VISION 21, INC., A FLORIDA CORPORATION
By: /s/ Richard L. Lindstrom, M.D. By:/s/ Theodore N. Gillette
------------------------------- --------------------------------
Richard L. Lindstrom, M.D. Theodore N. Gillette
President and
Chief Executive Officer
-6-
<PAGE> 1
EXHIBIT 10.5
VISION 21, INC.
1996 STOCK INCENTIVE PLAN
I. PURPOSE.
The purpose of this Vision 21, Inc. 1996 Stock Incentive Plan
is to promote the growth and profitability of Vision 21, Inc. (the
"Corporation") by providing officers and other key employees of the Corporation
with additional incentives to achieve long-term corporate objectives, to assist
the Corporation in attracting and retaining officers and key employees of
outstanding competence, and to provide such officers and key employees with an
opportunity to acquire an equity interest in the Corporation.
The 1996 Stock Incentive Plan has been approved by the Board
of Directors effective as of May 15, 1996.
II. DEFINITIONS.
The following terms shall have the meanings shown:
2.1 "Board of Directors" shall mean the Board of Directors of the
Corporation.
2.2 "Change of Control" shall mean any event described in Section
7.1.
2.3 "Code" shall mean the Internal Revenue Code of 1986, as the
same shall be amended from time to time.
2.4 "Compensation Committee" shall mean the Compensation Committee
of the Board of Directors, as provided for in Section 3.2 of the Plan. All
persons appointed to be members of the Compensation Committee shall be
directors who qualify as "Non-Employee Directors" within the meaning of Rule
16b-3.
2.5 "Common Stock" shall mean the common stock, par value $.001
per share, of the Corporation, except as provided in Section 9.2 of the Plan.
2.6 "Consultant" shall mean any individual who performs valuable
services for the Corporation on a regular and on-going basis who is not an
employee of the Corporation.
2.7 "Date of Grant" shall mean the date specified by the Committee
on which a grant of Options, SARs or Performance Shares, or a grant or sale of
Restricted Shares shall become effective, which shall not be earlier than the
date on which the Committee takes action with respect thereto.
2.8 "Fair Market Value" shall mean the fair market value of a
share of Common Stock as determined by the Board of Directors. For periods
after the Corporation's initial public offering, this shall be determined by
reference to the closing price quotation, or, if none, the average of the bid
and asked prices, reported as of the most recent available date with respect to
the sale of Common Stock.
2.9 "ISOs" shall mean stock options granted by the Corporation
which are intended to qualify as incentive stock options under Section 422 of
the Code.
2.10 "Management Objectives" shall mean the achievement of
performance objectives established by the Committee pursuant to this Plan for
Participants who have received grants of Performance Shares or, when so
determined by the Board of Directors, shares of Restricted Stock.
<PAGE> 2
2.11 "Named Executive Officer" shall mean the Company's Chief
Executive Officer and the four highest compensated officers (other than the
Chief Executive Officer), as determined pursuant to the executive compensation
disclosure rules under the Securities Exchange Act of 1934.
2.12 "Nonemployee Director" shall mean a member of the Board of
Directors who is not an employee or Consultant of the Corporation.
2.13 "Nonstatutory Options" shall mean stock options which are not
intended to qualify as ISOs.
2.14 "Option Agreement" shall mean a written agreement between the
Corporation and a Participant who has been granted Options under this Plan.
2.15 "Option Price" shall mean, with respect to any Option (or
related SAR), the amount designated in a Participant's Option Agreement as the
price per share he or she will be required to pay to exercise the Option and
acquire the shares subject to such Option.
2.16 "Options" shall mean any rights to purchase shares of Common
Stock granted pursuant to Article IV of this Plan, including both ISOs and
Nonstatutory Options.
2.17 "Participant" shall mean any current or former employee,
Consultant or director of the Corporation who has been granted Options, SARs,
Restricted Stock or Performance Shares under the terms of this Plan.
2.18 "Performance Period" shall mean, in respect of a Performance
Share, a period of time established pursuant to Article VIII of this Plan
within which the Management Objectives relating thereto are to be achieved.
2.19 "Performance Share" shall mean a bookkeeping entry that
records the equivalent of one share of Common Stock awarded pursuant to Article
VIII of this Plan.
2.20 "Plan" shall mean this Vision 21, Inc. 1996 Stock Incentive
Plan, as the same may be amended from time to time.
2.21 "Reload Option Rights" shall mean the right to have additional
Options automatically granted to the Participant upon the exercise of his or
her Options, as granted pursuant to Section 4.5 of this Plan.
2.22 "Restricted Stock" shall mean shares of Common Stock that are
issued to eligible officers, key employees or Consultants and made subject to
restrictions in accordance with Article VI of the Plan.
2.23 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the
Securities and Exchange Commission under Section 16 of the Securities Exchange
Act of 1934, as amended from time to time.
2.24 "SARs" shall mean stock appreciation rights granted pursuant
to Article V of the Plan.
2.25 "Subsidiary" shall mean any corporation which, on the date of
determination, qualifies as a subsidiary corporation of the Corporation under
Section 425(f) of the Code.
2.26 "Ten Percent Shareholder" shall mean any Participant who at
the time an ISO is granted owns (within the meaning of Section 425(d) of the
Code) more than ten percent of the voting power of all classes of stock of the
Corporation.
-2-
<PAGE> 3
III. ELIGIBILITY.
3.1 Participation. The Board of Directors may grant Options, SARs
and/or awards of Restricted Stock or Performance Shares under this Plan to any
officer, key employee or Consultant of the Corporation. The Board of Directors
may also grant Options and/or awards of Restricted Stock to any director of the
Corporation, subject to the restrictions in Section 3.3. In granting such
awards and determining their form and amount, the Board of Directors shall give
consideration to the functions and responsibilities of the individual, his or
her potential contributions to profitability and sound growth of the
Corporation and such other factors as the Board of Directors may, in its
discretion, deem relevant.
3.2 Named Executive Officers. Notwithstanding Section 3.1 or any
other provisions of this Plan, any officer who is a Named Executive Officer
shall not be granted Options, SARs or awards of Restricted Stock or Performance
Shares unless the grant has been approved by the Compensation Committee.
3.3 Directors. Members of the Board of Directors who are officers
of the Corporation or Consultants shall be eligible for Options or other awards
under this Plan on the same terms as other officers or Consultants. [Other
members of the Board of Directors shall be eligible for Options or Restricted
Stock awards only to the extent specified in such general policy on
compensation of Nonemployee Directors as may be established by the Board of
Directors.]
IV. OPTIONS.
4.1 Terms and Conditions. The Board of Directors may, in its sole
discretion, from time to time grant Options to any officer, key employee or
Consultant of the Corporation. The grant of an Option to an eligible officer,
employee or Consultant shall be evidenced by a written Option Agreement in
substantially the form approved by the Board of Directors. Such Option shall
be subject to the following express terms and conditions and to such other
terms and conditions, not inconsistent with the terms of this Plan, as the
Board of Directors (or, in the case of a Named Executive Officer, the
Compensation Committee) may deem appropriate.
(a) Shares Covered. The Board of Directors shall, in its
discretion, determine the number of shares of Common Stock to be covered by the
Options granted to any Participant. The maximum number of shares of Common
Stock with respect to which Options may be granted to any employee or
Consultant during any one calendar year is [100,000] shares.
(b) Exercise Period. The term of each Option shall be
for such period as the Board of Directors shall determine, but for not more
than ten years from the Date of Grant thereof. The Board of Directors shall
also have the discretion to determine when each Option granted hereunder shall
become exercisable, and to prescribe any vesting schedule limiting the
exercisability of such Options as it may deem appropriate.
(c) Option Price. The Option Price payable for the
shares of Common Stock covered by any Option shall be determined by the Board
of Directors, but shall in no event be less than the par value of Common Stock.
The Option Price for ISOs shall not be less than the Fair Market Value of one
share of Common Stock on the Date of Grant. The Option Price for Nonstatutory
Options may be less than the Fair Market Value of Common Stock on the Date of
Grant only if the Board of Directors determines that special circumstances
warrant a lower exercise price.
(d) Exercise of Options. A Participant may exercise his
or her Options from time to time by written notice to the Corporation of his or
her intent to exercise the Options with respect to a specified number of
shares. The specified number of shares will be issued and transferred to the
Participant upon receipt
-3-
<PAGE> 4
by the Corporation of (i) such notice and (ii) payment in full for such shares,
and (iii) receipt of any payments required to satisfy the Corporation's tax
withholding obligations pursuant to Section 10.2.
(e) Payment of Option Price Upon Exercise. Each Option
Agreement shall provide that the Option Price for the shares with respect to
which an Option is exercised may be paid to the Corporation at the time of
exercise, in the form of (i) cash, (ii) delivery to the Corporation of whole
shares of Common Stock already owned by the Participant, valued at their Fair
Market Value on the day immediately preceding the date of exercise, (iii) at
the discretion of the Corporation, a promissory note secured by a pledge of the
shares of Common Stock, or (iv) a combination of any of the above equal to the
Option Price for the shares.
(f) Cashless Exercises. Alternatively, the Corporation
may permit the Participant to exercise an Option by delivery of a signed,
irrevocable notice of exercise, accompanied by payment in full of the Option
Price by the Participant's stockbroker and an irrevocable instruction to the
Corporation to deliver the shares of Common Stock issuable upon exercise of the
Option promptly to the Participant's stockbroker for the Participant's account,
provided that at the time of such exercise, such exercise would not subject the
Participant to liability under Section 16(b) of the Securities Exchange Act of
1934, or would be exempt pursuant to Rule 16b-3 or any other exemption from
such liability.
4.2 Effect of Termination of Employment, Retirement, Disability or
Death.
(a) If a Participant's employment (or other relationship, in
the case of a Consultant or director) with the Corporation is involuntarily
terminated, or is terminated by the Participant without the Corporation's
express consent, for any reason other than retirement, disability or death, his
or her Options shall terminate upon the date of the termination, unless the
Board of Directors decides in its sole discretion, to waive this termination
and amend the Participant's Option Agreement to so provide.
(b) Any Option Agreement may, in the Board of Director's
sole discretion, include such provisions as the Board of Directors deems
advisable with respect to the Participant's right to exercise the Option
subsequent to retirement or other termination with the consent of the
Corporation, or subsequent to termination of the Participant's employment by
reason of total and permanent disability (within the meaning of Section
22(e)(3) of the Code); provided, that, in no event shall any Option be
exercisable after the fixed termination date set forth in the Participant's
Option Agreement pursuant to Section 4.1(b); and further provided that no ISO
shall be exercisable at any time subsequent to the expiration of the period of
three (3) months from the date of retirement, or the period of twelve (12)
months from the date of termination of the Participant's employment (or other
relationship with the Corporation) by reason of total and permanent disability,
as the case may be.
(c) Any Option Agreement may, in the Board of Director's
sole discretion, provide that, in the event the Participant dies while in the
employ of the Corporation (or while serving as an active Consultant), or while
he or she has the right to exercise his or her Options under the preceding
Section 4.2(b), the Options may be exercised (to the extent it had become
exercisable prior to the time of the Participant's death), during such period
of up to one year after date of the Participant's death as the Board of
Directors deems to be appropriate, by the personal representative of the
Participant's estate, or by the person or persons to whom the Options shall
have been transferred by will or by the laws of descent and distribution.
4.3 Designation of Options as Incentive Stock Options. The Board
of Directors may, in its discretion, specify that any Options granted to a
Participant who is an employee of the Corporation shall be ISOs qualifying
under Code Section 422. Each Option Agreement which provides for the grant of
ISOs shall designate that such Options are intended to qualify as ISOs. Each
provision of the Plan and of each Option Agreement relating to an Option
designated as an ISO shall be construed so that such Option qualifies as an
ISO, and any provision that cannot be so construed shall be disregarded.
-4-
<PAGE> 5
Any Options granted under this Plan which are designated as
ISOs shall comply with the following terms:
(a) The aggregate Fair Market Value (determined at the time
an ISO is granted) of the shares of Common Stock (together with all other stock
of the Corporation and all stock of any Parent or Subsidiary) with respect to
which the ISOs may first become exercisable by an individual Participant during
any calendar year, under all stock option plans of the Corporation (or any
Parent or Subsidiaries) shall not exceed $100,000. To the extent this
limitation would otherwise be exceeded, the Option shall be deemed to consist
of an ISO for the maximum number of shares which may be covered by ISOs
pursuant to the preceding sentence, and a Nonstatutory Option for the remaining
shares subject to the Option.
(b) The Option Price payable upon the exercise of an ISO
shall not be less than the Fair Market Value of a share of Common Stock on the
Date of Grant.
(c) In the case of an ISO granted to a Participant who is
a Ten Percent Shareholder, the period of the Option shall not exceed five years
from the Date of Grant, and the Option Price shall not be less than 110 percent
of the Fair Market Value of Common Stock on the Date of Grant.
(d) No ISO granted under this Plan shall be assignable or
transferable by the Participant, except by will or by the laws of descent and
distribution. During the life of the Participant, any ISO shall be exercisable
only by the Participant.
4.4 Authority to Waive Restrictions on Exercisability. The Board
of Directors may, in its discretion, determine at any time that all or any
portion of the Options granted to one or more Participants under the Plan
shall, notwithstanding any restrictions on exercisability imposed pursuant to
Section 4.1(b), become immediately exercisable in full. The Board of Directors
may make such further adjustments to the terms of such Options as it may deem
necessary or appropriate in connection therewith, including amending the Option
Agreement to recognize that all or a portion of the Options no longer qualify
as ISOs under Section 4.3.
4.5 Non-Assignability. Options granted under this Plan shall
generally not be assignable or transferable by the Participant, except by will
or by the laws of descent and distribution, or as described in the next
paragraph.
Notwithstanding the foregoing, the Board of Directors may, in its
discretion, permit a Participant to transfer all or a portion of his or her
Options to members of his or her immediate family, to trusts for the benefit of
members of his immediate family, or to family partnerships in which immediate
family members are the only partners, provided that the Participant may receive
no consideration for such transfers, and that such Options shall still be
subject to termination in accordance with Section 4.2 above in the hands of the
transferee.
4.6 Reload Options. The Board of Directors may, in its
discretion, also grant a Participant Reload Option Rights with respect to his
or her Options. If a Participant has been granted Reload Option Rights with
respect to Options, and then exercises his or her Options by paying the Option
Price by delivering previously owned shares of Common Stock, as authorized
under Section 4.1(e) above, the Participant shall automatically be granted
additional Options on the same terms for the number of shares delivered to pay
such Option Price; provided, however, that the term of any Reload Option shall
not extend beyond the term of the Option originally exercised.
V. STOCK APPRECIATION RIGHTS.
5.1 Grant of SARs. Subject to Sections 3.2 and 3.3, the Board of
Directors may, in its discretion, from time to time grant stock appreciation
rights to a Participant in connection with Options granted under this Plan.
Participants granted SARs shall be entitled to receive upon exercise thereof,
in cash or Common Stock as provided in Section 5.3(c), the difference between
the Fair Market Value of the Common Stock on the day
-5-
<PAGE> 6
preceding the exercise date and the Option Price of the underlying Option.
SARs may be granted with respect to all or part of the Common Stock under a
particular Option, except as otherwise expressly provided herein.
5.2 Tandem Options. SARs shall entitle the Participant holding
the related Option, upon exercise, in whole or in part, of the SARs, to receive
payment in the amount and form determined pursuant to Section 5.3(c). SARs may
be exercised only to the extent that the related Option has not been exercised.
The exercise of SARs shall result in a pro rata surrender of the related Option
to the extent that the SARs have been exercised.
5.3 Terms and Conditions. The grant of SARs shall be evidenced by
including provisions with respect to such SARs in the Participant's Option
Agreement in a form approved by the Board of Directors. Such SARs shall be
subject to the following express terms and conditions and to such other terms
and conditions, not inconsistent with the terms of the Plan, which the Board of
Directors (or, in the case of a Named Executive Officer, the Compensation
Committee) may deem appropriate.
(a) SARs shall be exercisable at such time or times and to
the extent, but only to the extent, that the Option to which they relate shall
be exercisable.
(b) SARs (and any Option related thereto) shall in no event
be exercisable during the first six months after the date of grant and such
rights shall not be transferable other than by will or by the laws of descent
and distribution and shall be exercisable during the Participant's lifetime
only by the Participant.
(c) Upon exercise of SARs, the Participant shall be entitled
to receive an amount equal in value to the difference between the Option Price
and the Fair Market Value per share of Common Stock on the day preceding the
exercise date, multiplied by the number of shares in respect of which the SARs
shall have been exercised. Such amount shall be paid in the form of (i) cash,
(ii) shares of Common Stock with a Fair Market Value on the day preceding the
exercise date equal to such amount or (iii) a combination of cash and shares of
Common Stock, all as determined by the Board of Directors.
(d) In no event shall an SAR be exercisable at a time when
the Option Price of the underlying Option is greater than the Fair Market Value
of the shares subject to the related Option.
VI. RESTRICTED STOCK.
6.1 Rights As A Shareholder. Subject to Sections 3.2 and 3.3, the
Board of Directors may, in its discretion, grant a Participant an award
consisting of shares of Restricted Stock. At the time of the award, the Board
of Directors shall cause the Company to deliver to the Participant, or to a
custodian or an escrow agent designated by the Board of Directors, a stock
certificate or certificates for such shares of Restricted Stock, registered in
the name of the Participant. The Participant shall have all the rights of a
stockholder with respect to such Restricted Stock, subject to the terms and
conditions, including forfeiture or resale to such Corporation, if any, as the
Board of Directors may determine to be desirable pursuant to Section 6.3 of the
Plan. The Board of Directors may designate the Corporation or one or more of
its executive officers to act as custodian or escrow agent for the
certificates.
6.2 Awards and Certificates.
(a) A Participant granted an award of Restricted Stock shall
not be deemed to have become a stockholder of the Corporation, or to have any
rights with respect to such shares of Restricted Stock, until and unless such
Participant shall have executed a restricted stock agreement or other
instrument evidencing the award and delivered a fully executed copy thereof to
the Corporation and otherwise complied with the then applicable terms and
conditions of such award.
-6-
<PAGE> 7
(b) When a Participant is granted shares of Restricted Stock,
the Company shall issue a stock certificate or certificates in respect of
shares of Restricted Stock. Such certificates shall be registered in the name
of the Participant, and shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such award substantially in
the following form:
"The transferability of the shares of stock
represented by this Certificate are subject to the terms and
conditions (including forfeiture) of a Restricted Stock
Agreement entered into between the registered owner and Vision
21, Inc. A copy of such Agreement is on file in the offices
of the Secretary of the Company, 7209 Bryan Dairy Road, Largo,
Florida 34647."
(c) Except as may be otherwise determined by the Board of
Directors (or as required in order to satisfy the tax withholding obligations
imposed under Section 10.3 of this Plan), Participants granted awards of
Restricted Stock under this Plan will not be required to make any payment or
provide consideration to the Corporation other than the rendering of services.
6.3 Restrictions and Forfeitures. Restricted Stock awarded to a
Participant pursuant to this Article VI shall be subject to the following
restrictions and conditions:
(a) During a period set by the Board of Directors of not less
than one (1) year, but not more than eight (8) years, commencing with the date
of an award (the "Restriction Period"), the Participant will not be permitted
to sell, transfer, pledge or assign the shares of Restricted Stock awarded to
him or her. Within these limits, the Board of Directors may provide for the
lapse of such restrictions in installments where deemed appropriate.
(b) Except as provided in Section 6.3(a), the Participant
shall have with respect to the Restricted Stock all of the rights of a
stockholder of the Corporation, including the right to vote the shares and
receive dividends and other distributions.
(c) Subject to the provisions of Section 6.3(d), upon
termination of the Participant's employment with the Corporation (or status as
a Consultant) during the Restriction Period for any reason, all shares of
Restricted Stock with respect to which the restrictions have not yet expired
shall be forfeited to or repurchased by the Corporation.
(d) In the event of a Participant's retirement, permanent
total disability, or death, or in cases of special circumstances, the Board of
Directors may, in its sole discretion, when it finds that a waiver would be in
the best interests of the Corporation, waive in whole or in part any or all
remaining restrictions with respect to such Participant's Restricted Stock.
(e) Notwithstanding the other provisions of this Section 6.3,
the Board of Directors may adopt rules which would permit a gift by a
Participant of shares of Restricted Stock to a spouse, child, stepchild,
grandchild or to a trust the beneficiary or beneficiaries of which shall be
either such a person or persons or the Participant, provided that the
Restricted Stock so transferred shall be similarly restricted.
(f) Any attempt to dispose of shares of Restricted Stock in a
manner contrary to the restrictions set forth herein shall be ineffective.
(g) Nothing in this Section 6.3 shall preclude a Participant
from exchanging any Restricted Stock for any other shares of the Common Stock
that are similarly restricted.
-7-
<PAGE> 8
VII. CHANGE IN CONTROL TRANSACTIONS.
7.1 Change in Control. For purposes of this Plan, a "Change in
Control" shall include any of the events described below:
(a) The acquisition in one or more transactions of more
than thirty percent of the Corporation's outstanding Common Stock, or the
equivalent in voting power of any classes or classes of securities of the
Corporation entitled to vote in elections of directors by any corporation, or
other person or group (within the meaning of Section 14(d)(3) of the Securities
Exchange Act of 1934, as amended);
(b) Any merger or consolidation of the Corporation into
or with another corporation in which the Corporation is not the surviving
entity, or any transfer or sale of substantially all of the assets of the
Corporation or any merger or consolidation of the Corporation into or with
another corporation in which the Corporation is the surviving entity and, in
connection with such merger or consolidation, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for other stock or
securities of the Corporation or any other person, or cash, or any other
property.
(c) Any election of persons to the Board of Directors
which causes a majority of the Board of Directors to consist of persons other
than (i) persons who were members of the Board of Directors on September 30,
1996, and (ii) persons who were nominated for election as members of the Board
by the Board of Directors (or a Committee of the Board or Directors) at a time
when the majority of the Board or Directors (or of such Committee) consisted of
persons who were members of the Board of Directors on September 30, 1996;
provided, that any person nominated for election by the Board of Directors
composed entirely of persons described in (i) or (ii), or of persons who were
themselves nominated by such Board of Directors, shall for this purpose be
deemed to have been nominated by a Board or Directors composed of persons
described in (i).
(d) Any person, or group of persons, announces a tender
offer for at least thirty percent (30%) of the Corporation's Common Stock.
7.2 Effect of Change in Control. In the event of a pending or
threatened Change in Control, the Board of Directors may, in its sole
discretion, take any one or more of the following actions with respect to all
Participants (other than with respect to Named Executive Officers):
(i) Accelerate the exercise dates of any
outstanding Options, make all outstanding Options fully vested
and exercisable;
(ii) Determine that all or any portion of
conditions associated with a Restricted Stock or Performance
Share Award have been met;
(iii) Grant SARs or a cash bonus award to any of
the holders of outstanding Options;
(iv) Pay cash to any or all Option holders in
exchange for the cancellation of their outstanding
Nonstatutory Options, SARs, or Performance Shares;
(v) Make any other adjustments or amendments to
the Plan and outstanding Options, Restricted Stock or
Performance Share awards and/or substitute new Options or
other awards.
With respect to any Named Executive Officer, any such action shall be effective
only if it is approved by the Compensation Committee.
-8-
<PAGE> 9
VIII. PERFORMANCE SHARES.
Subject to Sections 3.2 and 3.3, the Board of Directors (or,
in the case of Named Executive Officers, the Compensation Committee) may also,
in its discretion, grant Performance Shares to a Participant, which shall
become payable to the Participant upon the achievement of specified Management
Objectives, upon such terms and conditions as the Board of Directors (or
Compensation Committee) may determine in accordance with the following
provisions:
(a) Each such award shall specify the number of
Performance Shares to which it pertains, which may be subject to adjustment to
reflect changes in compensation or other factors.
(b) The Performance Period with respect to each
Performance Share shall be determined by the Board of Directors on the Date of
Grant.
(c) For each Participant's award, the Board of Directors
shall specify the Management Objectives that are to be achieved by the
Participant, which may be described in terms of Corporation-wide objectives or
in terms of objectives that are related to the performance of the individual
Participant or the department or function within the Corporation in which the
Participant is employed. These Management Objectives shall be selected by the
Board of Directors within the first ninety (90) days of the Performance Period.
Management Objectives for Participants who are (or may become) Named Executive
Officers shall be submitted for approval by the Corporation's stockholders if
the Corporation wishes to be able to treat the Performance Shares as "qualified
performance-based compensation" for purposes of Code Section 162(m).
(d) Each Participant's award of Performance Shares shall
specify that the amount payable with respect thereto may not exceed a maximum
specified by the Board of Directors on the Date of Grant, or the number of
shares of Common Stock issued with respect thereto may not exceed maximums
specified by the Board of Directors on the Date of Grant.
(e) Each Participant's award shall specify in respect of
each of the specified Management Objectives the minimum acceptable level of
achievement below which no payment will be made, and shall set forth a formula
for determining the amount of any payment to be made if performance is at or
above the minimum acceptable level but falls short of full achievement of the
specified Management Objectives.
(f) Each Participant's award shall specify the time and
manner of payment of Performance Shares that have been earned. No payment
shall be made, with respect to a Named Executive Officer's Performance Shares
unless the Compensation Committee has certified in writing that the Management
Objectives with respect to such Performance Shares have been met. Any award
may specify that any such amount may be paid by the Corporation in cash, shares
of Common Stock or any combination thereof and may either grant to the
Participant or reserve to the Board of Directors the right to elect among those
alternatives.
(g) The Board of Directors (or, for Named Executive
Officers, the Compensation Committee) may adjust Management Objectives and the
related minimum acceptable level of achievement if, in the judgment of the
Board of Directors, events or transactions have occurred after the Date of
Grant that are unrelated to the performance of the Participant and result in
distortion of the Management Objectives or the related minimum acceptable level
of achievement.
(h) Each Participant's award under this Article VIII
shall be evidenced by an agreement, which shall be executed on behalf of the
Corporation by any officer thereof and delivered to and accepted by the
Participant and shall contain such terms and provisions as the Board of
Directors may determine consistent with this Plan.
-9-
<PAGE> 10
IX. AGGREGATE LIMITATION ON SHARES OF COMMON STOCK.
9.1 Number of Shares of Common Stock.
(a) Shares of Common Stock which may be issued pursuant to
Options, SARs, Restricted Stock awards or Performance Share awards granted
under the Plan may be either authorized and unissued shares of Common Stock or
of Common Stock held by the Corporation as treasury stock. The number of
shares of Common Stock reserved for issuance under this Plan shall not exceed
1,400,000 shares of Common Stock, subject to such adjustments as may be made
pursuant to Section 9.2.
(b) For purposes of Section 9.1(a), upon the exercise of an
Option or SAR, the number of shares of Common Stock available for future
issuance under the Plan shall be reduced by the number of shares actually
issued to the Optionee, exclusive of any shares surrendered to the Company as
payment of the Option price.
(c) Any shares of Common Stock subject to an Option which for
any reason is cancelled, terminates unexercised or expires, except by reason of
the exercise of a related SAR, shall again be available for issuance under the
Plan.
(d) In the event that any award of Restricted Stock is
forfeited, cancelled or surrendered for any reason, the shares of Common Stock
constituting such Restricted Stock award shall again be available for issuance
under the Plan.
9.2 Adjustments of Stock. In the event of any change or changes
in the outstanding Common Stock of the Corporation by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
combination or any similar transaction, the Board of Directors shall adjust the
number of shares of Common Stock which may be issued under this Plan, the
number of shares of Common Stock subject to Options theretofore granted under
this Plan, the Option Price of such Options, the number of SARs theretofore
granted in conjunction with an Option, the number of shares of Restricted Stock
and make any and all other adjustments deemed appropriate by the Board of
Directors in such manner as the Board of Directors deems appropriate to prevent
substantial dilution or enlargement of the rights granted to a participating
employee.
New option rights may be substituted for the Options granted
under the Plan, or the Corporation's duties as to Options and SARs outstanding
under the Plan may be assumed by a Parent or Subsidiary, by another corporation
or by a parent or subsidiary (within the meaning of Section 425 of the Code) of
such other corporation, in connection with any merger, consolidation,
acquisition, separation, reorganization, liquidation or like occurrence in
which the Corporation is involved. In the event of such substitution or
assumption, the term Common Stock shall thereafter include the stock of the
corporation granting such new option rights or assuming the Corporation's
duties as to such Options or SARs.
X. MISCELLANEOUS.
10.1 General Restriction. Any Option, SAR, or Restricted Stock
award granted under this Plan shall be subject to the requirement that, if at
any time the Board of Directors shall determine that any registration of the
shares of Common Stock, or any consent or approval of any governmental body, or
any other agreement or consent, is necessary as a condition of the granting of
an Option or other award, or the issuance of Common Stock in satisfaction
thereof, such Common Stock will not be issued or delivered until such
requirement is satisfied in a manner acceptable to the Board of Directors.
-10-
<PAGE> 11
10.2 Withholding Taxes.
(a) The Board of Directors shall have the right to require
participating employees to remit to the Corporation an amount sufficient to
satisfy any federal, state and local withholding tax requirements prior to the
delivery of any shares of Common Stock under the Plan. If a Participant sells,
transfers, assigns or otherwise disposes of shares of Common Stock acquired
upon the exercise of an ISO within two (2) years after the date on which the
ISO was granted or within one (1) year after the receipt of the shares of
Common Stock by the Participant, the Participant shall promptly notify the
Corporation of such disposition and the Corporation shall have the right to
require the Participant to remit to the Corporation the amount necessary to
satisfy any federal, state and local tax withholding requirements imposed on
the Corporation by reason of such disposition.
(b) The Corporation shall have the right to withhold from
payments made in cash to a Participant under the terms of the Plan, an amount
sufficient to satisfy any federal, state and local withholding tax requirements
imposed with respect to such cash payments.
(c) Amounts to which the Corporation is entitled pursuant to
Section 10.2(a) or (b), may be paid, at the election of the Participant and
with the approval of the Board of Directors, either (i) paid in cash, (ii)
withheld from the Participant's salary or other compensation payable by the
Corporation, including cash payments made under this Plan, or (iii) in shares
of Common Stock otherwise issuable to the Participant upon exercise of an
Option or SAR, that have a Fair Market Value on the date on which the amount of
tax to be withheld is determined (the "Tax Date") not less than the minimum
amount of tax the Corporation is required to withhold. A Participant's
election to have shares of Common Stock withheld that are otherwise issuable
shall be in writing, shall be irrevocable upon approval by the Committee, and
shall be delivered to the Corporation prior to the Tax Date with respect to the
exercise of an Option or SAR.
10.3 Tax Loans. In the discretion of the Board of Directors, the
Company may make a loan to a Participant (i) in connection with the exercise of
an Option in an amount not to exceed the grossed up amount of any Federal and
state taxes payable in connection with such exercise, for the purpose of
assisting such Participant to exercise such Option, or (ii) in connection with
the vesting of Restricted Stock in an amount equal to the grossed up amount of
any Federal and state taxes payable as a result of such vesting. Any such loan
may be secured by the related shares of Common Stock or other collateral deemed
adequate by the Board of Directors and will comply in all respects with all
applicable laws and regulations. The Board of Directors may adopt policies
regarding eligibility for such loans, the maximum amounts thereof and any terms
and conditions not specified in the Plan upon which such loans will be made.
In no event will the interest rate be lower than the minimum rate at which the
Internal Revenue Service would not impute additional taxable income to the
Participant.
10.4 Investment Representation. If the Board of Directors
determines that a written representation is necessary in order to secure an
exemption from registration under the Securities Act of 1933, the Board of
Directors may demand that the Participant deliver to the Corporation at the
time of any exercise of any Option or SAR, or at time of the transfer of shares
of Restricted Stock, any written representation that Board of Directors
determines to be necessary or appropriate for such purpose, including but not
limited to a representation that the shares to be issued are to be acquired for
investment and not for resale or with a view to the distribution thereof. If
the Board of Directors makes such a demand, delivery of a written
representation satisfactory to the Board of Directors shall be a condition
precedent to the right of the Participant to acquire such shares of Common
Stock.
10.5 No Right to Employment. Nothing in this Plan or in any
agreement entered into pursuant to it shall confer upon any participating
employee the right to continue in the employment of the Corporation or affect
any right which the Corporation may have to terminate the employment of such
participating employee.
-11-
<PAGE> 12
10.6 Non-Uniform Determinations. The Board of Director's
determinations under this Plan (including without limitation its determinations
of the persons to receive Options, SARs, or awards of Restricted Stock or
Performance Shares, the form, amount and timing of such awards and the terms
and provisions of such awards) need not be uniform and may be made by it
selectively among Participants who receive, or are eligible to receive, awards
under this Plan, whether or not such Participants are similarly situated.
10.7 No Rights as Shareholders. Participants granted Options, SARs
or Performance Shares under this Plan shall have no rights as shareholders of
the Corporation as applicable with respect thereto unless and until
certificates for shares of Common Stock are issued to them.
10.8 Transfer Restrictions. The Board of Directors may determine
that any Common Stock to be issued by the Corporation upon the exercise of
Options or SARs, or in settlement of Performance Shares, shall be subject to
such further restrictions upon transfer as the Board of Directors determines to
be appropriate.
10.9 Fractional Shares. The Corporation shall not be required to
issue any fractional Common Shares pursuant to this Plan. The Board of
Directors may provide for the elimination of fractions or for the settlement
thereof in cash.
XI. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors.
Notwithstanding the preceding sentence, the Board of Directors shall delegate
its authority with respect to Named Executive Officers to the Compensation
Committee, and may delegate its authority with respect to other Participants to
a Stock Option Committee consisting of such members as may be appointed by the
Board of Directors from time to time. Members of the Stock Option Committee
need not be members of the Board of Directors, and shall serve at the pleasure
of the Board of Directors.
(b) Except as provided in Section 3.2, the Board of Directors
(or, in its place, the Stock Option Committee) shall have the authority, in its
sole discretion, from time to time: (i) to grant Options, SARs, shares of
Restricted Stock or Performance Shares to officers, key employees, and
Consultants of the Company, as provided for in this Plan; (ii) to prescribe
such limitations, restrictions and conditions upon any such awards as the
Committee shall deem appropriate; (iii) to determine the periods during which
Options may be exercised and to accelerate the exercisability of outstanding
Options or SARs, or the vesting of Restricted Stock, as it may deem
appropriate; (iv) to modify, cancel, or replace any prior Options or other
awards and to amend the relevant Option Agreements or Restricted Stock
Agreements with the consent of the affected Participants, including amending
such agreements to amend vesting schedules, extend exercise periods or increase
or decrease the Option Price for Options, as it may deem to be necessary; and
(v) to interpret the Plan, to adopt, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations and to take all
other action necessary or advisable for the implementation and administration
of the Plan. With respect to any Named Executive Officer, this authority shall
be transferred to the Compensation Committee, or may be exercised by the Board
of Directors subject to the condition that the express approval of the
Compensation Committee must be obtained.
(c) All actions taken by the Board of Directors shall be
final, conclusive and binding upon any eligible employee. No member of the
Board of Directors shall be liable for any action taken or decision made in
good faith relating to the Plan or any award thereunder.
XII. AMENDMENT AND TERMINATION.
12.1 Amendment or Termination of the Plan. The Board of Directors
may at any time terminate this Plan or any part thereof and may from time to
time amend this Plan as it may deem advisable; provided, however the Board of
Directors shall obtain stockholder approval of any amendment for which
stockholder approval is required under Section 422 of the Code, or the
stockholder approval requirements imposed on the
-12-
<PAGE> 13
Corporation by the Listing Rules of any stock exchange on which the Common
Stock is listed, including an amendment which would (i) increase the aggregate
number of shares of Common Stock which may be issued under this Plan (other
than increases permitted under Section 9.2), (ii) extend the term of this Plan,
or (iii) extend the period during which an Option may be exercised. The
termination or amendment of this Plan shall not, without the consent of the
employee, affect such employee's rights under an award previously granted.
12.2 Term of Plan. Unless previously terminated pursuant to
Section 11.1, the Plan shall terminate on May 15, 2006, the tenth anniversary
of the date on which the Plan became effective, and no Options, SARs, or awards
of Restricted Stock may be granted on or after such date.
-13-
<PAGE> 1
EXHIBIT 10.6
VISION 21, INC.
AFFILIATED PROFESSIONALS STOCK PLAN
I. PURPOSE.
The purpose of this Vision 21, Inc. Affiliated Professionals
Stock Plan is to promote the growth and profitability of Vision 21, Inc. (the
"Corporation") by providing key ophthalmologists, optometrists and other
medical professionals employed by professional associations which have entered
into long-term management contracts with the Corporation with additional
incentives to enter into and continue long-term relationships with the
Corporation, and to provide such affiliated medical professionals with an
opportunity to acquire an equity interest in the Corporation.
The Affiliated Professionals Stock Plan has been approved by
the Board of Directors effective as of May 15, 1996.
II. DEFINITIONS.
The following terms shall have the meanings shown:
2.1 "Affiliated Professional" means an ophthalmologist,
optometrist or other medical professional employed by a Professional
Association.
2.2 "Board of Directors" means the Board of Directors of the
Corporation.
2.3 "Change of Control" means any event described in Section 7.1.
2.4 "Code" means the Internal Revenue Code of 1986, as the same
shall be amended from time to time.
2.5 "Committee" means the Committee provided for in Article X of
the Plan.
2.6 "Common Stock" means the common stock, par value $.001 per
share, of the Corporation, except as provided in Section 8.2 of the Plan.
2.7 "Date of Grant" means the date specified by the Committee on
which a grant of Options, SARs or a grant or sale of Restricted Shares shall
become effective, which shall not be earlier than the date on which the
Committee takes action with respect thereto.
2.8 "Fair Market Value" means the fair market value of a share of
Common Stock as determined by the Committee by reference to the closing price
quotation, or, if none, the average of the bid and asked prices, reported as of
the most recent available date with respect to the sale of Common Stock.
2.9 "Option Agreement" means a written agreement between the
Corporation and an Affiliated Professional who has been granted Options under
this Plan.
2.10 "Option Price" means, with respect to any Option (or related
SAR), the amount designated in a Participant's Option Agreement as the price
per share he or she will be required to pay to exercise the Option and acquire
the shares subject to such Option.
2.11 "Options" means any rights to purchase shares of Common Stock
granted pursuant to Article IV of this Plan.
<PAGE> 2
2.12 "Plan" means this Vision 21, Inc. Affiliated Professionals
Stock Plan, as the same may be amended from time to time.
2.13 "Professional Association" means any professional association
or other medical or eye care practice group which has entered into a long-term
management or service agreement with the Corporation.
2.14 "Reload Option Rights" means the right to have additional
Options automatically granted to the Participant upon the exercise of his or
her Options, as granted pursuant to Section 4.5 of this Plan.
2.15 "Restricted Stock" means shares of Common Stock that are
issued to eligible Affiliated Professionals and made subject to restrictions in
accordance with Article VI of the Plan.
2.16 "SARs" shall mean stock appreciation rights granted pursuant
to Article V of the Plan.
III. ELIGIBILITY.
3.1 Participation. The Committee may grant Options, SARs and/or
awards of Restricted Stock under this Plan to Affiliated Professionals. In
granting such awards and determining their form and amount, the Committee shall
give consideration to the value to the Corporation of a long-term relationship
with the Affiliated Professional's professional association, the Affiliated
Professional's potential contributions to profitability and sound growth of the
professional association and the Corporation and such other factors as the
Committee may, in its discretion, deem relevant.
IV. OPTIONS.
4.1 Terms and Conditions. The Committee may, in its sole
discretion, from time to time grant Options to any Affiliated Professional
selected by the Committee pursuant to Section 3.1. The grant of an Option to
an eligible Affiliated Professional shall be evidenced by a written Option
Agreement in substantially the form approved by the Committee. Such Option
shall be subject to the following express terms and conditions and to such
other terms and conditions, not inconsistent with the terms of this Plan, as
the Committee may deem appropriate.
(a) Shares Covered. The Committee shall, in its
discretion, determine the number of shares of Common Stock to be covered by the
Options granted to any Participant. The maximum number of shares of Common
Stock with respect to which Options may be granted to any Participant during
any one calendar year is [100,000] shares.
(b) Exercise Period. The term of each Option shall be
for such period as the Committee shall determine, but for not more than ten
years from the Date of Grant thereof. The Committee shall also have the
discretion to determine when each Option granted hereunder shall become
exercisable, and to prescribe any vesting schedule limiting the exercisability
of such Options as it may deem appropriate.
(c) Option Price. The Option Price payable for the
shares of Common Stock covered by any Option shall be determined by the
Committee, but shall in no event be less than the par value of Common Stock.
The Option Price may be less than the Fair Market Value of Common Stock on the
Date of Grant only if the Committee determines that special circumstances
warrant a lower exercise price.
(d) Exercise of Options. A Participant may exercise his
or her Options from time to time by written notice to the Corporation of his or
her intent to exercise the Options with respect to a specified number of
shares. The specified number of shares will be issued and transferred to the
Participant upon receipt by the Corporation of (i) such notice and (ii) payment
in full for such shares, and (iii) receipt of any payments required to satisfy
the Corporation's tax withholding obligations pursuant to Section 8.3.
-2-
<PAGE> 3
(e) Payment of Option Price Upon Exercise. Each Option
Agreement shall provide that the Option Price for the shares with respect to
which an Option is exercised may be paid to the Corporation at the time of
exercise, in the form of (i) cash, (ii) delivery to the Corporation of whole
shares of Common Stock already owned by the Participant, valued at their Fair
Market Value on the day immediately preceding the date of exercise, (iii) at
the discretion of the Committee, a promissory note secured by a pledge of the
shares of Common Stock, or (iv) a combination of any of the above equal to the
Option Price for the shares.
(f) Cashless Exercises. Alternatively, the Committee may
permit the Participant to exercise an Option by delivery of a signed,
irrevocable notice of exercise, accompanied by payment in full of the Option
Price by the Participant's stockbroker and an irrevocable instruction to the
Corporation to deliver the shares of Common Stock issuable upon exercise of the
Option promptly to the Participant's stockbroker for the Participant's account,
provided that at the time of such exercise, such exercise would not be illegal
under the federal securities laws, including laws governing margin loans.
4.2 Effect of Termination.
(a) If the management agreement between the Corporation
and the Professional Association which employs a Participant is terminated, or
if the Participant ends his employment relationship with such Professional
Association for any reason other than retirement, disability or death, his or
her Options shall terminate immediately upon the date of the termination,
unless the Committee decides in its sole discretion, to waive this termination
and amends the Participant's Option Agreement to so provide.
(b) Any Option Agreement may, in the Committee's sole
discretion, include such provisions as the Committee deems advisable with
respect to the Participant's right to exercise the Option subsequent to
retirement or other voluntary termination of employment with his or her
Professional Association, or subsequent to termination of such employment by
reason of total and permanent disability; provided, that, in no event shall any
Option be exercisable after the fixed termination date set forth in the
Participant's Option Agreement pursuant to Section 4.1(b).
(c) Any Option Agreement may, in the Committee's sole
discretion, provide that, in the event of the Participant's death while he or
she has the right to exercise his or her Options, the Options may be exercised
(to the extent they had become exercisable prior to the time of the
Participant's death), during such period of up to one year after date of the
Participant's death as the Committee deems to be appropriate, by the personal
representative of the Participant's estate, or by the person or persons to whom
the Options shall have been transferred by will or by the laws of descent and
distribution.
4.3 Nonstatutory Stock Options. The Options granted under this
Plan are not intended to constitute incentive stock options qualifying under
Code Section 422.
4.4 Authority to Waive Restrictions on Exercisability. The
Committee may, in its sole discretion, determine at any time that all or any
portion of the Options granted to a Participant under the Plan shall,
notwithstanding any restrictions on exercisability imposed pursuant to Section
4.1(b), become immediately exercisable in full. The Committee may make such
further adjustments to the terms of such Options as it may deem necessary or
appropriate in connection therewith.
-3-
<PAGE> 4
4.5 Non-Assignability. Options granted under this Plan shall
generally not be assignable or transferable by the Participant, except by will
or by the laws of descent and distribution, or as described in the next
paragraph.
Notwithstanding the foregoing, the Committee may, in its discretion,
permit a Participant to transfer all or a portion of his or her Options to
members of his or her immediate family, to trusts for the benefit of members of
his immediate family, or to family partnerships in which immediate family
members are the only partners, provided that the Participant may receive no
consideration for such transfers, and that such Options shall still be subject
to termination in accordance with Section 4.2 above in the hands of the
transferee.
4.6 Reload Options. The Committee may, in its discretion, also
grant a Participant Reload Option Rights with respect to his or her Options.
If a Participant who has been granted Reload Option Rights with respect to
Options, exercises his or her Options by paying the Option Price by delivering
previously owned shares of Common Stock, as authorized under Section 4.1(e)
above, the Participant shall automatically be granted additional Options on the
same terms for the number of shares delivered to pay such Option Price;
provided, however, that the term of any Reload Option shall not extend beyond
the term of the Option originally exercised.
V. STOCK APPRECIATION RIGHTS.
5.1 Grant of SARs. The Committee may, in its discretion, from
time to time grant stock appreciation rights to a Participant in connection
with Options granted under this Plan. Participants granted SARs shall be
entitled to receive upon exercise thereof, in cash or Common Stock as provided
in Paragraph 5.3(c), the difference between the Fair Market Value of the Common
Stock on the day preceding the exercise date and the Option Price of the
underlying Option. SARs may be granted with respect to all or part of the
Common Stock under a particular Option, except as otherwise expressly provided
herein.
5.2 Tandem Options. SARs shall entitle the Participant holding
the related Option, upon exercise, in whole or in part, of the SARs, to receive
payment in the amount and form determined pursuant to Paragraph 5.3(c). SARs
may be exercised only to the extent that the related Option has not been
exercised. The exercise of SARs shall result in a pro rata surrender of the
related Option to the extent that the SARs have been exercised.
5.3 Terms and Conditions. The grant of SARs shall be evidenced by
including provisions with respect to such SARs in the Participant's Option
Agreement in a form approved by the Committee. Such SARs shall be subject to
the following express terms and conditions and to such other terms and
conditions, not inconsistent with the terms of the Plan, which the Committee
may deem appropriate.
(a) SARs shall be exercisable at such time or times and
to the extent, but only to the extent, that the Option to which they relate
shall be exercisable.
(b) SARs (and any Option related thereto) shall in no
event be exercisable during the first six months after the date of grant and
such rights shall not be transferable other than by will or by the laws of
descent and distribution and shall be exercisable during the Participant's
lifetime only by the Participant.
(c) Upon exercise of SARs, the Participant shall be
entitled to receive an amount equal in value to the difference between the
Option Price and the Fair Market Value per share of Common Stock on the day
preceding the exercise date, multiplied by the number of shares in respect of
which the SARs shall have been exercised. Such amount shall be paid in the
form of (i) cash, (ii) shares of Common Stock with a Fair Market Value on the
day preceding the exercise date equal to such amount or (iii) a combination of
cash and shares of Common Stock, all as determined by the Committee.
-4-
<PAGE> 5
(d) In no event shall an SAR be exercisable at a time
when the Option Price of the underlying Option is greater than the Fair Market
Value of the shares subject to the related Option.
VI. RESTRICTED STOCK.
6.1 Rights As A Shareholder. The Committee may, in its
discretion, grant a Participant an award consisting of shares of Restricted
Stock. At the time of the award, the Committee shall cause the Company to
deliver to the Participant, or to a custodian or an escrow agent designated by
the Committee, a certificate or certificates for such shares of Restricted
Stock, registered in the name of the Participant. The Participant shall have
all the rights of a stockholder with respect to such Restricted Stock, subject
to the terms and conditions, including forfeiture or resale to such
Corporation, if any, as the Committee may determine to be desirable pursuant to
Section 6.3 of the Plan. The Committee may designate the Corporation or one or
more of its executive officers to act as custodian or escrow agent for the
certificates.
6.2 Awards and Certificates.
(a) A Participant granted an award of Restricted Stock
shall not be deemed to have become a stockholder of the Corporation, or to have
any rights with respect to such shares of Restricted Stock, until and unless
such Participant shall have executed a restricted stock agreement or other
instrument evidencing the award and delivered a fully executed copy thereof to
the Corporation and otherwise complied with the then applicable terms and
conditions of such award.
(b) When a Participant is granted shares of Restricted
Stock, the Company shall issue a stock certificate or certificates in respect
of shares of Restricted Stock. Such certificates shall be registered in the
name of the Participant, and shall bear an appropriate legend referring to the
terms, conditions and restrictions applicable to such award substantially in
the following form:
"The transferability of the shares of stock
represented by this Certificate are subject to the terms and
conditions (including forfeiture) of a Restricted Stock
Agreement entered into between the registered owner and Vision
21, Inc. A copy of such Agreement is on file in the offices
of the Secretary of the Company, ________, Largo, Florida
43604."
(c) Except as may be otherwise determined by the
Committee (or as required in order to satisfy the tax withholding obligations
imposed under Section 10.3 of this Plan), Participants granted awards of
Restricted Stock under this Plan will not be required to make any payment or
provide consideration to the Corporation other than the rendering of services.
6.3 Restrictions and Forfeitures. Restricted Stock awarded to a
Participant pursuant to this Article VI shall be subject to the following
restrictions and conditions:
(a) During a period set by the Committee of not less than
one (1) year, but not more than eight (8) years, commencing with the date of an
award (the "Restriction Period"), the Participant will not be permitted to
sell, transfer, pledge or assign shares of Restricted Stock awarded to him or
her. Within these limits, the Committee may provide for the lapse of such
restrictions in installments where deemed appropriate.
(b) Except as provided in Section 6.3(a), the Participant
shall have with respect to the Restricted Stock all of the rights of a
stockholder of the Corporation, including the right to vote the shares and
receive dividends and other distributions.
(c) Subject to the provisions of Section 6.3(d), upon any
termination of the management contract between the Corporation and the
Participant's Professional Association during the Restriction Period for any
reason, or in the event of any termination of the Participant's employment with
the Professional Association, all shares of Restricted Stock with respect to
which the restrictions have not yet expired shall be
-5-
<PAGE> 6
forfeited to the Corporation, or, in the case of shares of Restricted Stock
sold to the Participant, repurchased at the initial purchase price by the
Corporation.
(d) In the event of a Participant's retirement from his
or her employment with a Professional Association, permanent total disability,
or death, or in cases of special circumstances, the Committee may, in its sole
discretion, when it finds that a waiver would be in the best interests of the
Corporation, waive in whole or in part any or all remaining restrictions with
respect to such Participant's Restricted Stock.
(e) Notwithstanding the other provisions of this Section
6.3, the Committee may adopt rules which would permit a gift by a Participant
of shares of Restricted Stock to a spouse, child, stepchild, grandchild or to a
trust the beneficiary or beneficiaries of which shall be either such a person
or persons or the Participant, provided that the Restricted Stock so
transferred shall be similarly restricted.
(f) Any attempt to dispose of shares of Restricted Stock
in a manner contrary to the restrictions set forth herein shall be ineffective.
(g) Nothing in this Section 6.3 shall preclude a
Participant from exchanging any Restricted Stock for any other shares of the
Common Stock that are similarly restricted.
VII. CHANGE IN CONTROL TRANSACTIONS.
7.1 Change in Control. For purposes of this Plan, a "Change in
Control" shall include any of the events described below:
(a) The acquisition in one or more transactions of more
than thirty percent of the Corporation's outstanding Common Stock, or the
equivalent in voting power of any classes or classes of securities of the
Corporation entitled to vote in elections of directors by any corporation, or
other person or group (within the meaning of Section 14(d)(3) of the Securities
Exchange Act of 1934, as amended);
(b) Any merger or consolidation of the Corporation into
or with another corporation in which the Corporation is not the surviving
entity, or any transfer or sale of substantially all of the assets of the
Corporation or any merger or consolidation of the Corporation into or with
another corporation in which the Corporation is the surviving entity and, in
connection with such merger or consolidation, all or part of the outstanding
shares of Common Stock shall be changed into or exchanged for other stock or
securities of the Corporation or any other person, or cash, or any other
property.
(c) Any election of persons to the Board of Directors
which causes a majority of the Board of Directors to consist of persons other
than (i) persons who were members of the Board of Directors on September 1,
1996, and (ii) persons who were nominated for election as members of the Board
by the Board of Directors (or a Committee of the Board) at a time when the
majority of the Board (or of such Committee) consisted of persons who were
members of the Board of Directors on September 1, 1996; provided, that any
person nominated for election by the Board of Directors composed entirely of
persons described in (i) or (ii), or of persons who were themselves nominated
by such Board, shall for this purpose be deemed to have been nominated by a
Board composed of persons described in (i).
(d) Any person, or group of persons, announces a tender
offer for at least thirty percent (30%) of the Corporation's Common Stock.
-6-
<PAGE> 7
7.2 Effect of Change in Control. In the event of a pending or
threatened Change in Control, the Committee may, in its sole discretion, take
any one or more of the following actions with respect to all Participants:
(i) Accelerate the exercise dates of any
outstanding Options, and make all outstanding Options fully
vested and exercisable;
(ii) Waive all or any portion of the vesting
requirements or other conditions associated with a Restricted
Stock Award;
(iii) Grant Stock Appreciation Rights to the
holders of outstanding Options;
(iv) Pay cash to any or all Option holders in
exchange for the cancellation of their outstanding Options;
(v) Make any other adjustments or amendments to
the Plan and outstanding Options, or Restricted Stock Awards
and/or substitute new Options or other awards.
VIII. AGGREGATE LIMITATION ON SHARES OF COMMON STOCK.
8.1 Number of Shares of Common Stock.
(a) Shares of Common Stock which may be issued to
Affiliated Professionals pursuant to Options, SARs, or Restricted Stock awards
granted under the Plan may be either authorized and unissued shares of Common
Stock or of Common Stock held by the Corporation as treasury stock. The number
of shares of Common Stock reserved for issuance under this Plan on the date of
any grant shall not exceed 1,000,000 shares of Common Stock, or, if greater,
5.0 percent of the total number of shares of Common Stock then outstanding,
subject to such adjustments as may be made pursuant to Section 8.2.
(b) For purposes of Section 8.1(a), upon the exercise of
an Option or SAR, the number of shares of Common Stock available for future
issuance under the Plan shall be reduced by the number of shares actually
issued to the Optionee, exclusive of any shares surrendered to the Company as
payment of the Option price.
(c) Any shares of Common Stock subject to an Option which
for any reason is cancelled, terminates unexercised or expires, except by
reason of the exercise of a related SAR, shall again be available for issuance
under the Plan.
(d) In the event that any award of Restricted Stock is
forfeited, cancelled or surrendered for any reason, the shares of Common Stock
constituting such Restricted Stock award shall again be available for issuance
under the Plan.
8.2 Adjustments of Stock. In the event of any change or changes
in the outstanding Common Stock of the Corporation by reason of any stock
dividend, recapitalization, reorganization, merger, consolidation, split-up,
combination or any similar transaction, the Committee shall adjust the number
of shares of Common Stock which may be issued under this Plan, the number of
shares of Common Stock subject to Options theretofore granted under this Plan,
the Option Price of such Options, the number of SARs theretofore granted in
conjunction with an Option, the number of shares of Restricted Stock and make
any and all other adjustments deemed appropriate by the Committee in such
manner as the Committee deems appropriate to prevent substantial dilution or
enlargement of the rights granted to a participating employee.
-7-
<PAGE> 8
New option rights may be substituted for the Options granted
under the Plan, or the Corporation's duties as to Options and SARs outstanding
under the Plan may be assumed by a Parent or Subsidiary, by another corporation
or by a parent or subsidiary (within the meaning of Section 425 of the Code) of
such other corporation, in connection with any merger, consolidation,
acquisition, separation, reorganization, liquidation or like occurrence in
which the Corporation is involved. In the event of such substitution or
assumption, the term Common Stock shall thereafter include the stock of the
corporation granting such new option rights or assuming the Corporation's
duties as to such Options or SARs.
IX. MISCELLANEOUS.
9.1 General Restriction. Any Option, SAR, or Restricted Stock
award granted under this Plan shall be subject to the requirement that, if at
any time the Committee shall determine that any registration of the shares of
Common Stock, or any consent or approval of any governmental body, or any other
agreement or consent, is necessary as a condition of the granting of an Option
or other award, or the issuance of Common Stock in satisfaction thereof, such
Common Stock will not be issued or delivered until such requirement is
satisfied in a manner acceptable to the Committee.
9.2 Withholding Taxes.
(a) If the Committee determines that the Corporation has
any tax withholding obligation with respect to an Affiliated Professional, the
Committee shall have the right to require that Participant to remit to the
Corporation an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any shares of Common
Stock under the Plan.
(b) The Corporation shall have the right to withhold from
payments made in cash to a Participant under the terms of the Plan, an amount
sufficient to satisfy any federal, state and local withholding tax requirements
imposed with respect to such cash payments.
(c) Amounts to which the Corporation is entitled pursuant
to Section 9.2(a) or (b), may be paid, at the election of the Participant and
with the approval of the Committee, either (i) paid in cash, (ii) withheld from
any compensation payable to the Participant by the Corporation, including cash
payments made under this Plan, or (iii) in shares of Common Stock otherwise
issuable to the Participant upon exercise of an Option or SAR, that have a Fair
Market Value on the date on which the amount of tax to be withheld is
determined (the "Tax Date") not less than the minimum amount of tax the
Corporation is required to withhold. A Participant's election to have shares
of Common Stock withheld that are otherwise issuable shall be in writing, shall
be irrevocable upon approval by the Committee, and shall be delivered to the
Corporation prior to the Tax Date with respect to the exercise of an Option or
SAR.
9.3 Investment Representation. If the Committee determines that a
written representation is necessary in order to secure an exemption from
registration under the Securities Act of 1933, the Committee may demand that
the Participant deliver to the Corporation at the time of any exercise of any
Option or SAR, or at time of the transfer of shares of Restricted Stock, any
written representation that Committee determines to be necessary or appropriate
for such purpose, including but not limited to a representation that the shares
to be issued are to be acquired for investment and not for resale or with a
view to the distribution thereof. If the Committee makes such a demand,
delivery of a written representation satisfactory to the Committee shall be a
condition precedent to the right of the Participant to acquire such shares of
Common Stock.
9.4 Non-Uniform Determinations. The Committee's determinations
under this Plan (including without limitation its determinations of the persons
to receive Options, SARs, or awards of Restricted Stock, the form, amount and
timing of such awards and the terms and provisions of such awards) need not be
uniform and may be made by it selectively among Participants who receive, or
are eligible to receive, awards under this Plan, whether or not such
Participants are similarly situated.
-8-
<PAGE> 9
9.5 No Rights as Shareholders. Participants granted Options or
SARs under this Plan shall have no rights as shareholders of the Corporation as
applicable with respect thereto unless and until certificates for shares of
Common Stock are issued to them.
9.6 Transfer Restrictions. The Committee may determine that any
Common Stock to be issued by the Corporation upon the exercise of Options or
SARs shall be subject to such further restrictions upon transfer as the
Committee determines to be appropriate.
X. ADMINISTRATION OF THE PLAN.
10.1 Administrative Committee.
(a) The Plan shall be administered by a Committee
appointed by the Board of Directors from time to time. The members of the
Committee shall serve at the pleasure of the Board of Directors. Persons
appointed to be members of the Committee need not be directors or qualify as
"disinterested" within the meaning of SEC Rule 16b-3.
(b) The Committee shall have the authority, in its sole
discretion, from time to time: (i) to grant Options, SARs, or shares of
Restricted Stock to eligible Affiliated Professionals, as provided for in this
Plan; (ii) to prescribe such limitations, restrictions and conditions upon any
such awards as the Committee shall deem appropriate; (iii) to determine the
periods during which Options may be exercised and to accelerate the
exercisability of outstanding Options or SARs, or the vesting of Restricted
Stock, as it may deem appropriate; (iv) to modify, cancel, or replace any prior
Options or other awards and to amend the relevant Option Agreements or
Restricted Stock Agreements with the consent of the affected Participants,
including amending such agreements to amend vesting schedules, extend exercise
periods or increase or decrease the Option Price for Options, as it may deem to
be necessary; and (v) to interpret the Plan, to adopt, amend and rescind rules
and regulations relating to the Plan, and to make all other determinations and
to take all other action necessary or advisable for the implementation and
administration of the Plan. A majority of the Committee shall constitute a
quorum, and the action of a majority of members of the Committee present at any
meeting at which a quorum is present, or acts unanimously adopted in writing
without the holding of a meeting, shall be the acts of the Committee.
(c) All actions taken by the Committee shall be final,
conclusive and binding upon any eligible Participant or other Affiliated
Professional. No member of the Committee shall be liable for any action taken
or decision made in good faith relating to the Plan or any award thereunder.
XI. AMENDMENT AND TERMINATION.
11.1 Amendment or Termination of the Plan. The Board of Directors
may at any time terminate this Plan or any part thereof and may from time to
time amend this Plan as it may deem advisable; provided, however the Board of
Directors shall obtain stockholder approval of any amendment for which
stockholder approval is required under any stockholder approval requirements
imposed on the Corporation by any applicable law or by the listing rules of any
stock exchange on which the Common Stock is listed. The termination or
amendment of this Plan shall not, without the consent of the employee, affect
any Participant's rights under an award previously granted.
11.2 Term of Plan. Unless previously terminated pursuant to
Section 10.1, the Plan shall terminate on May 15, 2006, the tenth anniversary
of the date on which the Plan became effective, and no Options, SARs, or awards
of Restricted Stock may be granted on or after such date.
-9-
<PAGE> 1
EXHIBIT 10.7
AGREEMENT
THIS AGREEMENT, entered into this 10th day of May, 1996, is by and
between Vision 21, Inc. (the "Company") and Bruce S. Maller ("Maller").
WHEREAS, Maller has provided the Company with extensive advice and
assistance in strategic planning and development for which the Company desires
to compensate Maller with shares of common stock in the Company.
NOW, THEREFORE, for good and valuable consideration, the parties
hereto agree as follows:
1. Issuance of Stock. In consideration for the services
previously rendered by Maller, the Company shall issue to Maller 217,057 shares
of its common stock (the "Shares") which shares, upon issuance except as
otherwise set forth herein, will be free and clear of all claims, liens and
encumbrances duly authorized, validly issued, fully paid and nonassessable
shares of the Company's common stock.
A. Warranties, Representations and Agreements by Maller Regarding
the Shares. In connection with the Shares, Maller hereby warrants and
represents (i) that the Shares are being acquired for his own account and for
investment, and not with a view to, or in connection with, any distribution or
sale thereof, (ii) that he has not made any agreement with any other person or
entity concerning such Shares, (iii) that his financial condition is such that
it will not be necessary for him to dispose of such Shares in the foreseeable
future, and (iv) that he is an "accredited investor" within the meaning of Rule
501 of Regulation D promulgated under the Act. Furthermore, Maller agrees to
indemnify and hold the Company harmless from and against any claim, liability,
cost or expense, including reasonable attorneys' fees, arising from any alleged
unlawful sale or offer to sell or transfer any of the Shares by Maller.
Maller also represents he is aware that the Shares have not been
registered under either federal law or the applicable law of any state or other
jurisdiction, and that the sale or resale of the Shares will not be permitted
under federal or state law unless such Shares are first registered or the sale
is a transaction that is exempt from registration under both federal and state
laws. Furthermore, Maller agrees to refrain from any sale of the Shares except
pursuant to registration or exemption from registration.
Maller agrees that if, contrary to his foregoing stated intentions, he
should later desire to dispose of or transfer any of the Shares in any manner,
he will not do so without first obtaining (a) an opinion of independent counsel
satisfactory to the Company to the effect that the proposed disposition or
transfer may lawfully be made without registration of the Shares pursuant to
the Act, including but not limited to Rule 144 promulgated under the Act, and
applicable state securities laws, or (b) such registration (it being expressly
understood that the Company will have no obligation to register the Shares for
this purpose). Maller also consents
<PAGE> 2
to the placing of a stop transfer notification on the Company's securities
records with respect to the Shares.
Maller consents to the placement of the following restrictive legend
on all stock certificates representing the Shares:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state. The securities have been
acquired for investment and may not be sold, offered for sale
or transferred in the absence of an effective registration
under the Securities Act of 1933, as amended, and any
applicable state securities laws or an opinion of counsel
satisfactory in form and substance to counsel for the Company
that the transaction will not result in a violation of federal
or state securities laws."
Maller also represents that he has been fully appraised of, and is
totally aware of the nature of, the investment in the Company being made and
the financial risks thereof. In addition, Maller has been offered access to
all of the Company's books, records, information, agreements and documents that
he has deemed necessary and appropriate under the circumstances and has had the
opportunity to ask questions of and receive answers from management of the
Company. Maller represents that the Company has made no representation of any
kind as to the value of the Shares.
B. Registration Rights. Maller shall have the following
registration rights with respect to the Shares:
(a) Piggyback Registration. If the Company at any time
proposes to register on Form S-1 any of its securities under the Act in order
to consummate a public offering of any of its securities in the form of an
underwritten offering, the Company shall request that the managing underwriter
of such underwritten offering include the Shares in such registration. If such
managing underwriter agrees to include any of the Shares in the underwritten
offering, the Company shall give prompt written notice to Maller specifying the
form and manner and other relevant facts involved in such proposed
registration. Upon the written request of Maller, delivered to the Company
within 30 days of receipt of the Company's notice (which request shall specify
the number of Shares intended to be included in such offering), the Company
shall include such Shares in such registration, provided, however, that:
(i) If, at any time after giving such written
notice of its intention to register any of its securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities at its sole election, the Company may give written notice of such
determination to Maller and thereupon shall be relieved of its obligation to
register any Shares in connection with such registration;
2
<PAGE> 3
(ii) If the managing underwriter in such
underwritten offering shall advise the Company that it declines to include a
portion or all of the Shares requested by Maller to be included in the
registration, then distribution of all or a specified portion of the Shares
shall be excluded from such registration and the Company shall give Maller
prompt notice of the number of Shares excluded; and
(iii) The maximum number of Shares that Maller may
request to include in any single offering shall be twenty percent (20%) of the
Shares.
(b) Demand Registration. In the event Maller has not
sold all of the maximum allowable Shares (20%) pursuant to above section (a)
and if the Company shall receive, at any time after 180 days after the
effective date of the Company's registration statement filed pursuant to the
Act, a written request from Maller that the Company file a registration
statement under the Act covering the registration of the Shares, the Company
shall, as soon as practicable, effect the registration of the Shares pursuant
to the Act; provided, however, that the maximum number of Shares that Maller
may request to be registered shall be twenty percent (20%) of the Shares and
the minimum number of Shares that Maller may request to be registered shall be
ten percent (10%) of the Shares. The Company shall be obligated to effect only
one such registration under this section(b).
(c) S-8 Registration. In the event that the Shares are
eligible for registration on Form S-8 under the Act, the Company may, in lieu
of (a) or (b) above, effect the registration of the Shares on Form S-8.
(d) In no event shall the Company be required to register
any Shares at any time that (i) the Company has no equity securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended, (ii)
registration is not required to effect public sale of the Shares; or (iii) the
Shares are subject to forfeiture.
(e) Maller agrees to cooperate with the Company in all
respects in connection with any registration of the Shares, including, timely
supplying all information and executing and returning all documents requested
by the Company and its managing underwriter in connection with the registration
and sale of the Shares.
(f) The Company shall not be required to include any of
the Shares in an underwritten offering of the Company's securities unless
Maller accepts the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it, and agrees to execute and/or deliver such
documents in connection with such registration as the Company or the managing
underwriter may request.
(g) Maller agrees to indemnify and hold the Company, its
officers, directors, shareholders, representatives and underwriters harmless
from and against any claim, liability, cost or expense (including reasonable
attorneys' fees) arising from or based upon any acts, omissions or statements
by Maller in connection with any registration of the Shares.
3
<PAGE> 4
(h) Maller shall pay all (or a pro rata portion in the
case of piggyback registration) expenses related to the registration of the
Shares including, but not limited to, printing expenses, registration fees,
blue sky fees, listing fees, fees and disbursements of counsel for the Company,
underwriting discounts and selling commissions.
(i) The Company agrees to indemnify and hold Maller
harmless from and against any claim, liability, cost or expense (including
reasonable attorneys' fees) arising from or based upon any acts, omissions or
statements by the Company in connection with any registration of the Shares,
provided that such acts, omissions or statements were not as a result of acts,
omissions or statements by Maller.
(j) The Company shall not be obligated to keep any
registration statement effective for more than forty (40) days.
(k) Any registration statement provided herein may be
extended, suspended or delayed by the Company for a period of up to ninety (90)
days if, upon the advice of counsel, at the time such registration statement is
required to be filed, or at the time the Company is required to cause such
registration statement to become effective, such delay is advisable and in the
best interests of the Company.
(l) The registration rights set forth in this Agreement
shall expire three years from the date of this Agreement.
(m) The right to receive the Shares, together with the
registration rights therefor, may also be assigned by Maller with the prior
written consent of the Company; provided, however, any assignee must first make
the warranties, representations and agreements set forth in this Section 1
hereof to the Company. The Company hereby consents to the transfer by Maller
of Shares to an entity controlled by Maller provided that such assignee first
makes the warranties, representations and agreements set forth in this Section
1 hereof to the Company.
2. Warranties and Representations of the Company. The Company
warrants and represents to Maller as follows: (a) The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Florida, with requisite corporate power and authority to
execute and deliver this Agreement (b) the execution, delivery and performance
by the Company of this Agreement has been duly authorized by the Company and
constitutes the legal, valid and binding obligation of the Company except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors rights generally or the availability of equitable remedies and (c)
the execution and delivery of this Agreement will not result in the breach of
any agreement to which the Company is a party.
3. Reliance on Representations. Maller is informed of the
significance to the Company of the foregoing representations, agreements and
consents, and they are made with the intention that the Company may rely upon
them.
4
<PAGE> 5
4. Indemnification. Maller acknowledges that he is aware of the
meaning and legal consequences of the representations and warranties contained
in this Agreement, and agrees to indemnify and hold the Company harmless from
and against any and all loss, damages or liability due to or arising out of any
material inaccuracy or breach of any representation or warranty of Maller
contained in this Agreement.
5. Florida law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF
THE STATE OF FLORIDA, WITHOUT REGARD TO SUCH STATE'S RULES CONCERNING CONFLICTS
OF LAWS. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR PROCEEDING
RELATED TO OR ARISING OUT OF THIS ENGAGEMENT, OR ANY TRANSACTION OR CONDUCT IN
CONNECTION HEREWITH, IS WAIVED.
6. Survival of Warranties. Except as otherwise provided in this
Agreement, the warranties, representations and indemnifications contained in
this Agreement shall survive the expiration or termination of this Agreement.
[SIGNATURES APPEAR ON NEXT PAGE]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VISION 21, INC.
By: /s/ Theodore N. Gillette
----------------------------------
Theodore Gillette
President and CEO
/s/ Bruce S. Maller
---------------------------------------
Bruce S. Maller, individually
6
<PAGE> 1
EXHIBIT 10.8
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT, entered into as of the 20th day of
October, 1996, is by and between VISION 21, INC. (the "Company") and BRUCE S.
MALLER ("Advisor").
WHEREAS, Advisor has heretofore played a critical role advising and
assisting the Company with its strategic planning, growth and development; and
WHEREAS, the Company desires to continue to obtain such services from
Advisor and Advisor desires to provide such services to the Company, all upon
the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
Section 1. Services to be Rendered. Advisor agrees to render
advisory services to the Company in connection with identifying potential
ophthalmology practices (the "Practices") for integration into the Company's
integrated eye care management system through a combination of acquisitions by
the Company of the Practices' non- professional assets, employment arrangements
with Practice professionals by affiliated professional associations and
management agreements with affiliated professional associations.
(a) For and in consideration of the issuance to Advisor
of the Shares (as more fully described in Section 3 hereof), Advisor agrees to
provide such of the following on behalf of the Company during the term hereof
as are appropriate and as the Company may from time to time reasonably request:
(i) assist and advise the Company in identifying
and introducing Practices to the Company;
(ii) furnish the Company with information properly
available to Advisor and disclosable to the Company regarding the Practices
including, without limitation, names and backgrounds of their owners and
financial data pertaining thereto;
(iii) consult with the Company as to strategy and
tactics for integrating the Practices;
(iv) assist and advise the Company with respect to
the form and structure of such integration;
(v) upon the Company's request and when
appropriate, use Advisor's best efforts to assist the Company in negotiating
and consummating acquisitions of the Practices;
<PAGE> 2
(vi) render such other advisory services to senior
management of the Company as may from time to time be reasonably requested by
the Company; and
(vii) at the election of the Company serve on the
Board of Directors of the Company.
(b) Notwithstanding the foregoing, the parties hereto
agree that all consulting services regarding clinical operations and management
of the Company's regional ophthalmology practices shall be provided by The BSM
Consulting Group ("BSM") pursuant to a separate Services Agreement, dated as of
the date hereof, between the Company and BSM.
Section 2. Term. This Agreement shall be in effect for a period
of five (5) years unless sooner terminated by the Company or Advisor in
accordance with the provisions of Section 4 or 5 herein.
Section 3. Issuance of Shares. In consideration for the
services to be rendered by Advisor as set forth in Section 1, the Company
shall issue to Advisor shares of its common stock, par value $.001 per share,
equal to 3.75% of the aggregate number of shares of such stock which will be
issued and outstanding after giving effect to (i) the reorganization of the
Company and its "affiliates" (Ted Gillette/Richard Sanchez businesses) existing
on the date hereof (within the meaning of Rule 405 promulgated under the
Securities Act of 1933 (the "Act")) and (ii) the issuance to Peter J. Fontaine
of the shares to be issued to him pursuant to that certain Subscription
Agreement between the Company and Mr. Fontaine (the "Shares"). The Shares
shall be issued to Advisor on or before the earlier of the effective date of
such reorganization and October 30, 1996 and shall be subject to forfeiture in
accordance with the provisions of Section 6. Except as otherwise set forth
herein, upon issuance the Shares will be free and clear of all claims, liens
and encumbrances and will be duly authorized, validly issued, fully paid and
nonassessable shares of the Company's common stock.
A. Warranties, Representations and Agreements by Advisor
Regarding the Shares. In connection with the Shares, Advisor hereby warrants
and represents (i) that the Shares are being acquired for his own account and
for investment, and not with a view to, or in connection with, any distribution
or sale thereof, (ii) that he has not made any agreement with any other person
or entity concerning such Shares, (iii) that his financial condition is such
that it will not be necessary for him to dispose of such Shares in the
foreseeable future, and (iv) that he is an "accredited investor" within the
meaning of Rule 501 of Regulation D promulgated under the Act. Furthermore,
Advisor agrees to indemnify and hold the Company harmless from and against any
claim, liability, cost or expense, including reasonable attorneys' fees,
arising from any alleged unlawful sale or offer to sell or transfer any of the
Shares by Advisor.
Advisor also represents he is aware that the Shares have not been
registered under either federal law or the applicable law of any state or other
jurisdiction, and that the sale or resale of the Shares will not be permitted
under federal or state law unless such Shares are first registered
-2-
<PAGE> 3
or the sale is a transaction that is exempt from registration under both
federal and state laws. Furthermore, Advisor agrees to refrain from any sale
of the Shares except pursuant to registration or exemption from registration.
Advisor agrees that if, contrary to his foregoing stated intentions,
he should later desire to dispose of or transfer any of the Shares in any
manner, he will not do so without first obtaining (a) an opinion of independent
counsel satisfactory to the Company to the effect that the proposed disposition
or transfer may lawfully be made without registration of the Shares pursuant to
the Act, including but not limited to Rule 144 promulgated under the Act, and
applicable state securities laws, or (b) such registration (it being expressly
understood that the Company will have no obligation to register the Shares for
this purpose). Advisor also consents to the placing of a stop transfer
notification on the Company's securities records with respect to the Shares.
Advisor consents to the placement of the following restrictive legend
on all stock certificates representing the Shares:
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities laws of any state. The securities have been
acquired for investment and may not be sold, offered for sale
or transferred in the absence of an effective registration
under the Securities Act of 1933, as amended, and any
applicable state securities laws or an opinion of counsel
satisfactory in form and substance to counsel for the Company
that the transaction will not result in a violation of federal
or state securities laws."
"The securities represented by this Certificate are subject
to forfeiture in accordance with the terms of the Advisory
Agreement dated as of October 20, 1996."
Advisor also represents that he has been fully appraised of, and is
totally aware of the nature of, the investment in the Company being made and
the financial risks thereof. In addition, Advisor has been offered access to
all of the Company's books, records, information, agreements and documents that
he has deemed necessary and appropriate under the circumstances and has had the
opportunity to ask questions of and receive answers from management of the
Company. Advisor represents that the Company has made no representation of any
kind as to the value of the Shares.
B. Registration Rights. Advisor shall have the following
registration rights with respect to those Shares that are no longer subject to
forfeiture hereunder:
-3-
<PAGE> 4
(a) Piggyback Registration. If the Company at any time
proposes to register on Form S-1 any of its securities under the Act in order
to consummate a public offering of any of its securities in the form of an
underwritten offering, the Company shall request that the managing underwriter
of such underwritten offering include the Shares in such registration. If such
managing underwriter agrees to include any of the Shares in the underwritten
offering, the Company shall give prompt written notice to Advisor specifying
the form and manner and other relevant facts involved in such proposed
registration. Upon the written request of Advisor, delivered to the Company
within 30 days of receipt of the Company's notice (which request shall specify
the number of Shares intended to be included in such offering), the Company
shall include such Shares in such registration, provided, however, that:
(i) If, at any time after giving such written
notice of its intention to register any of its securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities at its sole election, the Company may give written notice of such
determination to Advisor and thereupon shall be relieved of its obligation to
register any Shares in connection with such registration;
(ii) If the managing underwriter in such
underwritten offering shall advise the Company that it declines to include a
portion or all of the Shares requested by Advisor to be included in the
registration, then distribution of all or a specified portion of the Shares
shall be excluded from such registration and the Company shall give Advisor
prompt notice of the number of Shares excluded; and
(iii) The maximum number of Shares that Advisor
may request to include in any single offering shall be twenty percent (20%) of
the Shares.
(b) Demand Registration. In the event Advisor has not
sold all of the maximum allowable Shares (20%) pursuant to above section (a)
and if the Company shall receive, at any time after 180 days after the
effective date of the Company's registration statement filed pursuant to the
Act, a written request from Advisor that the Company file a registration
statement under the Act covering the registration of the Shares, the Company
shall, as soon as practicable, effect the registration of the Shares pursuant
to the Act; provided, however, that the maximum number of Shares that Advisor
may request to be registered shall be twenty percent (20%) of the Shares and
the minimum number of Shares that Advisor may request to be registered shall be
ten percent (10%) of the Shares. The Company shall be obligated to effect only
one such registration under this section(b).
(c) S-8 Registration. In the event that the Shares are
eligible for registration on Form S-8 under the Act, the Company may, in lieu
of (a) or (b) above, effect the registration of the Shares on Form S-8.
-4-
<PAGE> 5
(d) In no event shall the Company be required to register
any Shares at any time that (i) the Company has no equity securities registered
under Section 12 of the Securities Exchange Act of 1934, as amended, (ii)
registration is not required to effect public sale of the Shares; or (iii) the
Shares are subject to forfeiture.
(e) Advisor agrees to cooperate with the Company in all
respects in connection with any registration of the Shares, including, timely
supplying all information and executing and returning all documents requested
by the Company and its managing underwriter in connection with the registration
and sale of the Shares.
(f) The Company shall not be required to include any of
the Shares in an underwritten offering of the Company's securities unless
Advisor accepts the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it, and agrees to execute and/or
deliver such documents in connection with such registration as the Company or
the managing underwriter may request.
(g) Advisor agrees to indemnify and hold the Company, its
officers, directors, shareholders, representatives and underwriters harmless
from and against any claim, liability, cost or expense (including reasonable
attorneys' fees) arising from or based upon any acts, omissions or statements
by Advisor in connection with any registration of the Shares; provided that
such acts, omissions or statements were not a result of acts, omissions or
statements by Advisor.
(h) The Company agrees to indemnify and hold Advisor
harmless from and against any claim, liability cost or expense (including
reasonable attorneys' fees) arising from or based upon any acts, omissions or
statements by the Company in connection with any registration of the Shares;
provided that such acts, omissions or statements were not a result of acts,
omissions or statements by Advisor.
(i) Advisor shall pay all (or a pro rata portion in the
case of piggyback registration) expenses related to the registration of the
Shares including, but not limited to, printing expenses, registration fees,
blue sky fees, listing fees, fees and disbursements of counsel for the Company,
underwriting discounts and selling commissions.
(j) The Company shall not be obligated to keep any
registration statement effective for more than forty (40) days.
(k) Any registration statement provided herein may be
extended, suspended or delayed by the Company for a period of up to ninety (90)
days if, upon the advice of counsel, at the time such registration statement is
required to be filed, or at the time the Company is required to cause such
registration statement to become effective, such delay is advisable and in the
best interests of the Company.
-5-
<PAGE> 6
(l) The registration rights set forth in this Advisory
Agreement shall expire upon termination or expiration of this Advisory
Agreement.
Section 4. Warranties and Representations of the Company. The
Company warrants and represents to Advisor as follows: (a) The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Florida, with requisite corporate power and authority to
execute and deliver this Agreement (b) the execution, delivery and performance
by the Company of this Agreement has been duly authorized by the Company and
constitutes the legal, valid and binding obligation of the Company except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors rights generally or the availability of equitable remedies and (c)
the execution and delivery of this Agreement will not result in the breach of
any agreement to which the Company is a party.
Section 5. Exclusivity. Advisor covenants and agrees that he
will not, at any time while this Agreement is in effect, in his personal
capacity, render advisory or consulting services, including but not limited to
those services to be provided pursuant to this Agreement and the Services
Agreement, to any physician practice management company that is in competition
with the Company without the prior written consent of the Company.
Notwithstanding the foregoing, nothing herein shall preclude Advisor from (i)
rendering advisory or consulting services to ophthalmology practices which do
not compete with practice affiliates of the Company; (ii) rendering advisory or
consulting services to existing clients of Advisor who are practice affiliates
of physician practice management companies and which services are not of a
strategic nature and do not otherwise conflict with Advisor's obligations
hereunder; or (iii) fulfilling his current contractual obligations to the
Services Consulting Group of Allergan, Inc. or Summit Medical Systems,
Incorporated, which obligations the parties hereto agree may include rendering
advisory or consulting services through BSM to physician practice management
companies in competition with the Company. Advisor agrees to notify the
Company of all potential clients the representation of which may be a breach of
this Section 4. If, in the sole opinion of the Company made in good faith,
such representation would constitute such a breach, the Company shall so notify
Advisor, and Advisor shall have ninety (90) days from the date of such notice
to take such action as may be necessary to ensure, to the Company's reasonable
satisfaction, compliance with the covenants contained in this Section 4. If
after such ninety (90) day period the Company is not satisfied that Advisor is
in compliance with the letter and spirit of this Section 4, it may terminate
this Agreement upon written notice to Advisor. Advisor warrants and represents
to the Company that he is not a party to any agreement which would prevent,
prohibit or restrict Advisor from rendering the services set forth in this
Agreement.
Section 6. Termination of Engagement. Advisor's engagement
hereunder may be terminated by the Company or Advisor "with cause" in
accordance with the provisions of this Section 6 and upon prior written notice
describing the basis therefor. If the Company terminates this Agreement with
cause or if Advisor terminates this Agreement without cause then Advisor shall
surrender to the Company the Shares issued to him, together with stock powers
duly endorsed for proper transfer in the following manner: (a) if this
Agreement is terminated at any
-6-
<PAGE> 7
time prior to January 1, 1998, then 100% of the Shares shall be forfeited; (b)
if this Agreement is terminated at any time on or after January 1, 1998, but
prior to January 1, 1999, 66 2/3% of the Shares shall be forfeited; (c) if
this Agreement is terminated at any time on or after January 1, 1999, but
prior to January 1, 2000, 33 1/3% of the Shares shall be forfeited; (d) if
this Agreement is terminated at any time on or after January 1, 2000, no
Shares shall be forfeited. Upon any such forfeiture, the Shares so forfeited
shall automatically be cancelled on the books and records of the Company.
For purposes of this Agreement termination by the Company "with cause"
shall mean any of the following: (i) a breach of any material term of this
Agreement by Advisor which breach remains uncured after thirty (30) days notice
thereof; or (ii) the filing of a petition in bankruptcy by or against Advisor
or if Advisor becomes insolvent, makes an assignment for the benefit of
creditors or generally becomes unable to pay its debts as they become due. A
termination by Advisor "with cause" shall mean any of the following: (i) a
breach of any material term of this Agreement by the Company which breach
remains uncured after thirty (30) days notice thereof; or (ii) the filing of a
petition in bankruptcy by or against the Company or if the Company becomes
insolvent, makes an assignment for the benefit of creditors or generally
becomes unable to pay its debts as they become due. Notwithstanding the
foregoing, in the event of a sale of all of the outstanding capital stock or
all or substantially all of the assets of the Company, Advisor may terminate
this Agreement without any forfeiture of the Shares. The provisions of this
Section 6 hereof shall survive any termination of this Agreement.
Section 7. Arbitration. The parties agree to submit any dispute
under the terms of this Agreement to arbitration in Tampa, Florida to a member
of the American Arbitration Association ("AAA") mutually appointed by the
parties (or, in the event the parties cannot agree on a single such member, to
a panel of three members selected in accordance with the rules of the AAA) who
shall promptly arbitrate such dispute in accordance with the rules of the AAA
and report to the parties. Such report shall be final, binding and conclusive
on the parties. The prevailing party in any such arbitration shall be entitled
to recover from and have paid by the other party all fees and disbursements of
such arbitrator(s) and reasonable attorneys' fees, costs and expenses incurred
by the prevailing party in all proceedings.
Section 8. Indemnification. Advisor acknowledges that he is
aware of the meaning and legal consequences of the warranties and
representations contained in this Agreement, and agrees to indemnify and hold
the Company harmless from and against any and all loss, damages or liability due
to or arising out of any material inaccuracy or breach of any representation or
warranty of Advisor contained in this Agreement.
Section 9. Miscellaneous.
(a) THIS LETTER AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF FLORIDA, WITHOUT REGARD TO SUCH STATE'S RULES CONCERNING
CONFLICTS OF LAWS. ANY RIGHT TO TRIAL BY JURY WITH
-7-
<PAGE> 8
RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS
ENGAGEMENT, OR ANY TRANSACTION OR CONDUCT IN CONNECTION HEREWITH, IS WAIVED.
(b) This Agreement together with the Services Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and replaces any previous agreements entered into by the
parties, and no provision may be modified or waived unless such modification or
waiver is in writing and signed by the parties.
(c) The Company expressly acknowledges that all opinions
and advice (written or oral) given by Advisor to the Company in connection with
Advisor's engagement are intended solely for the benefit and use of the Company
(including its management, directors and attorneys) in considering the
transaction to which they relate and the Company agrees that no such opinion or
advice shall be used for any other purpose or reproduced, disseminated, quoted
or referred to at any time, in any manner for any purpose, without the prior
written consent of Advisor, which consent shall not be unreasonably withheld,
unless any such disclosure is required or mandated, in the opinion of counsel,
by law or by order of a court of competent jurisdiction.
(d) The Company will furnish Advisor (and, if
negotiations proceed with any Practices, will request that such Practices
furnish Advisor) with such information as Advisor believes appropriate to its
assignment (all such information so furnished referred to herein as
"Information"). Advisor will keep confidential and will not use other than in
connection with his services hereunder any Information furnished to it
provided, however, that Advisor may use the Information in connection with the
Advisor's employment with BSM. Advisor will not publish any Information with
regard to acquisitions contemplated or consummated by the Company without the
Company's prior written consent. The Company recognizes and confirms that
Advisor (a) will use and rely primarily on the Information and on information
available from generally recognized public sources in performing the services
contemplated by this letter without having independently verified the same and
(b) does not assume responsibility for the accuracy or completeness of the
Information and such other information unless otherwise provided. This
paragraph (d) shall not apply to information (including "Information" as
defined above) which: (i) had been rightfully in possession of the recipient
prior to its disclosure to the recipient; (ii) had been in the public domain
prior to its disclosure to the recipient; (iii) has become part of the public
domain by publication or by any other means except an unauthorized act or
omission on the part of the recipient; or (iv) had been supplied to the
recipient without restriction by a third party who is under no obligation to
maintain such information in confidence.
(e) This Agreement may be assigned by either party with
the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed; provided, however, that such assignee must
agree in writing to be bound by the terms of this Agreement and the Services
Agreement and provided, further, that any assignee of Advisor must
-8-
<PAGE> 9
be controlled by Advisor. The right to receive the Shares, together with the
registration rights therefor, may also be assigned by Advisor with the prior
written consent of the Company; provided, however, any assignee must first make
the warranties, representations and agreements set forth in Section 3 hereof to
the Company. The Company hereby consents to the transfer by Advisor of Shares
to an entity controlled by Advisor provided that such assignee first makes the
warranties, representations and agreements set forth in Section 3 hereof to the
Company. The provisions of this Agreement shall be binding upon and endure to
the benefit of the Company, Advisor, and their respective executors,
administrators, successors, heirs and permitted assigns.
(f) Except as otherwise provided in this Agreement, the
warranties, representations, covenants and indemnifications contained in this
Agreement shall survive the expiration or termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VISION 21, INC.
By: /s/ Theodore N. Gillette
------------------------------------
Theodore N. Gillette
President and Chief Executive
Officer
/s/ Bruce S. Maller
---------------------------------------
Bruce S. Maller, Individually
-9-
<PAGE> 1
EXHIBIT 10.9
SERVICES AGREEMENT
THIS SERVICES AGREEMENT, entered into as of the 10th day of March
1996, is by and between VISION 21, INC. ("Vision 21" or "Company") and THE BSM
CONSULTING GROUP ("BSM").
WHEREAS, BSM is in the business of providing consulting services to
healthcare providers to assist such providers with strategic planning and
management development; and
WHEREAS, Vision 21 desires to obtain such services from BSM and BSM
desires to provide such services to Vision 21, all upon the terms and
conditions set forth herein.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
Section 1. Services to be Provided. BSM agrees to provide the
following consulting services to Vision 21 throughout the term of this
Agreement:
(a) fully develop Vision 21's physician practice
management in accordance with Vision 21's business plan;
(b) work with Vision 21 to recruit, develop and support
its corporate management team;
(c) develop an infrastructure for Vision 21's regional
management team;
(d) develop systems and protocols for practice
integration planning;
(e) coordinate merger and acquisition activity with
business development and regional administrative teams;
(f) develop plans for and execute regional consolidation
of affiliated practices;
(g) develop business plans for regional delivery systems
in conjunction with regional administrative teams and affiliated practice
physicians;
(h) assist in physician recruitment as necessary;
(i) develop medical staff compensation and succession
plans for physician affiliates; and
<PAGE> 2
(j) perform such other services as may from time to time
be agreed to by the parties.
Section 2. Term. This Agreement shall remain in effect for a
period of five (5) years; provided, however, it may be sooner terminated by the
Company or BSM "with cause" upon prior written notice describing the basis
therefor. For purposes of this Agreement termination by the Company "with
cause" shall mean any of the following: (i) a breach of any material term of
this Agreement by BSM which breach remains uncured after thirty (30) days
notice thereof; or (ii) the filing of a petition in bankruptcy by or against
BSM or if BSM becomes insolvent, makes an assignment for the benefit of
creditors or generally becomes unable to pay its debts as they become due. A
termination by BSM "with cause" shall mean any of the following: (i) a breach
of any material term of this Agreement by the Company which remains uncured
after thirty (30) days notice thereof; (ii) the failure of the Company and BSM
to agree on compensation after the first year of this Agreement; or (iii) the
filing of a petition in bankruptcy by or against the Company or if the Company
becomes insolvent, makes an assignment for the benefit of creditors or
generally becomes unable to pay its debts as they become due. In the event of
a termination of this Agreement by the Company with cause, the Company shall be
obligated to pay BSM only such compensation that is due through the date of
termination.
Section 3. Staffing. The services to be rendered pursuant to
this Agreement will be provided by BSM employees and other individuals to be
specifically retained from time to time by BSM for the performance of this
Agreement. All such employees and other individuals shall be subject to the
approval of Vision 21. Vision 21 agrees to make members of its staff available
upon the request of and as reasonably needed by BSM to assist BSM in carrying
out its responsibilities hereunder.
Section 4. Compensation. As compensation for the services
rendered by BSM during the first year of this Agreement, Vision 21 agrees to
pay BSM the total sum of $453,040. Vision 21 will be billed a portion of such
sum on a monthly basis in accordance with the Invoice Schedule annexed hereto
as Exhibit 1. Payment shall be due thirty (30) days from the date of receipt
of invoice. The parties agree to negotiate in good faith the compensation to
be payable to BSM throughout the remaining term of this Agreement. Such
compensation shall be determined by the services to be rendered by BSM and the
rates then charged by BSM to other corporate clients for comparable services.
BSM's Federal Tax ID number is 88-0274049. The parties agree that BSM
is an independent contractor and, as such, shall be responsible for the payment
of all federal, state and local withholding, income and unemployment taxes or
charges due or assessed against all compensation paid hereunder.
-2-
<PAGE> 3
Section 5. Confidentiality.
(a) BSM acknowledges that, in the course of providing
services hereunder, BSM staff will learn certain confidential information about
Vision 21's business. BSM agrees that it will keep all such information
strictly confidential, and that it will cause its employees, contractors,
advisors and agents to do the same.
(b) Vision 21 acknowledges that the written materials,
techniques, systems and strategies which may be suggested to Vision 21 by BSM
during the term of this Agreement are confidential and proprietary trade
secrets of BSM. Vision 21 agrees that it will not sell, transfer or otherwise
disclose such information to any third party without BSM's written consent.
Vision 21 further agrees that it will keep all such information strictly
confidential, and that it will cause its employees, contractors, advisors and
agents to do the same.
(c) The parties acknowledge that the provisions of
paragraphs (a) and (b) of this Section 5 shall not apply to any information
which (i) had been rightfully in the possession of the recipient prior to its
disclosure to the recipient; (ii) had been in the public domain prior to its
disclosure to the recipient; (iii) has become part of the public domain by
publication or by any other means except an unauthorized act or omission on the
part of the recipient; (iv) had been supplied to the recipient without
restriction by a third party who is under no obligation to maintain such
information in confidence; or (v) is required to be disclosed pursuant to the
order of a court of competent jurisdiction.
(d) The parties acknowledge that breach of this Section 5
by either party would result in substantial irreparable harm to the other
party, and that the extent of such act or harm could not be readily quantified.
Accordingly, the parties agree that, in the event either party breaches this
Section 5, the other party shall, in addition to any other remedies available
to it, be entitled to immediate injunctive relief from any court of competent
jurisdiction, without the need to prove damages or irreparable harm.
(e) The terms of this Section 5 shall survive the
expiration or termination of this Agreement.
Section 6. Excluded Services. Vision 21 acknowledges that it
may require other services, such as legal, accounting, reimbursement and
compliance, surgical center planning, licensure and certification services, and
that such services are not part of the consulting services being provided
pursuant to this Agreement. BSM will assist Vision 21 in arranging such
additional services if so requested at no additional charge.
Section 7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO SUCH STATE'S RULES
CONCERNING CONFLICTS OF LAWS. ANY RIGHT TO TRIAL BY JURY WITH
-3-
<PAGE> 4
RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT
IS WAIVED.
Section 8. Arbitration. Any dispute or disagreement arising
between the parties hereto in connection with this Agreement, which is not
settled to the mutual satisfaction of the parties within thirty (30) days (or
such longer period as may be mutually agreed upon) from the date that either
party informs the other in writing that such dispute or disagreement exists,
shall be submitted to arbitration in Tampa, Florida to a member of the American
Arbitration Association ("AAA") to be mutually appointed by the parties (or, in
the event the parties cannot agree on a single such member, to a panel of three
members selected in accordance with the rules of the AAA). The dispute or
disagreement shall be settled in accordance with the Commercial Arbitration
Rules of the AAA and the decision of the arbitrator(s) shall be final and
binding upon the parties and judgment may be obtained thereon in a court of
competent jurisdiction. The prevailing party shall be entitled to recover from
the other party the fees and expenses of the arbitrator(s) as well as
reasonable attorneys' fees, costs and expenses incurred by the prevailing
party.
Section 9. Entire Agreement. This Agreement, in conjunction
with the Advisory Agreement, reflects the entire agreement between the parties
hereto with respect to the subject matter hereof and no provision hereof may be
modified or waived unless such modification or waiver is in writing and is
signed by both of the parties hereto.
Section 10. Binding Effect. The provisions of this Agreement
shall be binding upon and inure to the benefit of Vision 21, BSM and their
respective successors and permitted assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE BSM CONSULTING GROUP VISION 21, INC.
By: /s/ Bruce S. Maller By: /s/ Theodore N. Gillette
------------------------- ----------------------------
Bruce S. Maller Theodore N. Gillette
President President and
Chief Executive Officer
-4-
<PAGE> 5
EXHIBIT 1
INVOICE SCHEDULE
<TABLE>
<CAPTION>
MONTH INVOICE AMOUNT
----- --------------
<S> <C>
April $10,000.00
May $40,000.00
June $40,304.00
July $40,304.00
August $40,304.00
September $40,304.00
October $40,304.00
November $40,304.00
December $40,304.00
January $40,304.00
February $40,304.00
March $40,304.00
TOTAL $453,040.00
</TABLE>
<PAGE> 1
EXHIBIT 10.10
THE PARTIES ACKNOWLEDGE THAT THIS SUBSCRIPTION AGREEMENT AND THE SHARES BEING
SOLD HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") OR SECURITIES LAWS OF ANY STATE AND THIS TRANSACTION IS BEING CONDUCTED
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
SUCH LAWS. THE SHARES HAVE NOT BEEN FILED WITH, PASSED UPON, NOR APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES
COMMISSION OR OTHER REGULATORY AUTHORITY.
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT, dated this 4th day of June, 1996, by and among
Vision 21, Inc., a Florida corporation with its principal place of business
located at 7209 Bryan Dairy Road, Largo, Florida 34647 ("Corporation"),
Theodore N. Gillette, located at 7209 Bryan Dairy Road, Largo, Florida 34647
("Gillette"), and Peter J. Fontaine located at Post Office Box 8080, Lakeland,
Florida 33801 ("Purchaser").
WHEREAS Purchaser desires to purchase from Corporation, and
Corporation desires to sell to Purchaser, shares of the Corporation's Common
Stock equal to ten percent of the Common Stock outstanding on the date hereof
(the "Shares"), upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, the parties hereto hereby agree as follows:
1. Purchaser hereby agrees to pay to the Corporation for the
Shares a total consideration equal to (i) the payment of Seven Hundred Fifty
Thousand Dollars ($750,000), which is being paid by wire transfer of
immediately available funds to an account designated by the Corporation
simultaneously with the execution of this Agreement, and (ii) the transfer of
his shares of common stock of Vision 21 Managed Eyecare of Tampa Bay, Inc.,
recently acquired for a purchase price of Two Hundred Fifty Thousand Dollars
($250,000.00), at the time of the reorganization described in paragraph 4(a).
In consideration of such payment and the contribution of such shares,
simultaneously with execution of this Agreement the Corporation shall deliver
to Purchaser stock certificate number C2 representing Five Hundred Seventy-
Eight, Eight Hundred Nineteen Thousand (578,819) Shares and an opinion of its
legal counsel in the form annexed hereto.
2. Purchaser acknowledges, represents and warrants to the
Corporation that:
a. The Shares are being purchased by him in his own name
solely for his own beneficial interest, and not as nominee for, or on behalf
of, or for the beneficial interest of, or with the intention to transfer to,
any other person, trust or organization;
b. He is in a financial position to hold the Shares for
an indefinite period of time, is able to bear the economic risk of an
investment in the Shares and may withstand a complete loss of his investment in
the Shares;
c. He is an "accredited investor" within the meaning of
the Act and has had significant prior investment experience, including
investment in non-listed securities;
<PAGE> 2
d. Either alone or together with the assistance of his
own professional advisor or advisors, he has the knowledge and experience in
business and financial matters that make him capable of reading and
interpreting financial statements of and concerning the Corporation and of
evaluating the merits and risks of an investment in the Shares;
e. He has obtained, to the extent he deems necessary,
his own personal professional advice with respect to the risks inherent in an
investment in the Shares and the suitability of an investment in the Shares in
light of his financial condition and investment needs;
f. He understands that an investment in the Shares is
highly speculative but he believes that an investment in the Shares is suitable
for him based upon his investment objectives and financial needs, and he has
adequate means for providing for his current financial needs and personal
contingencies and has no need for liquidity of investment with respect to the
Shares;
g. He has been given access to full and complete
information regarding the Corporation and has utilized that access to his
satisfaction for the purpose of obtaining information concerning the
Corporation, an investment in the Shares and the terms and conditions of this
offering of the Shares, and has either attended or been given reasonable
opportunity to attend a meeting with representatives of the Corporation for the
purpose of asking questions of, and receiving answers from, these
representatives concerning the Corporation, an investment in the Shares and the
terms and conditions of this offering of the Shares, and for the purpose of
obtaining any additional information to the extent reasonably available that is
necessary to verify the information provided;
h. He recognizes that an investment in the Shares
involves a high degree of risk including, but not limited to, the risk of
economic loss from the operations of the Corporation due to the limited
operation history of the Corporation and its past limited profitability, he
fully understands the Corporation's business and risks associated therewith and
has the financial ability to undertake these risks;
i. He realizes that (i) the purchase of the Shares is a
long-term investment; (ii) he must bear the economic risk of investment for an
indefinite period of time because the Shares have not been registered under the
Act or the securities laws of any state, and, therefore, cannot be sold unless
they are subsequently registered under these laws or exemptions from
registrations are available; (iii) there presently is no public market for the
Shares (nor any assurances that a public market will ever develop) and he may
not be able to liquidate his investment in the Shares in the event of an
emergency or pledge the Shares as collateral for loans; and (iv) the
transferability of the Shares is restricted and (A) requires the written
consent of the Corporation, (B) requires conformity with the restrictions set
forth below, and (C) will be further restricted by legends placed on the
certificate or certificates representing the Shares referring to the applicable
restrictions on transferability and by stop transfer orders or notations on the
Corporation's records referring to the restrictions on transferability. In
this connection, Purchaser consents to the placement of the following
restrictive legend on the certificate(s) representing the Shares:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
-2-
<PAGE> 3
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE
CORPORATION THAT THE TRANSACTION WILL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS."
j. He realizes that the Shares do not carry any
preemptive rights and will be subject to certain restrictions on transfer to be
set forth in a Shareholders' Agreement to be entered into among the
shareholders of the Corporation on mutually acceptable terms.
k. He certifies, under the penalties of perjury, that he
is NOT subject to the backup withholding provisions of Section 3406(a)(1)(c) of
the Internal Revenue Code of 1986. (NOTE: you are subject to backup
withholding if (i) you fail to furnish your Social Security number or taxpayer
identification number in this subscription; (ii) the Internal Revenue Service
notifies the Corporation that you furnished an incorrect Social Security number
or taxpayer identification number; (iii) you are notified that you are subject
to backup withholding; or (iv) you fail to certify that you are not subject to
backup withholding or you fail to certify your Social Security number or
taxpayer identification number);
l. He agrees to execute normal and customary lockup
agreements in the event such agreements are required or requested pursuant to
an underwritten public offering of the Corporation's securities; and
m. He agrees to indemnify and hold the Corporation
harmless from and against any claim, liability, cost or expense, including
reasonable attorneys' fees, arising from any alleged unlawful sale or offer to
sell or transfer any of the Shares.
3. Purchaser has been advised that the Shares have not been
registered under the Act or applicable state securities laws, that the Shares
are being offered and sold pursuant to exemptions from the registration
requirements of these laws, and that the reliance of the Corporation on these
exemptions is predicated in part on his representations to the Corporation
contained in this Agreement. Purchaser represents and warrants that the Shares
are being purchased for his own account for investment and without the
intention of reselling or redistributing the Shares, that he has not made any
agreement with any other person or entity regarding any of the Shares, and that
his financial condition is such that it is not likely that it will be necessary
for him to dispose of the Shares in the foreseeable future. Purchaser is aware
that, in the view of the Securities and Exchange Commission, a purchase of the
Shares with an intent to resell the Shares by reason of any foreseeable
specific contingency or anticipated change in market values, or any change in
the condition of the Corporation or its business, or in connection with a
contemplated liquidation or settlement of any loan obtained for the acquisition
of the Shares and for which the Shares were pledged as security, would
represent an intent that is inconsistent with the representations set forth
above. Purchaser further represents and agrees that if, contrary to his above
stated intentions, he later should desire to dispose of or transfer any of the
Shares in any manner, he will not do so without first obtaining (i) an opinion
of independent counsel reasonably satisfactory to the Corporation to the effect
that the proposed disposition or transfer lawfully can be made without
registration of the Shares pursuant to the Act and applicable state securities
laws, or (ii) such registration (it being expressly understood that the
Corporation will have no obligation to register the securities for this
purpose).
-3-
<PAGE> 4
4. The Corporation and Gillette jointly represent and warrant to
Purchaser as follows:
a. The Corporation is duly organized, existing and in
good standing under the laws of the State of Florida with the requisite
corporate power and authority to conduct its business as currently being
conducted. Upon the reorganization of its affiliated companies (which is
anticipated to be completed by July 1, 1996 and which will be completed no
later than December 31, 1996) (the "Reorganization") the Corporation will own
all of the issued and outstanding shares of capital stock of Vision 21
Physician Practice Management Company, Inc. and Vision 21 Managed Eyecare, Inc.
(collectively, the "Subsidiaries"). The Subsidiaries are duly organized,
existing and in good standing in their respective jurisdictions of
incorporation with the requisite corporate power and authority to conduct their
respective business as currently being conducted;
b. The Corporation has an authorized capitalization of
20,000,000 shares consisting of 10,000,000 shares of common stock, par value
$.001 per share, and 10,000,000 shares of preferred stock, par value $.001 per
share. Upon the Reorganization 5,465,673 shares of common stock will be issued
and outstanding. No shares of preferred stock are issued and outstanding on
the date hereof and no such shares will be issued and outstanding upon the
Reorganization. The Shares have been duly authorized and validly issued, and
are fully paid, non-assessable and free and clear of any and all liens and
encumbrances;
c. The execution, delivery and performance of this
Agreement has been duly authorized by all necessary corporate action,
constitutes the legal, valid and binding obligation of the Corporation,
enforceable against it in accordance with its terms, subject to any bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors' rights
generally and the availability of equitable remedies, and does not conflict
with or create an event of default under any other agreement to which the
Corporation is bound;
d. The Corporation and the Subsidiaries have all
licenses, permits and other governmental approvals necessary to conduct their
business as currently being conducted;
e. The Combined Financial Statement at March 31, 1996, a
copy of which has been delivered to and reviewed by Purchaser, fairly presents
the financial condition and discloses all material liabilities of the
Corporation, the Subsidiaries and related entities as at the date indicated
therein and there has not been any material adverse change in the financial
condition or material liabilities of the Corporation, the Subsidiaries and
related entities since March 31, 1996;
f. As of the date hereof the Corporation and the
Subsidiaries (i) have paid all material federal, state and local taxes
currently due and owing by them; (ii) are not engaged in any action, suit,
proceeding at law or in equity with any person or entity which, if adversely
determined, would have a material adverse effect on them; (iii) are not the
subject of any unfair labor practice, discrimination or other employee
grievance or complaint; and (iv) own all of their respective assets free and
clear of all material liens and encumbrances other than those disclosed by UCC
searches conducted as of a recent date, copies of which are annexed hereto; and
g. The transfer by the Purchaser to the Corporation of
the shares of stock described in paragraph 1(ii) of this Agreement at the time
of the Reorganization, in part in exchange for the Shares, will qualify for
nonrecognition treatment under applicable provisions of the Internal Revenue
Code of 1986, as amended.
-4-
<PAGE> 5
5. Each of the parties acknowledge that they are aware of the
meaning and legal consequences of the representations and warranties contained
in this Agreement, and agree to indemnify and hold harmless the other party
from and against any and all loss, damage or liability due to or arising out of
any material inaccuracy or omission in or a breach of any representation or
warranty of such party contained in this Agreement. Each of such
representations and warranties shall survive this Agreement.
6. This Agreement constitutes the entire agreement of the parties
hereto with respect to the matters set forth herein and supersedes any prior
understanding or agreement, oral or written, with respect thereto. There are
no agreements, understandings, restrictions, representations or warranties
among the parties except as set forth herein.
7. The terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of the successors, personal representatives,
estates, heirs and legatees of the respective parties.
8. This Agreement shall not be changed, modified or amended
except by a writing signed by the parties to be charged, and this Agreement may
not be discharged except by performance in accordance with its terms or by a
writing signed by the party to be charged.
9. This Agreement and its validity, construction and performance
shall be governed in all respects by the laws of the State of Florida and the
venue for the prosecution of any legal action brought hereunder shall be in
Polk County, Florida. In the event any party hereto brings an action against
the other party on any dispute arising out of this Agreement, the prevailing
party in such action shall be entitled to an award of reasonable attorneys'
fees and expenses in all proceedings on all levels.
10. This Agreement may not be assigned by either party.
11. THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE FLORIDA
SECURITIES ACT IN RELIANCE UPON EXEMPTION PROVISIONS CONTAINED THEREIN. ANY
SALE MADE PURSUANT TO SUCH EXEMPTION PROVISIONS IS VOIDABLE BY THE PURCHASER
WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY THE
PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR AN ESCROW AGENT. A
WITHDRAWAL WITHIN SUCH THREE DAY PERIOD IS WITHOUT FURTHER LIABILITY TO
PURCHASER. TO ACCOMPLISH SUCH WITHDRAWAL, PURCHASER NEED ONLY SEND A LETTER OR
TELEGRAM TO CORPORATION AT THE ADDRESS SET FORTH IN THIS DOCUMENT, INDICATING
INTENTION TO WITHDRAW.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned have executed this Subscription
Agreement on the date first above written.
"Purchaser"
/s/ Peter J. Fontaine
----------------------------------------
Peter J. Fontaine
----------------------------------------
Social Security Number
"Corporation"
Vision 21, Inc.
By: /s/ Theodore N. Gillette
-------------------------------------
Theodore N. Gillette, President
"Gillette" (with respect to Paragraph 4 only)
/s/ Theodore N. Gillette
----------------------------------------
Theodore N. Gillette, Individually
-6-
<PAGE> 1
EXHIBIT 10.18
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Indemnification
Agreement"), effective as of the _______ day of _______________, is made and
entered into by and between VISION 21, INC., a Florida corporation (the
"Company"), and _________________, an individual (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract
as directors and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the
Company;
WHEREAS, both the Company and Indemnitee recognize the
increased risk of litigation and other claims being asserted against directors
and officers of public companies in today's environment;
WHEREAS, the Articles of Incorporation of the Company require
the Company to indemnify and advance expenses to its directors and officers to
the full extent permitted by law, and the Indemnitee has been serving and
continues to serve as a director and/or officer of the Company in part in
reliance of such Articles of Incorporation; and,
WHEREAS, in recognition of Indemnitee's need for substantial
protection against personal liability in order to enhance Indemnitee's
continued service to the Company in an effective manner and Indemnitee's
reliance on the aforesaid Articles of Incorporation, and in part to provide
Indemnitee with specific contractual assurance that the protection promised by
such Articles of Incorporation will be available to Indemnitee (regardless of,
among other things, any amendment to or revocation of such Articles of
Incorporation or any changes in the composition of the Company's Board of
Directors or acquisition transaction relating to the Company, the Company
wishes to provide in this Indemnification Agreement for the indemnification of
and the advancing of expenses to Indemnitee to the fullest extent (whether
partial or complete) permitted by law and as set forth in this Indemnification
Agreement and, to the extent insurance is obtained, for the continued coverage
of Indemnitee under the Company's directors' and officers' liability insurance
policies.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained, Indemnitee continuing to
serve the Company directly, or at its request, another enterprise and for other
good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto intending to be legally bound hereby
agree as follows:
1. CERTAIN DEFINITIONS. In addition to the words and
terms elsewhere defined in this Indemnification Agreement, certain capitalized
words and terms used in this Indemnification Agreement shall have the meanings
given to them by the definitions and descriptions in this Section 1 unless the
context or use indicates another or different meaning or intent, and such
definitions shall be equally applicable to both the singular and plural forms
of any of the capitalized words and terms herein defined. The following words
and terms are defined terms under this Indemnification Agreement:
1.1 Change in Control. "Change in Control" shall mean
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 30% or more of either (i) the then outstanding shares
of common stock of the Company (the "Outstanding Company Common
Stock") or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company (excluding an acquisition by virtue of
<PAGE> 2
the exercise of a conversion privilege), (ii) any acquisition by the
Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if,
following such reorganization, merger or consolidation, the conditions
described in clauses (i), (ii) and (iii) of subsection (c) of this
Section 2 are satisfied; or
(b) Individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board;
or
(c) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, unless,
following such reorganization, merger or consolidation, (i) more than
60% of, respectively, the then outstanding shares of common stock of
the corporation resulting from such reorganization, merger or
consolidation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation in substantially the same proportions, as their
ownership, immediately prior to such reorganization, merger or
consolidation, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding the Company, any employee benefit plan (or related trust)
of the Company or such corporation resulting from such reorganization,
merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation,
directly or indirectly, 30% or more of the Outstanding Company Common
Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such
reorganization, merger or consolidation were members of the Incumbent
Board at the time of the execution of the initial agreement providing
for such reorganization, merger or consolidation; or
(d) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following
such sale or other disposition, (A) more than 60% of, respectively,
the then outstanding shares of common stock of such corporation and
the combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion as
their ownership, immediately prior to such sale or other disposition,
of the Outstanding Company Common Stock and Outstanding Voting
Securities, as the case may be, (B) no Person (excluding the Company
and any employee benefit plan (or related trust) of the Company or
such corporation and any Person beneficially owning, immediately prior
to such sale or other disposition, directly or indirectly, 30% or more
of the Outstanding Company Common Stock or Outstanding Voting
Securities,
-2 -
<PAGE> 3
as the case may be) beneficially owns, directly or indirectly, 30% or
more of, respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
the election of directors and (C) at least a majority of the members
of the board of directors of such corporation were members of the
Incumbent Board at the time of the execution of the initial agreement
or action of the Board providing for such sale or other disposition of
assets of the Company.
For purposes of this Agreement, common stock shall mean
ordinary shares of the Company as the case may be.
1.2 Claim. "Claim" shall mean any threatened, pending or
completed action, suit or proceeding, or any inquiry or investigation,
whether instituted by the Company or any other party, that Indemnitee
in good faith believes might lead to the institution of any such
action, suit or proceeding, whether civil, criminal, administrative,
investigative or other.
1.3 Expenses. "Expenses" shall mean attorneys' fees and
all other costs, expenses and obligations paid or incurred in
connection with investigating, defending, being a witness in or
participating in (including on appeal), or preparing to defend, be a
witness in or participate in any Claim relating to any Indemnifiable
Event.
1.4 Indemnifiable Event. "Indemnifiable Event" shall
mean any event or occurrence related to the fact that Indemnitee is or
was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company as a director, officer,
employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of any anything done or not done by
Indemnitee in any such capacity.
1.5 Independent Legal Counsel. "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in
accordance with the provisions of Section 3, who shall not have
otherwise been retained by or performed services for the Company or
Indemnitee within the last five years (other than with respect to
matters concerning the rights of Indemnitee under this Indemnification
Agreement or of other indemnities under similar indemnity agreements).
1.6 Reviewing Party. "Reviewing Party" shall mean (i)
the Board of Directors of the Company by a quorum consisting of
directors who were not parties to such Claim or (ii) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by Independent Legal Counsel.
1.7 Voting Securities. "Voting Securities" shall mean
any securities of the Company which vote generally in the election of
directors.
2. BASIC INDEMNIFICATION ARRANGEMENT. In the event
Indemnitee was, is or becomes a party to or witness or other participant in, or
is threatened to be made a party to or witness or other participant in, a Claim
by reason of (or arising in part out of) an Indemnifiable Event, the Company
shall indemnify Indemnitee to the fullest extent permitted by law as soon as
practicable but in any event no later than thirty days after written demand is
presented to the Company, against any and all Expenses, judgments, fines,
penalties and amounts paid in settlement (including all interest, assessments
and other charges paid or payable in connection with or in respect of such
Expenses, judgments, fines, penalties or amounts paid in settlement) of such
Claim. If so requested by Indemnitee, the Company shall advance (within two
business days of such request) any and all Expenses to Indemnitee (an "Expense
Advance"). Notwithstanding the foregoing, (i) the obligations of the Company
under this Section 2 shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion in any case in which the
Independent Legal Counsel is involved) that Indemnitee would not be permitted
to be indemnified under applicable law and (ii) the obligation of the Company
to make an Expense Advance pursuant to this Section 2 shall
-3 -
<PAGE> 4
be subject to the condition that, if, when and to the extent that the Reviewing
Party determines that Indemnitee would not be permitted to be so indemnified
under applicable law, the Company shall be entitled to be reimbursed by
Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced or
thereafter commences legal proceedings in a court of competent jurisdiction to
secure a determination that, Indemnitee should be indemnified under applicable
law, any determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any Expense
Advance until a final judicial determination is made with respect thereto (as
to which all rights of appeal therefrom have been exhausted or lapsed). If
there has not be a Change in Control, the Reviewing Party shall be selected by
the Board of Directors and if there has been such a Change in Control (other
than a Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 3 hereof. If there has been no determination by the Reviewing
Party or if the Reviewing Party determines that Indemnitee substantively would
not be permitted to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation in any court in the
State of Florida having subject matter jurisdiction thereof and in which venue
is proper seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the legal
or factual bases therefor, and the Company hereby consents to service of
process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
3. CHANGE IN CONTROL. The Company agrees that if there
is a Change in Control of the Company (other than a Change in Control which has
been approved by a majority of the Company's Board of Directors who were
directors immediately prior to such Change in Control) then with respect to all
matters thereafter arising concerning the rights of Indemnitee to indemnity
payments and Expense Advances under this Agreement or any other agreement or
Company By-law now or hereafter in effect relating to Claims for Indemnifiable
Events, the Company shall seek legal advice only from Independent Legal Counsel
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
the Indemnitee would be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company
shall indemnify Indemnitee against any and all expenses (including attorneys'
fees) and, if requested by Indemnitee, shall (within two business days of such
request) advance such expenses to Indemnitee which are incurred by Indemnitee
in connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Indemnification Agreement
or any other agreement or the Company's Articles of Incorporation now or
hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)
recovery under any directors' and officers' liability insurance policies
maintained by the Company regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
5. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled
under any provision of this Indemnification Agreement to indemnification by the
Company for some or a portion of the Expenses, judgments, fines, penalties and
amounts paid in settlement of a Claim but not, however, for all of the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any
other provision of this Indemnification Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any or
all Claims relating in whole or in part to an Indemnifiable Event or in defense
of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith.
-4 -
<PAGE> 5
6. BURDEN OF PROOF. In connection with any
determination by the Reviewing Party or otherwise as to whether Indemnitee is
entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that Indemnitee is not so entitled.
7. NO PRESUMPTIONS. For purposes of this
Indemnification Agreement, the termination of any claim, action, suit or
proceeding, by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In
addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief.
8. NONEXCLUSIVITY, ETC. The rights of the Indemnitee
hereunder shall be in addition to any other rights Indemnitee may have under
the Company's Articles of Incorporation or otherwise. To the extent that a
change in the Florida Business Corporation Act and every statutory modification
or re-enactment thereof (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently under the
Company's Articles of Incorporation and this Indemnification Agreement, it is
the intent of the parties hereto that Indemnitee shall enjoy by this
Indemnification Agreement the greater benefits so afforded by such change.
9. LIABILITY INSURANCE. To the extent the Company
maintains an insurance policy or policies providing directors' and officers'
liability insurance, Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
10. PERIOD OF LIMITATIONS. No legal action shall be
brought and no cause of action shall be asserted by or in the right of the
Company against Indemnitee or Indemnitee's spouse, heirs, executors or personal
or legal representatives after the expiration of two (2) years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the timely
filing of a legal action within such two (2) year period; provided, however,
that if any shorter period of limitations is otherwise applicable to any such
cause of action, such shorter period shall govern.
11. AMENDMENTS, ETC. No supplement, modification or
amendment of this Indemnification Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Indemnification Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
12. SUBROGATION. In the event of payment under this
Indemnification Agreement, the Company shall be subrogated to the extent of
such payment to all of the rights of recovery of Indemnitee, who shall execute
all papers required and shall do everything that may be necessary to secure
such rights, including the execution of such documents necessary to enable the
Company effectively to bring suit to enforce such rights.
13. NO DUPLICATION OF PAYMENTS. The Company shall not be
liable under this Indemnification Agreement to make any payment in connection
with any Claim made against Indemnitee to the extent Indemnitee has otherwise
actually received payment (under any insurance policy, the Company's Articles
of Incorporation or otherwise) of the amounts otherwise indemnifiable
hereunder.
14. BINDING EFFECT, ETC. This Indemnification Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors; assigns, including any direct
-5 -
<PAGE> 6
or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company; spouses; heirs;
executors and personal and legal representatives. This Indemnification
Agreement shall continue in effect regardless of whether Indemnitee continues
to serve as an officer or director of the Company or of any other enterprise at
the Company's request.
15. SEVERABILITY. The provisions of this Indemnification
Agreement shall be severable in the event that any of the provisions hereof
(including any provision within a single section, paragraph or sentence) is
held by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable in any respect, and the validity and enforceability of any such
provision in every other respect and of the remaining provisions hereof shall
not be in any way impaired and shall remain enforceable to the fullest extent
permitted by law.
16. GOVERNING LAW. This Indemnification Agreement shall
be governed by and construed and enforced in accordance with the laws of the
State of Florida applicable to contracts made and to be performed in such state
without giving effect to the principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement this ______ day of March, 1997.
VISION 21, INC.
By:_____________________________________
Richard L. Sanchez
Vice President
And:____________________________________
Richard L. Sanchez
Secretary
________________________________________
______________________________
-6 -
<PAGE> 1
EXHIBIT 10.21
THIS SUBORDINATED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK WHICH SHALL BE
DELIVERED IN ACCORDANCE WITH THE TERMS OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAW. NO SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS
NOTE OR ANY SUCH SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL,
SATISFACTORY TO MAKER, IS OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE
OR TRANSFER IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
SUBORDINATED PROMISSORY NOTE
$416,103.00 December 1, 1996
560,957 Shares of Common Stock
of Vision 21, Inc.
FOR VALUE RECEIVED, VISION 21, INC., a Florida corporation ("Maker"),
hereby promises to pay GILLETTE & ASSOCIATES, #6965, P.A., a Florida
professional association ("Payee") (i) the principal amount of Four Hundred
Sixteen Thousand One Hundred Three and No/100 Dollars ($416,103.00), together
with interest thereon at a per annum rate equal to eight percent (8%), and (ii)
Five Hundred Sixty Thousand Nine Hundred Fifty-Seven (560,957) shares of
Maker's common stock (the "Shares"). Interest shall be computed on the basis
of the actual number of days elapsed in a year of 360 days from and including
the date hereof through March 1, 1998.
Subject to the stock payment rights described herein, principal and
interest on this Note shall be payable in full, in one installment, in arrears,
on that date which is the earlier of (i) fifteen business days after the
closing date of an initial public offering of shares of common stock of Maker
and (ii) March 1, 1998 (the "Cash Payment Due Date"). If this Note or any
installment of principal or interest hereon becomes due and payable on
Saturday, Sunday or other day on which commercial banks are authorized or
permitted to close under the laws of the State of Florida, the maturity of this
Note or such installment shall be extended to the next succeeding business day.
All payments under this Note and deliveries of shares of Maker's
<PAGE> 2
common stock described below shall be delivered to the office of Payee located
at 7209 Bryan Dairy Road, Largo, Florida 34647.
Maker shall (i) on January 31, 1997, deliver to Payee the Shares; and
(ii) on or before the Cash Payment Due Date, pay all remaining outstanding
principal balance under this Note of Four Hundred Sixteen Thousand One Hundred
Three and No/100 Dollars ($416,103.00) together with accrued interest, by
cashier's check or money order.
At the time of delivery of the shares referenced above, Maker shall
deliver to Payee a certificate evidencing the number of fully paid and
nonassessable shares issuable upon payment. The certificate evidencing the
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE
CORPORATION THAT SUCH TRANSACTION WILL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS."
Payee by its acceptance hereof acknowledges that it is aware that
neither this Note nor the Shares issuable to Payee in connection with this Note
have been registered under the Securities Act of 1933, as amended.
This Note is being delivered to Payee by Maker pursuant to that
certain Asset Purchase Agreement dated as of December 1, 1996 between Payee and
Maker (the "Purchase Agreement") and is subject to the terms and provisions
thereof. The principal amount of this Note shall be automatically and
permanently reduced by set-off in amounts determined under and in accordance
with the terms of the Purchase Agreement.
This Note is not transferable or assignable by Payee. If this Note is
collected by law or through an attorney at law, or under advice therefrom, the
Maker agrees to pay all costs of collection, including reasonable attorneys'
fees. Reasonable attorneys' fees are defined to include, but not be limited
to, all fees incurred in all matters of collection and enforcement, trial
proceedings and appeals, as well as appearances in and connected with any
bankruptcy proceedings or creditors' reorganization or similar proceedings and
any post judgment collection efforts.
-2-
<PAGE> 3
Any failure to exercise any right, remedy or recourse hereunder shall
not be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written document executed by the Payee and then only
to the extent specifically recited therein. A waiver or release with reference
to any one event shall not be construed as continuing, as a bar to, or as a
waiver or release of any subsequent right, remedy or recourse as to a
subsequent event.
In no event shall the amount of interest due or payments in the nature
of interest payable hereunder exceed the maximum rate of interest allowed by
applicable law, as amended from time to time, and in the event any such payment
is paid by the Maker or received by the Payee, then such excess sum shall be
credited as a payment of principal, unless the Maker shall notify the Payee, in
writing, that the Maker elects to have such excess sum returned to Maker
forthwith.
The Maker waives protest, demand, notice of protest, dishonor,
presentment for payment or acceptance.
The rights of Payee to receive payment on this Note is subject and
subordinate to the prior payment of the principal and interest on all senior
secured indebtedness of Maker, whether now outstanding or subsequently
incurred, and any deferrals, renewals or extensions of such indebtedness or any
debentures, bonds or notes evidencing such indebtedness (the "Senior
Indebtedness"). Upon any receivership, insolvency, assignment for the benefit
of creditors, bankruptcy, reorganization, sale of all or substantially all of
the assets, dissolution, liquidation, or any other marshalling of assets and
liabilities of Maker, or in the event this Note is declared due and payable
upon the occurrence of a default under this Note, then no amount shall be paid
by Maker with respect to principal and interest hereon unless and until the
principal of, and interest on, all Senior Indebtedness then outstanding is paid
in full. The indebtedness of Maker under this Note shall have an equal
priority with all other indebtedness relating to Maker's acquisition of, or
merger into, founding health care practices occurring on or prior to December
31, 1996.
This Note has been executed and delivered in ____________, New York
and shall be governed by and construed in accordance with the laws of the State
of Florida applicable to debts and obligations incurred and to be paid solely
in such jurisdiction. This Note may not be modified or amended and no
provision hereof may be waived except by a written instrument executed by the
parties to be bound thereby.
VISION 21, INC.
By: /s/ Theodore N. Gillette
-----------------------------------
Theodore N. Gillette, President
-3-
<PAGE> 4
STATE OF NEW YORK )
)SS
COUNTY OF _________ )
I, _________________, a Notary Public in and for the County and State
aforesaid, DO HEREBY CERTIFY that Theodore N. Gillette, personally known to me
to be the same person whose name is, as President of Vision 21, Inc., executed
and delivered the foregoing instrument in the City of ______________, State of
New York before me this day in person and acknowledged to me that he or she,
being thereunto duly authorized, signed and delivered said instrument as the
free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal on March ___, 1997.
______________________________
Notary Public
My Commission Expires:
________________________
-4-
<PAGE> 1
EXHIBIT 10.23
"CONFIDENTIAL TREATMENT
REQUESTED BY VISION TWENTY-ONE, INC."
AGREEMENT AND PLAN OF REORGANIZATION
DATED: DECEMBER 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . 11
4. REPRESENTATIONS AND WARRANTIES OF THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5. REPRESENTATIONS AND WARRANTIES OF VISION 21 AND THE SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . 32
6. {INTENTIONALLY OMITTED} . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7. CLOSING DATE REPRESENTATIONS AND WARRANTIES OF THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . 36
8. SECURITIES LAW MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
9. COVENANTS OF THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10. COVENANTS OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11. COVENANTS OF VISION 21, THE SUBSIDIARY, THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . 46
12. CONDITIONS PRECEDENT OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13. CONDITIONS PRECEDENT OF THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
14. CLOSING DELIVERIES; ESCROW OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15. POST CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
16. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
17. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
18. PHYSICIAN EMPLOYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
19. NON-COMPETITION AND CONFIDENTIALITY COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
20. DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
21. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
ii
<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement"), dated
effective as of December 1, 1996, is by and among EYE INSTITUTE OF SOUTHERN
ARIZONA, P.C., an Arizona professional corporation, (the "Company"), JEFFREY I.
KATZ, M.D. and BARRY KUSMAN, M.D. (together, the "Physician"), VISION 21, INC.,
a Florida corporation ("Vision 21"), and VISION 21 OF ARIZONA, INC., a Florida
professional corporation (the "Subsidiary").
R E C I T A L S
A. Physician is a physician licensed to practice medicine in
the State (as defined herein) and currently conducts an ophthalmology practice
through the Company and through optometrist employees currently conducts an
optometry practice through the Company.
B. Physician owns all of the issued and outstanding shares of
capital stock of the Company.
C. The Company and Vision 21 desire to effect a business
combination and merger of the Company with and into Vision 21's wholly-owned
subsidiary, the Subsidiary, upon the terms and subject to the satisfaction of
the conditions precedent contained herein (the "Merger").
D. It is intended that for federal income tax purposes the
Merger shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) and Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").
E. The Subsidiary cannot acquire certain of the Company's
assets because of laws prohibiting general business corporations from engaging
in the practice of medicine or optometry, or exercising control over physicians
practicing medicine or optometrists practicing optometry, and accordingly, the
Company, Vision 21 and the Subsidiary desire that the Company divest itself of
such assets prior to the Merger.
F. Prior to the Merger, the Company intends to form a new
professional corporation ("New P.C.") to which it intends to transfer its
medical and optometry business and all of its Medical Assets (as defined
herein) in exchange for all of New P.C.'s capital stock and to distribute such
stock to Physician in a transaction that will qualify for tax free treatment
under Section 355 of the Code.
G. New P.C. intends to employ the Physician and enter into a
Business Management Agreement (as defined herein) with the Company immediately
prior to the Merger; and
1
<PAGE> 5
H. As a result of the Merger, the Surviving Corporation (as
defined herein) will acquire the medical and optometry practice management
business and all of the Nonmedical Assets (as herein defined) of the Company
associated with such business to the extent permitted by law and assume all of
Company's obligations under the Business Management Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
1.1. AAA. The term "AAA" shall mean the American
Arbitration Association.
1.2. Accountants. The term "Accountants" shall mean
the accounting firm for Vision 21.
1.3. Accounts Receivable. The term "Accounts
Receivable" shall have the meaning set forth in Section 3.39.
1.4. Acquisition Proposal. The term "Acquisition
Proposal" shall have the meaning set forth in Section 3.34.
1.5. Affiliate. The term "Affiliate" with respect to
any person or entity shall mean a person or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, such person or entity.
1.6. Applicable Laws. The term "Applicable Laws"
shall have the meaning set forth in Section 21.5.
1.7. Audit. The term "Audit" shall have the meaning
set forth in Section 3.9.
1.8. Business. The term "Business" shall have the
meaning set forth in Section 19.1(b)(i).
1.9. Business Management Agreement. The term
"Business Management Agreement" shall mean the Business Management Agreement
entered into between the Company and New P.C. prior to the Closing.
1.10. Cash Compensation. The term "Cash Compensation"
shall have the meaning set forth in Section 3.11(a).
2
<PAGE> 6
1.11. Claim Notice. The term "Claim Notice" shall have
the meaning set forth in Section 16.3(a).
1.12. Closing. The term "Closing" shall mean the
consummation of the transactions contemplated by this Agreement.
1.13. Closing Date. The term "Closing Date" shall mean
December 16, 1996 or such other date as mutually agreed upon by the parties.
1.14. Proposed Merger Consideration Adjustment. The
term "Proposed Merger Consideration Adjustment" shall have the meaning set
forth in Section 2.11(b).
1.15. Code. The term "Code" shall mean the Internal
Revenue Code of 1986, as amended.
1.16. Commitments. The term "Commitments" shall have
the meaning set forth in Section 3.15(a).
1.17. Common Stock. The term "Common Stock" or "Vision
21 Common Stock" shall mean the common stock, par value $.01 per share, of
Vision 21.
1.18. Company Balance Sheet. The term "Company Balance
Sheet" shall have the meaning set forth in Section 3.9.
1.19. Company Balance Sheet Date. The term "Company
Balance Sheet Date" shall have the meaning set forth in Section 3.9.
1.20. Company Common Stock. The term "Company Common
Stock" shall mean the common stock per share of the Company.
1.21. Compensation Plans. The term "Compensation
Plans" shall have the meaning set forth in Section 3.11(b)(ii).
1.22. Competing Business. The term "Competing
Business" shall have the meaning set forth in Section 19.1(b).
1.23. Competitor. The term "Competitor" shall mean any
person or entity which, individually or jointly with others, whether for its
own account or for that of any other person or entity, owns, or holds any
ownership or voting interest in any person or entity engaged in, the practice
of ophthalmology, the practice of optometry, the operation of out patient eye
surgical facilities, the operation of refractive surgery centers and the
operation of optical shops; provided, however, that such term shall not include
any Affiliate of Vision 21 or any entity with which Vision 21 has an agreement
similar to the Business Management Agreement in effect.
3
<PAGE> 7
1.24. Confidential Information Memorandum. The term
"Confidential Information Memorandum" shall mean that certain disclosure
memorandum distributed by Vision 21 to the Company and Physician dated as of
September 27, 1996, and any amendments or revisions thereto.
1.25. Controlled Group. The term "Controlled Group"
shall have the meaning set forth in Section 3.12(g).
1.26. Corporation Law. The term "Corporation Law"
shall mean the statutes, regulations and laws governing business corporations
and professional corporations in the State.
1.27. Damages. The term "Damages" shall have the
meaning set forth in Section 16.1.
1.28. Effective Time. The term "Effective Time" shall
have the meaning set forth in Section 2.3.
1.29. Election Period. The term "Election Period"
shall have the meaning set forth in Section 16.3(a).
1.30. Employee Benefit Plans. The term "Employee
Benefit Plans" shall have the meaning set forth in Section 3.12(a).
1.31. Employee Policies and Procedures. The term
"Employee Policies and Procedures" shall have the meaning set forth in Section
3.11(d).
1.32. Employment Agreements. The term "Employment
Agreements" shall have the meaning set forth in Section 3.11(c).
1.33. Environmental Laws. The term "Environmental
Laws" shall have the meaning set forth in Section 3.27(a).
1.34. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
1.35. Exchange Act. The term "Exchange Act" shall mean
the Securities Exchange Act of 1934, as amended.
1.36. FBCA. The term "FBCA" shall mean the Florida
Business Corporation Act.
1.37. Financial Statements. The term "Financial
Statements" shall have the meaning set forth in Section 3.9.
4
<PAGE> 8
1.38. GAAP. The term "GAAP" shall mean generally
accepted accounting principles, applied on a consistent basis with prior
periods, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity or other practices and procedures as
may be approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of the determination.
1.39. Governmental Authority. The term "Governmental
Authority" shall mean any national, state, provincial, local or tribunal
governmental, judicial or administrative authority or agency.
1.40. Indemnified Party. The term "Indemnified Party"
shall have the meaning set forth in Section 16.3(a).
1.41. Indemnifying Party. The term "Indemnifying
Party" shall have the meaning set forth in Section 16.3(a).
1.42. Indemnity Notice. The term "Indemnity Notice"
shall have the meaning set forth in Section 16.3(d).
1.43. Initial Public Offering. The term "Initial
Public Offering" shall mean the potential initial underwritten public offering
of Vision 21 Common Stock contemplated by Vision 21.
1.44. Insurance Policies. The term "Insurance
Policies" shall have the meaning set forth in Section 3.16.
1.45. IRS. The term "IRS" shall mean the Internal
Revenue Service.
1.46. Material Adverse Effect. The term "Material
Adverse Effect" shall mean a material adverse effect on the Nonmedical Assets
and the Company's business, operations, condition (financial or otherwise) or
results of operations, taken as a whole, considering all relevant facts and
circumstances.
1.47. Medical Assets. The term "Medical Assets" shall
mean the Company's right, title and interest in any assets as set forth on
Schedule 1.47A which shall also be deemed to include (a) life insurance
policies covering the life of any employee of the Company, and (b) personal
effects listed on Schedule 1.47B.
1.48. Merger . The term "Merger" shall have the
meaning set forth in the Recitals hereto.
5
<PAGE> 9
1.49. Merger Consideration. The term "Merger
Consideration" shall mean the consideration set forth in Sections 2.8, 2.9 and
2.11 of this Agreement.
1.50. Merger Consideration Adjustment Amount. The term
"Merger Consideration Adjustment Amount" shall have the meaning set forth in
Section 2.12(c).
1.51. Nonmedical Assets. The term "Nonmedical Assets"
shall mean all of the assets of the Company except for the Medical Assets.
1.52. Optometrist Employee. The term "Optometrist
Employee" shall mean those licensed optometrists who are employees of the
Company, but are not shareholders.
1.53. Optometrist Employment Agreement. The term
"Optometrist Employment Agreement" shall mean the Optometrist Employment
Agreement to be executed between any Optometrist Employee and New P.C.
1.54. Payors. The term "Payors" shall have the meaning
set forth in Section 3.30.
1.55. Permitted Encumbrances. The term "Permitted
Encumbrances" shall have the meaning set forth in Section 3.14(b).
1.56. Physician Employee. The term "Physician
Employee" shall mean those licensed physicians who are employees of the
Company, but are not shareholders.
1.55 Physician Employment Agreement. The term
"Physician Employment Agreement" shall mean the Physician Employment Agreement
to be executed between Physician and New P.C., and between any Physician
Employee and New P.C.
1.57. Practice. The term "Practice" shall mean the
ophthalmology, optometry and all other vision related health-care practices
conducted from time to time by the Company prior to and on the Closing Date and
by the New P.C. after the Closing Date.
1.58. Professional Employee. The term "Professional
Employee" shall mean any Physician Employee or Optometrist Employee.
1.59. Proprietary Rights. The term "Proprietary
Rights" shall have the meaning set forth in Section 3.17.
1.60. Registration Statement. The term "Registration
Statement" shall have the meaning set forth in Section 11.1.
6
<PAGE> 10
1.61. Related Acquisitions. The term "Related
Acquisitions" shall mean the pending acquisitions by Vision 21 with third
parties which are expected to be completed simultaneously with this Merger.
1.62. Reorganization. The term "Reorganization" shall
have the meaning set forth in Section 15.3(a).
1.63. SEC. The term "SEC" shall mean the Securities
and Exchange Commission.
1.64. Securities. The term "Securities" shall mean the
shares of Vision 21 Common Stock to be delivered to Physician at the Closing.
1.65. Securities Act. The term "Securities Act" shall
mean the Securities Act of 1933, as amended.
1.66. State. The term "State" shall mean the State in
which the Company is incorporated.
1.67. Surviving Corporation. The term "Surviving
Corporation" shall have the meaning set forth in Section 2.1.
1.68. Tax Returns. The term "Tax Returns" shall have
the meaning set forth in Section 3.18(a).
1.69. Third Party Claim. The term "Third Party Claim"
shall have the meaning set forth in Section 16.3(a).
1.70. Vision 21 Financial Statements. The term "Vision
21 Financial Statements" shall have the meaning set forth in Section 5.9.
2. THE MERGER.
2.1. The Merger. Subject to the terms and conditions
of this Agreement, at the Effective Time, the Company shall be merged with and
into the Subsidiary in accordance with this Agreement and the separate
corporate existence of the Company shall thereupon cease. The Subsidiary shall
be the surviving corporation in the Merger (in such capacity, hereinafter
referred to as the "Surviving Corporation") and shall continue to be governed
by the laws of the State of Florida, and the separate corporate existence of
the Subsidiary with all its rights, privileges, powers, immunities, purposes
and franchises shall continue unaffected by the Merger, except as set forth
herein. The Merger shall have the effects specified in the FBCA and the
Corporation Law.
7
<PAGE> 11
2.2. The Closing. The Closing shall take place on the
Closing Date at the offices of Shumaker, Loop & Kendrick, 101 E. Kennedy
Boulevard, Suite 2800, Tampa, Florida 33602 or at such other location in the
State as the parties shall mutually agree.
2.3. Effective Time. If all the conditions precedent
to the Merger set forth in this Agreement shall have been fulfilled or waived
in accordance herewith and this Agreement shall not have been terminated in
accordance with the terms set forth herein, the parties hereto shall cause to
be properly executed and filed on the Closing Date, a Certificate of Merger
meeting the requirements of the FBCA and the Corporation Law. The Certificate
of Merger shall be filed with the Secretary of State of the State of Florida
and of the State in accordance with the FBCA and the Corporation Law and the
Merger shall become effective on the Closing Date, to be designated in such
filings as the effective time of the Merger (the "Effective Time").
2.4. Articles of Incorporation of Surviving
Corporation. Effective at the Effective Time, the Articles of Incorporation of
the Subsidiary shall be the Articles of Incorporation of the Surviving
Corporation unless and until duly amended in accordance with its terms.
2.5. Bylaws of Surviving Corporation. The Bylaws of
the Subsidiary in effect immediately prior to the Effective Time shall be the
Bylaws of the Surviving Corporation, unless and until duly amended in
accordance with their terms.
2.6. Directors of the Surviving Corporation. The
persons who are directors of the Subsidiary immediately prior to the Effective
Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation until their successors have been elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
2.7. Officers of the Surviving Corporation. The
persons who are officers of the Subsidiary immediately prior to the Effective
Time shall, from and after the Effective Time, be the officers of the Surviving
Corporation and shall hold their same respective offices until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal.
2.8. Conversion of Company Common Stock. The manner
of converting shares of Company Common Stock in the Merger shall be as follows:
a. As a result of the Merger and without
any action on the part of the holder thereof, all shares of Company Common
Stock issued and outstanding at the Effective Time shall cease to exist, and
each holder of a certificate representing any such shares of Company Common
Stock shall thereafter cease to have any rights with respect to such shares of
Company Common Stock, except the right to receive upon the surrender of such
certificate, on the Closing Date, validly issued, fully paid and nonassessable
shares of Vision 21 Common Stock determined in accordance with the provisions
of Exhibit 2.8(a) attached hereto.
8
<PAGE> 12
b. Each share of Company Common Stock
held in the Company's treasury at the Effective Time, by virtue of the Merger,
shall cease to be outstanding and shall be cancelled and retired without
payment of any consideration therefor and shall cease to exist.
c. At the Effective Time, each share of
the Subsidiary's common stock issued and outstanding as of the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereto, continue unchanged and remain outstanding as a validly issued, fully
paid, nonassessable share of the Subsidiary's common stock.
2.9. Exchange of Certificates Representing Shares of
Company Common Stock.
a. On the Closing Date (i) the Physician,
as the holder of a certificate or certificates representing shares of Company
Common Stock, upon surrender of such certificate or certificates, shall
receive, as part of the Merger Consideration, the number of shares of Vision 21
Common Stock determined in accordance with the provisions of Exhibit 2.8(a)
attached hereto; and (ii) until the certificate or certificates representing
Company Common Stock have been surrendered by the Physician and replaced by a
certificate or certificates representing Vision 21 Common Stock, the
certificate or certificates representing Company Common Stock shall, for all
purposes be deemed to evidence ownership of the number of shares of Vision 21
Common Stock determined in accordance with the provisions of Exhibit 2.8(a)
attached hereto. All shares of Vision 21 Common Stock issuable to the
Physician in the Merger shall be deemed for all purposes to have been issued by
Vision 21 at the Effective Time, although the Merger Consideration shall not
actually be paid by Vision 21 to the Physician until the Closing Date.
b. The Physician shall deliver to Vision
21 at Closing the certificate or certificates representing Company Common Stock
owned by him, duly endorsed in blank by the Physician, or accompanied by duly
endorsed stock powers in blank, and with all necessary transfer tax and other
revenue stamps, acquired at the Physician's expense, affixed and cancelled.
The Physician agrees to cure any deficiencies with respect to the endorsement
of the certificates or other documents of conveyance with respect to such
Company Common Stock or with respect to the stock powers accompanying any
Company Common Stock. Upon such a delivery, the Physician shall receive in
exchange therefor, a certificate representing that number of shares of Vision
21 Common Stock that the Physician is entitled to receive pursuant to Section
2.8 hereof.
2.10. Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of Vision 21 Common Stock will be
issued. Fractional shares shall be rounded up to the nearest whole number of
shares.
9
<PAGE> 13
2.11. Merger Consideration Adjustments. (a) The
Merger Consideration shall be subject to adjustment to the extent that Current
Assets (as defined herein) or Current Liabilities Assumed (as defined herein)
materially differ from the amounts customarily arising in the ordinary course
of business of the Company as of November 30, 1996. The term "Current Assets"
shall mean petty cash, Accounts Receivable, prepaid expenses, Inventory,
supplies and other current assets (excluding cash in banks, certificates of
deposit, other cash equivalents, current portion of capital leases and prepaid
Income Taxes). The term "Current Liabilities Assumed" shall mean the audited
balances as of November 30, 1996 of trade accounts payable, accrued payroll,
accrued payroll taxes, accrued benefits, and other current liabilities
(excluding notes payable, current portion of capital leases and long-term debt
and income and franchise taxes). The adjustment shall be settled in cash or
Vision 21 Common Stock at Vision 21's option. The parties also agree that to
the extent the adjustments materially impact the goodwill created by the
transaction, there shall be an adjustment for the related impact upon net
income created by the change in amortization of such goodwill and the Merger
Consideration shall be increased or reduced to reflect the impact on net
income, settled in cash or Vision 21 Common Stock at Vision 21's option.
(b) Within sixty (60) days following the Closing
Date, Vision 21 shall present to the Physician its Merger Consideration
Adjustment (the "Proposed Merger Consideration Adjustment") calculated in
accordance with Section 2.11(a) hereof. The Physician shall, within thirty
(30) days after the delivery by Vision 21 of the Proposed Merger Consideration
Adjustment, complete his review thereof. In the event that the Physician
believes that the Proposed Purchase Price Adjustment has not been prepared on
the basis set forth in Section 2.11(a) or otherwise contests any item set forth
therein, the Physician shall, on or before the last day of such 30 day period,
so object to Vision 21 in writing, setting forth a specific description of the
nature of the objection and the corresponding adjustments the Physician
believes should be made. If no objection is received by Vision 21 on or before
the last day of such 30 day period, then the Proposed Merger Consideration
Adjustment delivered by Vision 21 shall be final. If an objection has been
made and Vision 21 and the Physician are unable to resolve all of their
disagreements with respect to the proposed adjustments within 15 days following
the delivery of the Physician's objection, the dispute shall be submitted to
arbitration as provided in Section 20.1 except that the arbitrator shall be
instructed to deliver his determination of the dispute to the parties no later
than 30 days after the arbitration hearing. Vision 21 shall provide to the
Physician and his accountants full access to all relevant books, records and
work papers utilized in preparing the Proposed Merger Consideration Adjustment.
2.12. Subsequent Actions. If, at any time after the
Effective Time, the Surviving Corporation shall determine or be advised that
any deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, and to effect the
cancellation of all outstanding shares of Company Common Stock in return for
the consideration set forth in this Agreement, the officers and directors of
the
10
<PAGE> 14
Surviving Corporation shall, at the sole cost and expense of the Surviving
Corporation, be authorized to execute and deliver, in the name and on behalf of
the Company, such deeds, bills of sale, assignments and assurances, and to take
and do, in the name and on behalf of the Company, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PHYSICIAN. The Company and the Physician, jointly and severally, represent and
warrant to Vision 21 and the Subsidiary that the following are true and correct
as of the date hereof, and shall be true and correct through the Closing Date
as if made on that date; when used in this Section 3, the term "best knowledge"
shall mean in the case of the Company the best knowledge of those individuals
listed on Schedule 3:
3.1. Organization and Good Standing; Qualification.
The Company is a professional corporation duly organized, validly existing and
in good standing under the laws of the State, with all requisite corporate
power and authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, but it is acknowledged and understood by the
Parties that upon consummation of Merger, the Company will no longer be
qualified as a professional corporation under the Corporation Law. The Company
is not duly qualified and licensed to do business in any other jurisdiction.
The Company does not have any assets, employees or offices in any state other
than the State. Except as set forth on Schedule 3.1, neither the Company, the
Physician nor any Professional Employee owns, directly or indirectly, any of
the capital stock of any other corporation or any equity, profit sharing,
participation or other interest in any corporation, partnership, joint venture
or other entity that is engaged in a business that is a Competitor.
3.2. Capitalization. The authorized capital stock of
the Company consists of __________________ _____ shares of Company Common
Stock, of which two thousand (2,000) shares are issued and outstanding. The
Physician owns all of the issued and outstanding Company Common Stock, free and
clear of all security interests, liens, adverse claims, encumbrances, equities,
proxies and shareholder agreements, except to the extent disclosed on Schedule
3.2. Each outstanding share of Company Common Stock has been legally and
validly issued and is fully paid and nonassessable. No shares of Company
Common Stock are owned by the Company in treasury. No shares of Company Common
Stock of the Company have been issued or disposed of in violation of the
preemptive rights, rights of first refusal or similar rights of any of the
Company's stockholders. The Company has no bonds, debentures, notes or other
obligations the holders of which have the right to vote (or are convertible
into or exercisable for securities having the right to vote) with the
stockholders of the Company on any matter.
3.3. Transactions in Capital Stock. The Company has
not acquired any capital stock of the Company within the two (2) year period
preceding the execution of this Agreement. Except as set forth on Schedule
3.3, there exist no options, warrants, subscriptions
11
<PAGE> 15
or other rights to purchase, or securities convertible into or exchangeable
for, any of the authorized or outstanding securities of the Company, and no
option, warrant, call, conversion right or commitment of any kind exists which
obligates the Company to issue any of its authorized but unissued capital
stock. Except as set forth on Schedule 3.3, the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Neither the equity structure of the Company
nor the relative ownership of shares among any of its stockholders has been
altered or changed within the two (2) year period preceding the date of this
Agreement.
3.4. Continuity of Business Enterprise. Except as set
forth on Schedule 3.4, and except as contemplated by this Agreement, there has
not been any sale, distribution or spin-off of significant assets of the
Company or any of its Affiliates other than in the ordinary course of business
within the two (2) year period preceding the date of this Agreement.
3.5. Corporate Records. The copies of the Articles or
Certificate of Incorporation and Bylaws, and all amendments thereto, of the
Company that have been delivered or made available to Vision 21 are true,
correct and complete copies thereof, as in effect on the date hereof. The
minute books of the Company, copies of which have been delivered or made
available to Vision 21, contain accurate minutes of all meetings of, and
accurate consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the stockholders of the Company in
the three (3) years prior to the Closing Date, and contain all other material
minutes and consents of the directors and stockholders of the Company since its
formation.
3.6. Authorization and Validity. The execution,
delivery and performance by the Company of this Agreement and the other
agreements contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby to be performed by the Company, have been duly
authorized by the Company. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. The
Company has obtained, in accordance with applicable law and its Articles or
Certificate of Incorporation and Bylaws, the approval of its stockholders
necessary for the consummation of the transactions contemplated hereby.
3.7. Compliance. Except as disclosed on Schedule 3.7,
the execution and delivery of the documents contemplated hereunder and the
consummation of the transactions contemplated thereby by the Company will not
(i) violate any provision of the Company's organizational documents, (ii)
violate any material provision of or result in the breach of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any material obligation under, any mortgage, lien, lease, contract,
license, instrument or any other agreement to which the Company is a party,
(iii) result in the creation or imposition of any
12
<PAGE> 16
material lien, charge, pledge, security interest or other material encumbrance
upon any property of the Company or (iv) violate or conflict with any order,
award, judgment or decree or other material restriction or to the best of the
Company's knowledge violate or conflict with any law, ordinance or regulation
to which the Company or its property is subject.
3.8. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by the Company or the
consummation by such party of the transactions contemplated thereby, except for
those consents or approvals set forth on Schedule 3.8.
3.9. Financial Statements. The Company has furnished
to Vision 21 its unaudited balance sheet and related unaudited statements of
income, retained earnings and cash flows for its prior three (3) full fiscal
years, and its unaudited interim balance sheet for the fiscal period ended
September 30, 1996 (the "Company Balance Sheet", and the date thereof shall be
referred to as the "Company Balance Sheet Date") and related unaudited
statements of income, retained earnings and cash flows for the nine (9) months
then ended (all collectively, with the related notes thereto, the "Financial
Statements"). The Financial Statements fairly present the financial condition
and results of operations of the Company as of the dates and for the periods
indicated except as otherwise indicated in the Financial Statements. The
Company and the Physician expressly warrant that they will have prior to the
Closing fairly, accurately and completely provided all necessary information
requested in or relevant to the preparation of the audit to be conducted by the
Accountants or their designees prior to Closing (the "Audit"). The cost of the
Audit shall be paid by Vision 21 and all materials prepared by Vision 21's
Accountants in connection with the Audit shall be solely the property of Vision
21.
3.10. Liabilities and Obligations. Except as set forth
on Schedule 3.10, the Financial Statements reflect all liabilities of the
Company, accrued, contingent or otherwise that would be required to be
reflected thereon, or in the notes thereto, prepared in accordance with GAAP,
except for liabilities and obligations incurred in the ordinary course of
business since the Company Balance Sheet Date. Except as set forth in the
Financial Statements or on Schedule 3.10, the Company is not liable upon or
with respect to, or obligated in any other way to provide funds in respect of
or to guarantee or assume in any manner, any debt, obligation or dividend of
any person, corporation, association, partnership, joint venture, trust or
other entity, and the Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any amount.
3.11. Employee Matters.
a. Cash Compensation. Schedule 3.11(a)
contains a complete and accurate list of the names, titles and annual cash
compensation as of the Closing Date, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, Schedule
3.11(a) contains a complete and accurate description of (i) all increases in
Cash
13
<PAGE> 17
Compensation of employees of the Company during the current fiscal year and the
immediately preceding fiscal year and (ii) any promised increases in Cash
Compensation of employees of the Company that have not yet been effected.
b. Compensation Plans. Schedule 3.11(b)
contains a complete and accurate list of all compensation plans, arrangements
or practices (the "Compensation Plans") sponsored by the Company or to which
the Company contributes on behalf of its employees, other than Employment
Agreements listed on Schedule 3.11(c) and Employee Benefit Plans listed on
Schedule 3.12(a). The Compensation Plans include without limitation plans,
arrangements or practices that provide for performance awards, and stock
ownership or stock options. The Company has provided or made available to
Vision 21 a copy of each written Compensation Plan and a written description
of each unwritten Compensation Plan. Except as set forth on Schedule 3.11(b),
each of the Compensation Plans can be terminated or amended at will by the
Company.
c. Employment Agreements. Except as set
forth on Schedule 3.11(c), the Company is not a party to any employment
agreement ("Employment Agreements") with respect to any of its employees.
Employment Agreements include without limitation employee leasing agreements,
employee services agreements and non-competition agreements.
d. Employee Policies and Procedures.
Schedule 3.11(d) contains a complete and accurate list of all employee manuals
and all material policies, procedures and work-related rules (the "Employee
Policies and Procedures") that apply to employees of the Company. The Company
has provided or made available to Vision 21 a copy of all written Employee
Policies and Procedures and a written description of all material unwritten
Employee Policies and Procedures.
e. Unwritten Amendments. Except as
described on Schedule 3.11(b), 3.11(c), or 3.11(d), no material unwritten
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans or Employee Policies and
Procedures.
f. Labor Compliance. The Company has
been and is in compliance with all applicable laws, rules, regulations and
ordinances respecting employment and employment practices, terms and conditions
of employment and wages and hours, except for any such failures to be in
compliance that, individually or in the aggregate, would not result in a
Material Adverse Effect, and the Company is not liable for any arrearages of
wages or penalties for failure to comply with any of the foregoing. The
Company has not engaged in any unfair labor practices or discriminated on the
basis of race, color, religion, sex, national origin, age, disability or
handicap in its employment conditions or practices that would, individually or
in the aggregate, result in a Material Adverse Effect. Except as set forth on
Schedule 3.11(f), there are no (i) unfair labor practice charges or complaints
or racial, color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to
14
<PAGE> 18
the actual knowledge of the Company and the Physician, threatened against the
Company before any federal, state or local court, board, department, commission
or agency (nor, to the knowledge of the Company and the Physician, does any
valid basis therefor exist) or (ii) existing or, to the actual knowledge of the
Company and the Physician, threatened labor strikes, disputes, grievances,
controversies or other labor troubles affecting the Company (nor, to the best
knowledge of the Company and the Physician, does any valid basis therefor
exist).
g. Unions. The Company has never been a
party to any agreement with any union, labor organization or collective
bargaining unit. No employees of the Company are represented by any union,
labor organization or collective bargaining unit. Except as set forth on
Schedule 3.11(g), to the actual knowledge of the Company, none of the employees
of the Company has threatened to organize or join a union, labor organization
or collective bargaining unit.
h. Aliens. All employees of the Company
are, to the best knowledge of the Company, citizens of, or are authorized in
accordance with federal immigration laws to be employed in, the United States.
3.12. Employee Benefit Plans.
a. Identification. Schedule 3.12(a)
contains a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three (3) years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Vision 21 copies of all plan
documents, determination letters, pending determination letter applications,
trust instruments, insurance contracts, administrative services contracts,
annual reports, actuarial valuations, summary plan descriptions, summaries of
material modifications, administrative forms and other documents that
constitute a part of or are incident to the administration of the Employee
Benefit Plans. In addition, the Company has provided or made available to
Vision 21 a written description of all existing practices engaged in by the
Company that constitute Employee Benefit Plans. Except as set forth on
Schedule 3.12(a) and subject to the requirements of the Code and ERISA, each of
the Employee Benefit Plans can be terminated or amended at will by the Company.
Except as set forth on Schedule 3.12(a), no unwritten amendment exists with
respect to any Employee Benefit Plan. Except as set forth on Schedule
3.12(b)-(l), each of the following paragraphs is true and correct.
b. Administration. Each Employee Benefit
Plan has been administered and maintained in compliance with all applicable
laws, rules and regulations, except where the failure to be in compliance would
not, individually or in the aggregate, result in a Material Adverse Effect.
The Company and the Physician have (i) made all necessary filings with respect
to such Employee Benefit Plans, including the timely filing of Form 5500 if
applicable, and (ii) made all necessary filings, reports and disclosures
pursuant to and have
15
<PAGE> 19
complied with all requirements of the IRS Voluntary Compliance Resolution
Program, if applicable, with respect to all profit sharing retirement plans and
pension plans in which employees of the Company participate.
c. Examinations. Except as set forth on
Schedule 3.12(c), the Company has not received any notice that any Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency.
d. Prohibited Transactions. No
prohibited transactions (within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA) have occurred with respect to any Employee
Benefit Plans.
e. Claims and Litigation. No pending or,
to the actual knowledge of the Company and the Physician, threatened claims,
suits, or other proceedings exist with respect to any Employee Benefit Plan
other than normal benefit claims filed by participants or beneficiaries.
f. Qualification. As set forth in more
detail on Schedule 3.12(f), the Company has received a favorable determination
letter or ruling from the IRS for each of the Employee Benefit Plans intended
to be qualified within the meaning of Section 401(a) of the Code and/or
tax-exempt within the meaning of Section 501(a) of the Code. Except as set
forth on Schedule 3.12(f), no proceedings exist or, to the actual knowledge of
the Company have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
g. Funding Status. No accumulated
funding deficiency (within the meaning of Section 412 of the Code), whether or
not waived, exists with respect to any Employee Benefit Plan or any plan
sponsored by any member of a controlled group (within the meaning of Section
412(n)(6)(B) of the Code) in which the Company is a member ("Controlled
Group"). With respect to each Employee Benefit Plan subject to Title IV of
ERISA, the assets of each such plan are at least equal in value to the present
value of accrued benefits determined on an ongoing basis as of the date hereof.
The Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Code. None of the Employee Benefit Plans are subject to
actuarial assumptions.
h. Excise Taxes. Neither the Company nor
any member of a Controlled Group has any liability to pay excise taxes with
respect to any Employee Benefit Plan under applicable provisions of the Code or
ERISA.
i. Multiemployer Plans. Neither the
Company nor any member of a Controlled Group is or ever has been obligated to
contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
16
<PAGE> 20
j. Pension Benefit Guaranty Corporation.
None of the Employee Benefit Plans are subject to the requirements of Title IV
of ERISA.
k. Retirees. The Company has no
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who may retire or any of its former
employees who have retired except as may be required pursuant to the
continuation of coverage provisions of Section 4980B of the Code and Sections
501 through 508 of ERISA.
l. Other Compensation. Except as set
forth on Schedule 3.11(a), 3.11(b), 3.11(c), 3.11(d) and 3.12(a), neither the
Company, the Physician nor any Professional Employee is a party to any
compensation or debt arrangement with any person relating to the provision of
healthcare related services other than arrangements with the Company or the
Physician.
3.13. Absence of Certain Changes. Except as set forth
on Schedule 3.13 or as contemplated in this Agreement, since the Company
Balance Sheet Date, the Company has not:
a. suffered a Material Adverse Effect,
whether or not caused by any deliberate act or omission of the Company or the
Physician;
b. contracted for the purpose of
acquiring any capital asset having a cost in excess of $5,000 or made any
single expenditure in excess of $5,000;
c. incurred any indebtedness for borrowed
money (other than short-term borrowings in the ordinary course of business), or
issued or sold any debt securities;
d. incurred or discharged any material
liabilities or obligations except in the ordinary course of business;
e. paid any amount on any indebtedness
prior to the due date, forgiven or cancelled any claims or any debt in excess
of $5,000, or released or waived any rights or claims except in the ordinary
course of business;
f. mortgaged, pledged or subjected to any
security interest, lien, lease or other charge or encumbrance any of its
properties or assets (other than statutory liens arising in the ordinary course
of business or other liens that do not materially detract from the value or
interfere with the use of such properties or assets);
g. suffered any damage or destruction to
or loss of any assets (whether or not covered by insurance) that has,
individually or in the aggregate, resulted in a Material Adverse Effect;
17
<PAGE> 21
h. acquired or disposed of any assets
having an aggregate value in excess of $5,000, except in the ordinary course of
business;
i. written up or written down the
carrying value of any of its assets, other than accounts receivable in the
ordinary course of business;
j. changed the costing system or
depreciation methods of accounting for its assets in any material respect;
k. lost or terminated any employee,
patient, customer or supplier that has, individually or in the aggregate,
resulted in a Material Adverse Effect;
l. increased the compensation of any
director, officer, key employee or consultant, except as disclosed on Schedule
3.11(a);
m. increased the compensation of any
employee (except for increases in the ordinary course of business consistent
with past practice) or hired any new employee who is expected to receive
annualized compensation of at least $15,000;
n. made any payments to or loaned any
money to any person or entity referred to in Section 3.25;
o. formed or acquired or disposed of any
interest in any corporation, partnership, joint venture or other entity;
p. redeemed, purchased or otherwise
acquired, or sold, granted or otherwise disposed of, directly or indirectly,
any of its capital stock or securities, or agreed to change the terms and
conditions of any such capital stock, securities or rights;
q. entered into any agreement providing
for total payments in excess of $5,000 in any twelve (12) month period with any
person or group, or modified or amended in any material respect the terms of
any such existing agreement, except in the ordinary course of business;
r. entered into, adopted or amended any
Employee Benefit Plan, except as contemplated hereby or the other agreements
contemplated hereby; or
s. entered into any other commitment or
transaction or experienced any other event that would materially interfere with
its performance under this Agreement or any other agreement or document
executed or to be executed pursuant to this Agreement, or otherwise has,
individually or in the aggregate, resulted in a Material Adverse Effect.
18
<PAGE> 22
3.14. Title; Leased Assets.
a. Real Property. The Company does not
own any interest (other than leasehold interests referred to on Schedule
3.14(c)) in real property. The leased real property referred to on Schedule
3.14(c) constitutes the only real property necessary for the conduct of the
Company's business.
b. Personal Property. Except as set
forth on Schedule 3.14(b), the Company and/or the Physician has good, valid and
marketable title to all the personal property constituting the Nonmedical
Assets. The personal property constituting the Nonmedical Assets constitute
the only personal property necessary for the conduct of the Company's business
(except for the Medical Assets). Upon consummation of the transactions
contemplated hereby, such interest in the Nonmedical Assets shall be free and
clear of all security interests, liens, claims and encumbrances, other than
those set forth on Schedule 3.14(b) (the "Permitted Encumbrances") and
statutory liens arising in the ordinary course of business or other liens that
do not materially detract from the value or interfere with the use of such
properties or assets.
c. Leases. A list and brief description
of (i) all leases of real property and (ii) leases of personal property
involving rental payments within any twelve (12) month period in excess of
$12,000, in either case to which the Company is a party, either as lessor or
lessee, are set forth on Schedule 3.14(c). All such leases are valid and, to
the knowledge of the Company, enforceable in accordance with their respective
terms except as may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally or the availability of equitable
remedies.
3.15. Commitments.
a. Commitments; Defaults. Except as set
forth on Schedule 3.15 or as otherwise disclosed pursuant to this Agreement,
the Company is not a party to nor bound by, nor are any of the shares of
Company Common Stock subject to, nor are the Nonmedical Assets or the assets or
the business of the Company bound by, whether or not in writing, any of the
following (collectively, "Commitments"):
i) partnership or joint
venture agreement;
ii) guaranty or suretyship,
indemnification or contribution agreement or performance bond;
iii) debt instrument, loan
agreement or other obligation relating to indebtedness for borrowed money or
money lent or to be lent to another;
iv) contract to purchase real
property;
19
<PAGE> 23
v) agreement with dealers or
sales or commission agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with this Agreement and the
transactions contemplated hereby) involving total payments within any twelve
(12) month period in excess of $2,000 and which is not terminable on thirty
(30) days' notice or without penalty;
vi) agreement relating to any
material matter or transaction in which an interest is held by a person or
entity that is an Affiliate of the Company or the Physician;
vii) agreement for the
acquisition of services, supplies, equipment, inventory, fixtures or other
property involving more than $2,000 in the aggregate;
viii) powers of attorney;
ix) contracts containing
non-competition covenants;
x) agreement providing for the
purchase from a supplier of all or substantially all of the requirements of the
Company of a particular product or services;
xi) agreements regarding
clinical research;
xii) agreements with Payors and
contracts to provide medical or health care services; or
xiii) any other agreement or
commitment not made in the ordinary course of business or that is material to
the business, operations, condition (financial or otherwise) or results of
operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Vision 21 and the Subsidiary. Except as set
forth on Schedule 3.15 and to the Company's best knowledge, there are no
existing or asserted defaults, events of default or events, occurrences, acts
or omissions that, with the giving of notice or lapse of time or both, would
constitute defaults by the Company or, to the best knowledge of the Company,
any other party to a material Commitment, and no penalties have been incurred
nor are amendments pending, with respect to the material Commitments, except as
described on Schedule 3.15. The Commitments are in full force and effect and
are valid and enforceable obligations of the Company, and to the best knowledge
of the Company, are valid and enforceable obligations of the other parties
thereto, in accordance with their respective terms, and no defenses, off-sets
or counterclaims have been asserted or, to the best knowledge of the Company,
may be made by any party thereto (other than the Company), nor has the Company
waived any rights thereunder, except as described on Schedule 3.15. Except as
set forth on Schedule 3.15, no consents or
20
<PAGE> 24
approvals are required under the terms of any agreement listed on Schedule 3.15
in connection with the transactions contemplated herein; including without
limitation the Merger.
b. No Cancellation or Termination of
Commitment. Except as disclosed pursuant to this Agreement or contemplated
hereby, and except where such default would not have a Material Adverse Effect
on the business, (i) neither the Company nor the Physician has received notice
of any plan or intention of any other party to any Commitment to exercise any
right to cancel or terminate any Commitment, and the Company does not know of
any fact that would justify the exercise of such a right; and (ii) neither the
Company nor the Physician currently contemplates, or has reason to believe any
other person currently contemplates, any amendment or change to any Commitment.
3.16. Insurance. The Company, the Physician and each
Professional Employee carries property, liability, malpractice, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described on Schedule 3.16 (the "Insurance
Policies"). The Insurance Policies are all of the insurance policies of the
Company, the Physician and each Professional Employee relating to the business
of the Company and the Nonmedical Assets. All of the Insurance Policies are
issued by insurers of recognized responsibility, and, to the best knowledge of
the Company, are valid and enforceable policies, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. All Insurance Policies
shall be maintained in force without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided or made available to Vision 21. Except as set forth on Schedule
3.16, neither the Company nor the Physician has received any notice or other
communication from any issuer of any Insurance Policy cancelling such policy,
materially increasing any deductibles or retained amounts thereunder, and to
the actual knowledge of the Company, no such cancellation or increase of
deductibles, retainages or premiums is threatened. Except as set forth on
Schedule 3.16, neither the Company, the Physician nor any Professional Employee
has any outstanding claims, settlements or premiums owed against any Insurance
Policy, and the Company, the Physician and each Professional Employee has given
all notices or has presented all potential or actual claims under any Insurance
Policy in due and timely fashion. Except as set forth on Schedule 3.16, since
January 1, 1994, neither the Company, the Physician nor any Professional
Employee has filed a written application for any professional liability
insurance coverage which has been denied by an insurance agency or carrier, and
the Company, the Physician and each Professional Employee has been continuously
insured for professional malpractice claims for at least the past seven (7)
years (or such shorter periods of time that any Professional Employee has been
licensed to practice medicine). Schedule 3.16 also sets forth a list of all
claims under any Insurance Policy in excess of $10,000 per occurrence filed by
the Company, the Physician and each Professional Employee since January 1,
1994.
3.17. Proprietary Rights and Information. Set forth on
Schedule 3.17 is a true and correct description of the following ("Proprietary
Rights"):
21
<PAGE> 25
a. all trademarks, trade-names, service
marks and other trade designations, including common law rights, registrations
and applications therefor, and all patents and applications therefor currently
owned, in whole or in part, by the Company, and all licenses, royalties,
assignments and other similar agreements relating to the foregoing to which the
Company is a party (including the expiration date thereof if applicable); and
b. all agreements relating to technology,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other healthcare providers), or which it licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, such ownership or use does not conflict,
infringe or violate the rights of any other person. Except as disclosed on
Schedule 3.17, no consent of any person will be required for the use thereof by
Vision 21 upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or for infringement by the Company of the
proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. To the best knowledge of the Company and the
Physician, the Company has the right to use, free and clear of any adverse
claims or rights of others, all trade secrets, customer lists and proprietary
information required for the marketing of all merchandise and services formerly
or presently sold or marketed by it.
3.18. Taxes.
a. Filing of Tax Returns. The Company
has duly and timely filed (in accordance with any extensions duly granted by
the appropriate governmental agency, if applicable) with the appropriate
governmental agencies all federal, state, local or foreign income, excise,
corporate, franchise, property, sales, use, payroll, withholding, provider,
value added and other tax returns and reports (collectively the "Tax Returns")
required to be filed by the United States or any state or any political
subdivision thereof or any foreign jurisdiction. All such Tax Returns or
reports are complete and accurate in all material respects and properly reflect
the taxes of the Company for the periods covered thereby.
b. Payment of Taxes. Except for such
items as the Company may be disputing in good faith by proceedings in
compliance with applicable law, which are described on Schedule 3.18, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records for all of the same that have not yet become
due, and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
c. No Pending Deficiencies,
Delinquencies, Assessments or Audits. Except as set forth on Schedule 3.18,
the Company has not received any notice that any tax deficiency or delinquency
has been asserted against the Company. There is no unpaid
22
<PAGE> 26
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the taxes of the Company that could be asserted by any taxing
authority. There is no taxing authority audit of the Company pending, or to
the actual knowledge of the Company, threatened, and the results of any
completed audits are properly reflected in the Financial Statements. The
Company has not, to its best knowledge, violated any federal, state, local or
foreign tax law.
d. No Extension of Limitation Period.
The Company has not granted an extension to any taxing authority of the
limitation period during which any tax liability may be assessed or collected.
e. All Withholding Requirements
Satisfied. All monies required to be withheld by the Company and paid to
governmental agencies for all income, social security, unemployment insurance,
sales, excise, use, and other taxes have been collected or withheld and paid to
the respective governmental agencies.
f. Foreign Person. Neither the Company
nor the Physician is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
g. Safe Harbor Lease. None of the
Nonmedical Assets constitutes property that the Company, Vision 21, or any
Affiliate of Vision 21, will be required to treat as being owned by another
person pursuant to the "Safe Harbor Lease" provisions of Section 168(f)(8) of
the Code prior to repeal by the Tax Equity and Fiscal Responsibility Act of
1982.
h. Tax Exempt Entity. None of the assets
of the Company and none of the Nonmedical Assets are subject to a lease to a
"tax exempt entity" as such term is defined in Section 168(h)(2) of the Code.
i. Collapsible Corporation. The Company
has not at any time consented, and the Physician will not permit the Company to
elect, to have the provisions of Section 341(f)(2) of the Code apply to it.
j. Boycotts. The Company has not at any
time participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
k. Parachute Payments. No payment
required or contemplated to be made by the Company will be characterized as an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the
Code.
l. S Corporation. The Company has not
made an election to be taxed as an "S" corporation under Section 1362(a) of the
Code.
m. Personal Service Corporation. The
Company is not a personal service corporation subject to the provisions of
Section 269A of the Code.
23
<PAGE> 27
n. Personal Holding Company. The Company
is not or has not been a personal holding company within the meaning of Section
542 of the Code.
3.19. Compliance with Laws. The Company has not
failed, and neither the Company nor the Physician is aware of any failure by
the Physician or any Professional Employee to comply with all applicable laws,
regulations and licensing requirements relating to the operation of the
Practice or failure to file with the proper authorities all necessary
statements and reports except where the failure to so comply or file would not,
individually or in the aggregate, result in a Material Adverse Effect. There
are no existing violations by the Company, and neither the Company nor the
Physician is aware of any existing violations by the Physician or any
Professional Employee of any federal, state or local law or regulation that
could, individually or in the aggregate, result in a Material Adverse Effect.
The Company, the Physician and each Professional Employee possesses all
necessary licenses, franchises, permits and governmental authorizations for the
conduct of the Company's business as now conducted, all of which are listed
(with expiration dates, if applicable) on Schedule 3.19. Except as set forth
on Schedule 3.19, the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded by any such licenses, franchises, permits or
government authorizations, except for any such default, breach or violation
that would not, individually or in the aggregate, have a Material Adverse
Effect. Except as set forth on Schedule 3.19, since January 1, 1993, neither
the Company, the Physician nor, to the knowledge of the Company based on a
certificate in writing obtained from each Professional Employee, any
Professional Employee has received any notice from any federal, state or other
governmental authority or agency having jurisdiction over its, his or her
properties or activities, or any insurance or inspection body, that its, his or
her operations or any of its, his or her properties, facilities, equipment, or
business practices fail to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public or
quasi-public authority or body, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect.
3.20. Finder's Fee. Except as set forth on Schedule
3.20, the Company has not incurred any obligation for any finder's, brokers or
agent's fee in connection with the transactions contemplated hereby.
3.21. Litigation. Except as described on Section 3.21
or otherwise disclosed pursuant to this Agreement, there are no legal actions
or administrative proceedings or investigations instituted, to the actual
knowledge of the Company or the Physician threatened, which affect or could
affect the outstanding shares of Company Common Stock, the Nonmedical Assets
or the operation, business, condition (financial or otherwise), or results of
operations of the Company which (i) if successful could, individually or in the
aggregate, have a Material Adverse Effect or (ii) could adversely affect the
ability of the Company or the Physician to effect the transactions contemplated
hereby. Neither the Company nor the Physician is (a) subject to any continuing
court or administrative order, judgment, writ, injunction or decree applicable
specifically to the Nonmedical Assets, the Company or to its business, assets,
operations or employees or (b) in default with respect to any such order,
judgment, writ, injunction or decree.
24
<PAGE> 28
The Company has no knowledge of any valid basis for any such action, proceeding
or investigation. Except as set forth on Schedule 3.21, all medical
malpractice claims asserted, general liability incidents and incident reports
have been submitted to the Company's insurer therefor. All claims made or
threatened against the Company in excess of its deductible are covered under
its Insurance Policies.
3.22. Condition of Fixed Assets. All of the fixtures,
structures and equipment reflected in the Financial Statements and used by the
Company in its business, are in good condition and repair, subject to normal
wear and tear, and conform in all material respects with all applicable
ordinances, regulations and other laws, and the Company has no actual knowledge
of any latent defects therein.
3.23. Distributions and Repurchases. No distribution,
payment or dividend of any kind has been declared or paid by the Company on any
of its capital stock since the Company Balance Sheet Date. No repurchase of
any of the Company's capital stock has been approved, effected or is pending,
or is contemplated by the Board of Directors of the Company.
3.24. Banking Relations. Set forth on Schedule 3.24 is
a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the
person or persons authorized in respect thereof.
3.25. Ownership Interests of Interested Persons;
Affiliations. Except as set forth on Schedule 3.25, no officer, supervisory
employee or director of the Company, or their respective spouses, children or
Affiliates, owns directly or indirectly, on an individual or joint basis, any
interest in, has a compensation or other financial arrangement with, or serves
as an officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the Company.
Except as may be disclosed pursuant to this Agreement, neither the Company, nor
any of its directors, officers, employees or consultants, nor any Affiliate of
such person is, or within the last three (3) years was, a party to any
contract, lease, agreement or arrangement, including, but not limited to, any
joint venture or consulting agreement with any physician, hospital, pharmacy,
home health agency or other person which is in a position to make or influence
referrals to, or otherwise generate business for, the Company.
3.26. Investments in Competitors. Except as disclosed
on Schedule 3.26, neither the Company nor the Physician owns directly or
indirectly any interests or has any investment in any person that is a
Competitor of the Company.
25
<PAGE> 29
3.27. Environmental Matters.
a. Environmental Laws. To the best
knowledge of the Company and the Physician, neither the Company nor any of the
Non-medical assets (including the leased real property described on Schedule
3.14(c)) are currently in violation of, or subject to any existing, pending or,
to the actual knowledge of the Company threatened, investigation or inquiry by
any governmental authority or to any remedial obligations under, any federal,
state or local laws or regulations pertaining to health or the environment
("Environmental Laws"), except for any such violations, investigations or
inquiries that would not, individually or in the aggregate, result in a
Material Adverse Effect.
b. Permits. The Company is not required
to obtain, and has no knowledge of any reason Vision 21 or the Surviving
Corporation will be required to obtain, any permits, licenses or similar
authorizations to occupy, operate or use any buildings, improvements, fixtures
and equipment owned or leased by the Company by reason of any Environmental
Laws.
c. Superfund List. To the best knowledge
of the Company, none of the Nonmedical Assets (including the Company's leased
real property described on Schedule 3.14(c)) are on any federal or state
"Superfund" list or subject to any environmentally related liens, except such
liens as would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.28. Certain Payments. Neither the Company nor any
director, officer or employee of the Company acting for or on behalf of the
Company, has paid or caused to be paid, directly or indirectly, in connection
with the business of the Company:
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds of directors, officers or
employees not reimbursed by their respective employers or as otherwise
permitted by applicable law).
3.29. Medical Waste. With respect to the generation,
transportation, treatment, storage, and disposal, or other handling of medical
waste, to the best knowledge of the Company and the Physician, the Company has
complied with all material federal, state or local laws or regulations
pertaining to medical waste.
3.30. Medicare and Medicaid Programs. The Company, the
Physician and each Professional Employee is qualified for participation in the
Medicare and Medicare programs and is party to provider agreements for such
programs which are in full force and effect with no events of default having
occurred thereunder. The Company, the Physician and each Professional Employee
has timely filed all claims or other reports required to be filed prior to
26
<PAGE> 30
the Closing Date with respect to the purchase of services by third-party payors
("Payors"), including but not limited to Medicare and Medicaid programs, except
where the failure to file would not, individually or in the aggregate, result
in a Material Adverse Effect. All such claims or reports are complete and
accurate in all material respects. The Company, the Physician and each
Professional Employee has paid or has properly recorded on the Financial
Statements all actually known and undisputed refunds, discounts or adjustments
which have become due pursuant to such claims, and neither the Company, the
Physician nor any Professional Employee has any material liability to any Payor
with respect thereto, except as has been reserved for in the Company Balance
Sheet. There are no pending appeals, overpayment determinations, adjustments,
challenges, audits, litigation, or notices of intent to reopen Medicare and/or
Medicaid claims determinations or other reports required to be filed by the
Company, the Physician or any Professional Employee in order to be paid by a
Payor for services rendered. Neither the Company, nor any of its directors,
officers, employees, consultants or the Physician has been convicted of, or
pled guilty or nolo contendere to, patient abuse or neglect, or any other
Medicare or Medicaid program-related offense. Neither the Company, nor its
directors, officers, the Physician, or to the best of the Company's knowledge,
its employees or consultants, has committed any offense which may serve as the
basis for suspension or exclusion from the Medicare and Medicaid programs,
including but not limited to, defrauding a government program, loss of a
license to provide health services, and failure to provide quality care.
3.31. Fraud and Abuse. To the best knowledge of the
Company and the Physician, the Company, its officers and directors, the
Professional Employees, and the other persons and entities providing
professional services for the Company, have not engaged in any activities which
are prohibited under 42 U.S.C. Section Section 1320-7, 7a or 7b or 42 U.S.C.
Section 1395nn (subject to the exceptions set forth in such legislation), or
the regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including but not limited to the following:
a. knowingly and willfully making or
causing to be made a false statement or representation of a material fact in
any application for any benefit or payment;
b. knowingly and willfully making or
causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment;
c. failure to disclose knowledge by a
Medicare or Medicaid claimant of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with intent to fraudulently secure such benefit or payment;
d. knowingly and willfully offering,
paying, soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind (i) in return for referring an individual to a person for the furnishing
or arranging for the furnishing of any item or service for which payment may be
27
<PAGE> 31
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part by Medicare or Medicaid; and
e. referring a patient for designated
health services (as defined in 42 U.S.C. Section 1395nn) to or providing
designated health services to a patient upon a referral from an entity or
person with which the Physician or the Professional Employee or an immediate
family member has a financial relationship, and to which no exception under 42
U.S.C. Section 1395nn applies.
3.32. Payors. Schedule 3.32 sets forth a true, correct
and complete list of the names and addresses of each Payor, including any
private pay patient as a single payor, of the Company's services which
accounted for more than 10% of the revenues of the Company in the three (3)
previous fiscal years. Except as set forth on Schedule 3.32, the Company has
good relations with such Payors and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any claims submitted to such Payor for payment.
3.33. Prohibitions on the Corporate Practice of
Medicine. To the best of the Company's and the Physician's knowledge, the
actions, transactions or relationships arising from, and contemplated by this
Agreement, do not violate any law, rule or regulation relating to the corporate
practice of medicine. The Company and the Physician accordingly agree that the
Company, the Physician and New P.C. will not, in an attempt to void or nullify
any document contemplated herein or any relationship involving Vision 21, the
Subsidiary or the Company or the Physician or New P.C., sue, claim, aver,
allege or assert that any such document contemplated herein or any such
relationship violates any law, rule or regulation relating to the corporate
practice of medicine and expressly warrant that this Section is valid and
enforceable by Vision 21 and the Subsidiary, and recognize that Vision 21 and
the Subsidiary have relied upon the statements herein in closing the
transaction.
3.34. Acquisition Proposals. Except for the
negotiations, offers and agreements with Vision 21 and its representatives, the
Company has not received during the twelve (12) month period preceding the date
of this Agreement any proposal or offer (including, without limitation, any
proposal or offer of its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") nor has the Company or any of its employees, agents, representatives
or stockholders engaged in any negotiations concerning, or provided any
confidential information or data to, or had any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitated any effort or
attempted to make or implement an Acquisition Proposal.
28
<PAGE> 32
3.35. Investment Company Status. The Company is not
currently, nor has it ever been, an "investment company" as that term is
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.36. Equal Exchange; Consistent Treatment of Expenses.
Physician and the Company believe that the fair market value of all the Company
Common Stock shall be approximately equal to the fair market value of the
Merger Consideration at the Effective Time. The Company has, in presenting
information concerning the Company's and New P.C.'s expenses to Vision 21 for
the purpose of determining the Company's value, separated out those expenses
which shall be borne by New P.C. in a manner which is consistent with the
treatment of expenses which shall be the responsibility of New P.C. pursuant to
the Business Management Agreement.
3.37. Insolvency Proceedings. The Company is not
currently under the jurisdiction of a Federal or state court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
3.38. Positive Net Worth. On the Closing Date the fair
market value of the assets of the Company will equal or exceed the sum of the
liabilities of the Company plus the amount of any other liabilities to which
the assets of the Company are subject.
3.39. Accounts Receivable/Payable. The accounts
receivable of the Company relating to the ownership and operation of the
Practice reflected on the Company Balance Sheet, to the extent uncollected on
the date hereof, are, and the accounts receivable of the Company relating to
the ownership and operation of the Practice to be reflected on the books of the
Company on the Closing Date (the "Accounts Receivable") will be, valid,
existing and collectible within six months from the Closing Date (taking into
consideration the allowance for doubtful accounts set forth in the Financial
Statements) using reasonably diligent collection methods taking into account
the size and nature of the receivable, and represent amounts due for goods sold
and delivered or services performed. There are not, and on the date of Closing
there will not be, any refunds, discounts, set-offs, defenses, counterclaims or
other adjustments payable or assessable with respect to the Accounts
Receivable. The Company has collected Accounts Receivable only in the ordinary
course and has not changed collection procedures or methods nor accelerated the
pace of such collection efforts in anticipation of the transactions
contemplated in this Agreement. The Company has paid accounts payable in the
ordinary course and has not changed payment procedures or methods nor delayed
the timing of such payments in anticipation of the transactions contemplated in
this Agreement.
3.40. Projections. There is no fact, development or
threatened development with respect to the markets, products, services,
clients, patients, facilities, personnel, vendors, suppliers, operations,
assets or prospects of the Practice which are known to the Company or the
Physician which would materially adversely affect the projected fiscal year
1997 earnings of New P.C. disclosed to Vision 21 by Physician, other than such
conditions as may affect as a whole the economy or the practice of medicine
generally.
29
<PAGE> 33
3.41. Disclosure. To the best of the Company's and the
Physician's knowledge, no representation, warranty or statement made by the
Company or the Physician in this Agreement or any of the exhibits or schedules
hereto, or any agreements, certificates, documents or instruments delivered or
to be delivered to Vision 21 and the Subsidiary in accordance with this
Agreement or the other documents contemplated herein, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. The
Company and the Physician do not know of any fact or condition (other than
general economic conditions or legislative or administrative changes in
health-care delivery) which materially adversely affects, or in the future may
materially affect, the condition, properties, assets, liabilities, business,
operations or prospects of the Practice which has not been set forth herein or
in the Schedules provided herewith.
4. REPRESENTATIONS AND WARRANTIES OF THE PHYSICIAN. The
Physician represents and warrants to Vision 21 and the Subsidiary that the
following are true and correct as of the date hereof, and shall be true and
correct through the Closing Date as if made on that date:
4.1. Validity; Physician Capacity. This Agreement,
the Physician Employment Agreement, and each other agreement contemplated
hereby or thereby have been, or will be as of the Closing Date, duly executed
and delivered by the Physician and constitute or will constitute legal, valid
and binding obligations of the Physician, enforceable against the Physician in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies. The Physician has legal capacity to
enter into and perform this Agreement and his Physician Employment Agreement.
4.2. No Violation. Except as set forth on Schedule
4.2, neither the execution, delivery or performance of this Agreement, other
agreements of the Physician contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby or thereby, will (a)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture or other
instrument under which the Physician is bound or to which any of his property
or the shares of Company Common Stock are subject, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon any of
his property or the shares of Company Common Stock or (b) to the best knowledge
of the Physician, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body.
4.3. Personal Holding Company. The Physician does not
own the shares of Company Common Stock, directly or indirectly, beneficially or
of record, through a personal holding company.
30
<PAGE> 34
4.4. Transfers of the Company Common Stock. Set forth
on Schedule 4.4 is a list of all transfers or other transactions involving
capital stock of the Company since January 1, 1994. All transfers of Company
Common Stock by the Physician have been made for valid business reasons and not
in anticipation or contemplation of the consummation of the transactions
contemplated by this Agreement.
4.5. Consents. Except as may be required under the
Exchange Act, the Securities Act, the Corporation Law and state securities
laws, or otherwise disclosed pursuant to this Agreement, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, or any other person is required to authorize, or
is required in connection with, the execution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the Physician.
4.6. Certain Payments. The Physician has not paid or
caused to be paid, directly or indirectly, in connection with the business of
the Company:
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds not reimbursed by the
Company or as otherwise permitted by applicable law).
4.7. Finder's Fee. Except as set forth on Schedule
4.7, the Physician has not incurred any obligation for any finder's, broker's
or agent's fee in connection with the transactions contemplated hereby.
4.8. Ownership of Interested Persons; Affiliations.
Except as set forth on Schedule 4.8, neither the Physician nor his spouse,
children or Affiliates, owns directly or indirectly, on an individual or joint
basis, any interest in, has a compensation or other financial arrangement with,
or serves as an officer or director of, any customer or supplier of the Company
or any organization that has a material contact or arrangement with the
Company. Neither the Physician nor any of his Affiliates is, or with the last
three (3) years was, a party to any contract, lease, agreement or arrangement,
including, but not limited to, any joint venture or consulting agreement with
any physician, hospital, pharmacy, home health agency or other person which is
in a position to make or influence referrals to, or otherwise generate business
for, the Company.
4.9. Investments in Competitors. Except as disclosed
on Schedule 4.9, the Physician does not own directly or indirectly any
interests or have any investment in any person that is a Competitor of the
Company.
4.10. Litigation. Except as disclosed on Schedule
4.10, there are no claims, actions, suits, proceedings (arbitration or
otherwise) or investigations pending or, to the
31
<PAGE> 35
Physician's knowledge, threatened against the Physician at law or at equity in
any court or before or by any Governmental Authority, and, to the Physician's
knowledge, there are no, and have not been any, facts, conditions or incidents
that may result in any such actions, suits, proceedings (arbitration or
otherwise) or investigations. Except as set forth on Schedule 4.10, there have
been no disciplinary, revocation or suspension proceedings or similar types of
claims, actions or proceedings, hearings or investigations against the
Physician or the Company.
4.11. Permits. To the best of the Physician's
knowledge, the Physician has all permits, licenses, orders and approvals of all
Governmental Authorities necessary to perform the services performed by the
Physician in connection with the conduct of the Practice. All such permits,
licenses, orders and approvals are in full force and effect and no suspension
or cancellation of any of them is pending or threatened. To the best of the
Physician's knowledge, none of such permits, licenses, orders or approvals will
be adversely affected by the consummation of the transactions contemplated
herein. The Physician is a participating physician, as such term is defined by
the Medicare and Medicaid programs, and the Physician has not been disciplined,
sanctioned or excluded from either the Medicare or Medicaid programs and has
not been subject to any plan of correction imposed by any professional review
body.
4.12. Staff Privileges. Schedule 4.12 lists all
hospitals at which the Physician has full staff privileges. Such staff
privileges have not been revoked, surrendered, suspended or terminated, and to
the Physician's knowledge, there are no, and have not been any, facts,
conditions or incidents that may result in any such revocation, surrender,
suspension or termination.
4.13. Intentions. Except as set forth on Schedule
4.13, the Physician intends to continue practicing medicine on a full-time
basis for at least the next five (5) years with the Company and does not know
of any fact or condition that materially adversely affects, or in the future
may materially adversely affect, his ability or intention to practice medicine
on a full-time basis for the next five (5) years with the Company.
5. REPRESENTATIONS AND WARRANTIES OF VISION 21 AND THE
SUBSIDIARY. Vision 21 and the Subsidiary, jointly and severally, represent and
warrant to the Company and the Physician that the following are true and
correct as of the date hereof and shall be true and correct as of the Closing
Date; when used in this Section 5, the term "best knowledge" shall mean the
best knowledge of those individuals listed on Schedule 5:
5.1. Organization and Good Standing. Vision 21 and
the Subsidiary are corporations duly organized, validly existing and in good
standing under the laws of the State of Florida, with all requisite corporation
power and authority to carry on the business in which they are engaged, to own
the properties they own, to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. At or prior to Closing,
Vision 21 and the Subsidiary will be qualified to do business as a foreign
corporation in the jurisdictions listed on Schedule 5.1.
32
<PAGE> 36
5.2. Capitalization. The authorized capital stock of
Vision 21 consists of 50,000,000 shares of Vision 21 Common Stock, of which
5,465,673 shares are issued and outstanding. Immediately prior to the Closing,
the authorized capital stock of Vision 21 will consist of 50,000,000 shares of
Vision 21 Common Stock, of which 5,465,673 shares will be issued and
outstanding.
5.3. Corporate Records. The copies of the Articles of
Incorporation and Bylaws, and all amendments thereto, of Vision 21 and the
Subsidiary that have been delivered or made available to the Company and the
Physician are true, correct and complete copies thereof, as in effect on the
date hereof (provided, however, that the Articles of Incorporation and Bylaws
of the Subsidiary shall be in effect on the Closing Date). The minute books of
Vision 21 and the Subsidiary, copies of which have been delivered or made
available to the Company and the Physician, contain accurate minutes of all
meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the stockholders of
Vision 21 and the Subsidiary, since their formation.
5.4. Authorization and Validity. The execution,
delivery and performance by Vision 21 and the Subsidiary of this Agreement and
the other agreements contemplated hereby, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by
Vision 21 and the Subsidiary. This Agreement and each other agreement
contemplated hereby to be executed by Vision 21 and the Subsidiary have been or
will be as of the Closing Date duly executed and delivered by Vision 21 and the
Subsidiary and constitute or will constitute legal, valid and binding
obligations of Vision 21 and the Subsidiary, enforceable against Vision 21 and
the Subsidiary in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
5.5. Compliance. The execution and delivery of the
documents contemplated hereunder and the consummation of the transactions
contemplated thereby by Vision 21 and the Subsidiary shall not (i) violate any
provision of Vision 21's or the Subsidiary's organizational documents, (ii)
violate any material provision of or result in the breach of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any material obligation under, any mortgage, lien, lease, contract,
license, instrument or any other agreement to which Vision 21 or the Subsidiary
is a party, (iii) result in the creation or imposition of any material lien,
charge, pledge, security interest or other material encumbrance upon any
property of Vision 21 or the Subsidiary or (iv) violate or conflict with any
order, award, judgment or decree or other material restriction or to the best
of Vision 21's and the Subsidiary's knowledge violate or conflict with any law,
ordinance or regulation to which Vision 21 or the Subsidiary or their
respective property is subject.
5.6. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by
33
<PAGE> 37
Vision 21 and the Subsidiary or the consummation by such parties of the
transactions contemplated hereby, except for those consents or approvals set
forth on Schedule 5.6.
5.7. Finder's Fee. Except as disclosed on Schedule
5.7, neither Vision 21 nor the Subsidiary has incurred any obligation for any
finder's, broker's or agent's fee in connection with the transactions
contemplated hereby.
5.8. Capital Stock. The issuance and delivery by
Vision 21 of shares of Vision 21 Common Stock in connection with the Merger
have been duly and validly authorized by all necessary corporate action on the
part of Vision 21. The shares of Vision 21 Common Stock to be issued in
connection with the Merger, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable and will not
have been issued in violation of any preemptive rights, rights of first refusal
or similar rights of any of Vision 21's stockholders, or any federal or state
law, including, without limitation, the registration requirements of applicable
federal and state securities laws.
5.9. Continuity of Business Enterprise. It is the
present intention of the Subsidiary to continue at least one significant
historic business line of the Company, or to use at least a significant portion
of the Company's historic business assets in a business, in each case within
the meaning of Treasury Regulation Section 1.368- 1(d).
5.10. Vision 21 Financial Statements; Confidential
Information Memorandum. The balance sheet of Vision 21 as of September 30,
1996 and the related statements of income of Vision 21 for the first nine (9)
months of Vision 21's 1996 fiscal year, without giving effect to the Related
Acquisitions, including the costs incurred during such fiscal year associated
with any Registration Statement, shall be contained in the Confidential
Information Memorandum to be provided to the Physician and the Company by
Vision 21 prior to the Closing (collectively, with the related notes thereto,
the "Vision 21 Financial Statements"). The Vision 21 Financial Statements (a)
fairly present the financial condition and results of operations of Vision 21,
without giving effect to the Related Acquisitions, as of the dates and for the
periods indicated; and (b) have been prepared in conformity with GAAP (subject
to normal year-end adjustments and the absence of notes for any unaudited
interim financial statement), except as otherwise indicated in the Vision 21
Financial Statements. Subject to the foregoing and the other qualifications
contained elsewhere in this Agreement, to the best knowledge of Vision 21, the
Confidential Information Memorandum, as amended on December 17, 1996, is true
and correct in all material respects.
5.11. Liabilities and Obligations. Except as disclosed
on Schedule 5.11, the Vision 21 Financial Statements shall reflect all material
liabilities of Vision 21, accrued, contingent or otherwise, that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with GAAP. Except as set forth on Schedule 5.11 or in the Vision
21 Financial Statements, Vision 21 is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture,
34
<PAGE> 38
trust or other entity, and Vision 21 does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any amount.
5.12. Compliance with Laws. Vision 21 and the
Subsidiary have not failed to comply with any applicable laws, regulations and
licensing requirements or failed to file with the proper authorities any
necessary statements and reports except where the failure to so comply or file
would not, individually or in the aggregate, result in a Material Adverse
Effect. There are no existing violations by Vision 21 or the Subsidiary of any
federal, state or local law or regulation that could, individually or in the
aggregate, result in a Material Adverse Effect. Vision 21 and the Subsidiary
possess all necessary licenses, franchises, permits and governmental
authorizations for the conduct of Vision 21's and the Subsidiary's respective
businesses as now conducted and after the Closing, as contemplated by this
Agreement. The transactions contemplated by this Agreement will not result in
a default under or a breach or violation of, or adversely affect the rights and
benefits afforded by any such licenses, franchises, permits or government
authorizations, except for any such default, breach or violation that would
not, individually or in the aggregate, have a Material Adverse Effect. Since
January 1, 1993, Vision 21 and the Subsidiary have not received any notice from
any federal, state or other governmental authority or agency having
jurisdiction over their respective properties or activities, or any insurance
or inspection body, that their respective operations or any of their respective
properties, facilities, equipment, or business practices fail to comply with
any applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body, except where
failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect.
5.13. Insolvency Proceedings. Neither Vision 21 nor
the Subsidiary are currently under the jurisdiction of a Federal or state court
in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
5.14. Equal Exchange. Vision 21 and the Subsidiary
believe that the fair market value of all the Company Common Stock shall be
approximately equal to the fair market value of the Merger Consideration at the
Effective Time.
5.15. Employment of Company's Employees. Neither
Vision 21 nor the Subsidiary currently intends to change the existing
composition or employment terms of any of the non-professional personnel which
have employment arrangements with the Company on the effective date of this
Agreement (except as is necessary for the Subsidiary and/or Vision 21 to employ
such individuals pursuant to the Business Management Agreement). The
Subsidiary and Vision 21 reserve the right, however, to change the number,
composition or employment terms of such non-professional personnel in the
future.
35
<PAGE> 39
6. {INTENTIONALLY OMITTED}.
7. CLOSING DATE REPRESENTATIONS AND WARRANTIES OF THE
PHYSICIAN. The Physician represents and warrants that, except as disclosed in
the Schedules, the following will be true and correct on the Closing Date as if
made on that date:
7.1. Organization and Good Standing; Qualification.
New P.C. is a professional corporation duly organized, validly existing and in
good standing under the laws of the State, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own
the properties it intends to own, and to execute and deliver the Business
Management Agreement and the Physician Employment Agreements and consummate the
transactions and perform the services contemplated thereby. New P.C. is duly
qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such
qualification necessary.
7.2. Capitalization. The authorized capital stock of
New P.C. consists of __________ shares of New P.C. Common Stock, of which
__________ shares are issued and outstanding, and no shares of capital stock of
New P.C. are held in treasury. The Physician owns all of the issued and
outstanding shares of New P.C.'s common stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholders' agreements. Each outstanding share of New P.C.'s common stock
has been legally and validly issued and is fully paid and nonassessable. There
exist no options, warrants, subscriptions or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of New P.C. No shares of capital stock of New P.C. have
been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of New P.C.'s stockholders.
7.3. Corporate Records. The copies of the Articles or
Certificate of Incorporation and Bylaws, and all amendments thereto, of New
P.C. that have been delivered or made available to Vision 21 and the Subsidiary
are true, correct and complete copies thereof, as in effect on the Closing
Date. The minute books of New P.C., copies of which have been delivered or
made available to Vision 21 and the Subsidiary, contain accurate minutes of all
meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the stockholders of New
P.C. since its formation.
7.4. Authorization and Validity. The execution,
delivery and performance by New P.C. of the Business Management Agreement, the
Physician Employment Agreements, the Optometrist Employment Agreements and the
other agreements contemplated thereby, and the consummation of the transactions
and provisions of services contemplated thereby, have been duly authorized by
New P.C. The Business Management Agreement, the Physician Employment
Agreements, the Optometrist Employment Agreements and each other agreement
contemplated thereby will be as of the Closing Date duly executed and delivered
by New P.C. and will constitute legal, valid and binding obligations of New
P.C. enforceable against New P.C. in accordance with their respective terms,
except as may be limited by applicable bankruptcy,
36
<PAGE> 40
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies.
7.5. No Violation. Neither the execution, delivery or
performance of the Business Management Agreement, the Physician Employment
Agreements, the Optometrist Employment Agreements or the other agreements
contemplated thereby nor the consummation of the transactions or provision of
services contemplated thereby will (a) conflict with, or result in a violation
or breach of the terms, conditions or provisions of, or constitute a default
under, the Articles or Certificate of Incorporation or Bylaws of New P.C., or
(b) to the actual knowledge of the Physician, violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body.
7.6. No Business, Agreements, Assets or Liabilities.
New P.C. has not commenced business since its incorporation. Other than its
Articles or Certificate of Incorporation and Bylaws, and as of the Closing
Date, the Business Management Agreement, the Physician Employment Agreements,
the Optometrist Employment Agreements, the Employee Benefit Plans and the other
contracts or agreements listed on Schedule 7.6, New P.C. is not a party to or
subject to any agreement, indenture or other instrument. New P.C. does not own
any assets (tangible or intangible) other than the consideration received upon
the issuance of shares of capital stock and New P.C. does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted).
7.7. Compliance with Laws. New P.C. has complied with
all applicable laws, regulations and licensing requirements and has filed with
the proper authorities all necessary statements and reports, except where
failure to so comply or file would not, individually or in the aggregate, have
a material adverse effect on the business, operations or financial condition of
New P.C.
8. SECURITIES LAW MATTERS.
8.1. Investment Representations and Covenants of
Physician.
a. Physician understands that the
Securities will not be registered under the Securities Act or any state
securities laws on the grounds that the issuance of the Securities is exempt
from registration pursuant to Section 4(2) of the Securities Act under the
Securities Act and applicable state securities laws, and that the reliance of
Vision 21 on such exemptions is predicated in part on the Physician's
representations, warranties, covenants and acknowledgements set forth in this
Section.
b. Except as disclosed on Schedule 8.1(b)
attached hereto, Physician represents and warrants that Physician is an
"accredited investor" or "sophisticated investor" as defined under the
Securities Act and state "Blue Sky" laws, or that Physician has utilized, to
the extent necessary to be deemed a sophisticated investor under the Securities
Act and State "Blue Sky" laws, the assistance of a professional advisor.
37
<PAGE> 41
c. Physician represents and warrants that
the Securities to be acquired by Physician upon consummation of the
transactions described in this Agreement will be acquired by Physician for
Physician's own account, not as a nominee or agent, and without a view to
resale or other distribution within the meaning of the Securities Act and the
rules and regulations thereunder, except as contemplated in this Agreement, and
that Physician will not distribute any of the Securities in violation of the
Securities Act. All Securities shall bear a restrictive legend in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAWS."
In addition, the Securities shall bear any legend required by the
securities or "Blue Sky" laws of any state where Physician resides as well as
any other legend deemed appropriate by Vision 21 or its counsel.
d. Physician represents and warrants that
the address set forth below Physician's name on Schedule 8.1(d) is Physician's
principal residence.
e. Physician (i) acknowledges that the
Securities issued to Physician at the Closing must be held indefinitely by
Physician unless subsequently registered under the Securities Act or an
exemption from registration is available, (ii) is aware that any routine sales
of Securities made pursuant to Rule 144 under the Securities Act may be made
only in limited amounts and in accordance with the terms and conditions of that
Rule and that in such cases where the Rule is not applicable, compliance with
some other registration exemption will be required, (iii) is aware that Rule
144 is not currently available for use by Physician for resale of any of the
Securities to be acquired by Physician upon consummation of the transactions
described in this Agreement, and (iv) acknowledges and agrees that the transfer
of the Securities shall be further restricted by the "lock-up" provisions
contained in the Registration Rights Agreement in the form of Exhibit 14.1(o),
whereby Physician shall be treated as an "affiliate" of Vision 21 under Rule
144.
f. Physician represents and warrants to
Vision 21 that Physician, either alone or together with the assistance of
Physician's own professional advisor, has such knowledge and experience in
financial and business matters such that Physician is capable of evaluating the
merits and risks of Physician's investment in any of the Securities to be
acquired by Physician upon consummation of the transactions described in this
Agreement.
g. Physician confirms that Physician has
received and read the Confidential Information Memorandum of Vision 21 dated
September 27, 1996 and the December 17, 1996 Supplement thereto. Physician
also confirms that Physician has had the opportunity to ask questions of and
receive answers from Vision 21 concerning the terms and
38
<PAGE> 42
conditions of Physician's investment in the Securities, and the Physician has
received to Physician's satisfaction, such additional information, in addition
to that set forth herein, about Vision 21's operations and the terms and
conditions of the offering as Physician has requested.
h. In order to ensure compliance with the
provisions of paragraph (c) hereof, Physician agrees that after the Closing
Physician will not sell or otherwise transfer or dispose of Securities or any
interest therein (unless such shares have been registered under the Securities
Act) without first complying with either of the following conditions, the
expenses and costs of satisfaction of which shall be fully borne and paid for
by Physician:
i) Vision 21 shall have
received a written legal opinion from legal counsel, which opinion and counsel
shall be satisfactory to Vision 21 in the exercise of its reasonable judgment,
or a copy of a "no-action" or interpretive letter of the Securities and
Exchange Commission specifying the nature and circumstances of the proposed
transfer and indicating that the proposed transfer will not be in violation of
any of the registration provisions of the Securities Act and the rules and
regulations promulgated thereunder; or
ii) Vision 21 shall have
received an opinion from its own counsel to the effect that the proposed
transfer will not be in violation of any of the registration provisions of the
Securities Act and the rules and regulations promulgated thereunder.
Physician also agrees that the certificates or instruments representing the
Securities to be issued to Physician pursuant to this Agreement may contain a
restrictive legend noting the restrictions on transfer described in this
Section and required by federal and applicable state securities laws, and that
appropriate "stop-transfer" instructions will be given to Vision 21's transfer
agent, if any, provided that this Section 8.1(h) shall no longer be applicable
to any Securities following their transfer pursuant to a registration statement
effective under the Securities Act or in compliance with Rule 144 or if the
opinion of counsel referred to above is to the further effect that transfer
restrictions and the legend referred to herein are no longer required in order
to establish compliance with any provisions of the Securities Act.
i. Physician understands that although an
Initial Public Offering is contemplated by Vision 21, there are no assurances
that an Initial Public Offering will occur or if it does occur that it will be
successful.
j. Physician agrees that he shall be
considered an "affiliate" of Vision 21 for purposes of Rule 144 and agrees to
the restrictions and limitations imposed by Rule 144 on affiliates. Physician
further agrees that he shall be considered an affiliate of Vision 21 for Rule
144 purposes even if he does not meet the technical definition of "affiliate"
under Rule 144.
8.2. Current Public Information. At all times
following the registration of any of Vision 21's securities under the
Securities Act or Exchange Act pursuant to which
39
<PAGE> 43
Vision 21 becomes subject to the reporting requirements of the Exchange Act,
Vision 21 shall use commercially reasonable efforts to comply with the
requirements of Rule 144 under the Securities Act, as such Rule may be amended
from time to time (or any similar rule or regulation hereafter adopted by the
SEC) regarding the availability of current public information to the extent
required to enable any holder of shares of Common Stock to sell such shares
without registration under the Securities Act pursuant to Rule 144 (or any
similar rule or regulation).
9. COVENANTS OF THE COMPANY AND THE PHYSICIAN. The Company
and the Physician, jointly and severally, agree that between the date hereof
and the Closing (with respect to the Company's covenants, the Physician agrees
to use his best efforts to cause the Company to perform):
9.1. Consummation of Agreement. The Company and the
Physician shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or the
Physician to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
9.2. Business Operations. The Company shall operate
its business in the ordinary course. The Company and the Physician shall use
their best efforts to preserve the business of the Company intact. Neither the
Company nor the Physician shall take any action that would, individually or in
the aggregate, result in a Material Adverse Effect.
9.3. Access. The Company and the Physician shall, at
reasonable times during normal business hours and on reasonable notice, permit
Vision 21 and its authorized representatives, including without limitation, the
Accountants, reasonable access to, and make available for inspection, all of
the assets and business of the Company, including its employees, customers and
suppliers, and permit Vision 21 and its authorized representatives to inspect
and, at Vision 21's sole cost and expense, make copies of all documents,
records (other than patient medical records) and information with respect to
the affairs of the Company, including, without limitation, the Financial
Statements, as Vision 21 and its representatives may request, all for the sole
purpose of permitting Vision 21 to become familiar with the business and assets
and liabilities of the Company.
9.4. Notification of Certain Matters. The Company and
the Physician shall promptly inform Vision 21 in writing of (a) any notice of,
or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company or the
Physician subsequent to the date of this Agreement and prior to the Effective
Time under any Commitment material to the Company's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in the Company's condition
(financial or otherwise), operations, assets, liabilities or business.
40
<PAGE> 44
9.5. Approvals of Third Parties. As soon as
practicable after the date hereof, the Company and the Physician shall secure
all necessary approvals and consents of landlords to the consummation of the
transactions contemplated hereby and shall use their best efforts to secure all
necessary approvals and consents of other third parties to the consummation of
the transactions contemplated hereby; provided, however, that this covenant
shall not require the Company or the Physician to make any material
expenditures that are not expressly set forth in this Agreement or otherwise
contemplated herein.
9.6. Employee Matters. Except as set forth in
Schedule 3.13 or as otherwise contemplated by this Agreement, the Company shall
not, without the prior written approval of Vision 21, except as required by
law:
a. increase the cash compensation of the
Physician or any other employees of the Company (other than in the ordinary
course of business and consistent with past practice);
b. adopt, amend or terminate any
Compensation Plan;
c. adopt, amend or terminate any
Employment Agreement;
d. adopt, amend or terminate any
Employee Policies and Procedures;
e. adopt, amend or terminate any
Employee Benefit Plan;
f. take any action that could deplete the
assets of any Employee Benefit Plan, other than payment of benefits in the
ordinary course to participants and beneficiaries;
g. fail to pay any premium or
contribution due or with respect to any Employee Benefit Plan;
h. fail to file any return or report
with respect to any Employee Benefit Plan;
i. institute, settle or dismiss any
employment litigation except as could not, individually or in the aggregate,
result in a Material Adverse Effect;
j. enter into, modify, amend or terminate
any agreement with any union, labor organization or collective bargaining unit;
or
k. take or fail to take any action with
respect to any past or present employee of the Company that would, individually
or in the aggregate, result in a Material Adverse Effect.
41
<PAGE> 45
9.7. Contracts. Except with Vision 21's prior written
consent, the Company shall not assume or enter into any contract, lease,
license, obligation, indebtedness, commitment, purchase or sale except in the
ordinary course of business that is material to the Company's business, nor
will it waive any material right or cancel any material contract, debt or
claim.
9.8. Capital Assets; Payments of Liabilities. The
Company shall not, without the prior written approval of Vision 21 (a) acquire
or dispose of any capital asset having a fair market value of $5,000 or more,
or acquire or dispose of any capital asset outside of the ordinary course of
business or (b) discharge or satisfy any lien or encumbrance or pay or perform
any obligation or liability other than (i) liabilities and obligations
reflected in the Financial Statements or (ii) current liabilities and
obligations incurred in the usual and ordinary course of business since the
Company Balance Sheet Date and, in either case (i) or (ii) above, only as
required by the express terms of the agreement or other instrument pursuant to
which the liability or obligation was incurred.
9.9. Mortgages, Liens and Guaranties. The Company
shall not, without the prior written approval of Vision 21, enter into or
assume any mortgage, pledge, conditional sale or other title retention
agreement, permit any security interest, lien, encumbrance or claim of any kind
to attach to any of its assets (other than statutory liens arising in the
ordinary course of business and other liens that do not materially detract from
the value or interfere with the use of such assets), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently liable for
any obligation of another, except obligations arising by reason of endorsement
for collection and other similar transactions in the ordinary course of
business, or make any capital contribution or investment in any person.
9.10. Acquisition Proposals. The Company and the
Physician agree that from the date of this Agreement through the earlier of the
Closing Date or January 1, 1997, (a) neither the Physician nor the Company nor
any of its officers and directors shall, and the Physician and the Company
shall direct and use their best efforts to cause the Company's employees,
agents, and representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any Acquisition
Proposal or engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal; (b) the Physician and the Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing and each will take the necessary steps to inform the
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 9.10; and (c) the Physician and the
Company will notify Vision 21 immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, the
Company or the Physician.
42
<PAGE> 46
9.11. Distributions and Repurchases. Except as
contemplated in this Agreement, no distribution, payment or dividend of any
kind will be declared or paid by the Company with respect of its capital stock,
nor will any repurchase of any of the Company's capital stock be approved or
effected.
9.12. Requirements to Effect the Merger. The Company
and the Physician shall use their best efforts to take, or cause to be taken,
all actions necessary to effect the Merger under applicable law, including
without limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
9.13. Physician Accounts Payable and Physician Retained
Equity. The Company shall, and the Physician shall cause the Company to, pay
in a timely manner the accounts payable of the Physician. Except as
contemplated in this Agreement, the Company shall not, and the Physician shall
not permit the Company to, make payment of all or any portion of any retained
equity of the Company at any time prior to Closing.
9.14. New P.C. Spinoff. The Company shall form,
organize and incorporate New P.C. in the State and the Articles or Certificate
of Incorporation and Bylaws of New P.C. shall be in form and substance
reasonably satisfactory to Vision 21. The Company shall not permit New P.C. to
commence business until the Closing Date. On or prior to the Closing, Company
shall take all actions and execute all documents, agreements or instruments
necessary to transfer to New P.C. the Company's medical business and to
transfer good, valuable, and marketable title to all of the Company's Medical
Assets in exchange for the issuance by the New P.C. to the Company of all of
the issued and outstanding shares of New P.C. common stock. Prior to the
Closing, the Company shall declare and make a distribution to Physician of all
of the issued and outstanding shares of New P.C. common stock.
9.15. Licenses and Permits. The Company and the
Physician shall cooperate fully with Vision 21 to obtain all licenses, permits,
approvals or other authorizations required under any law, statute, rule,
regulation or ordinance, or otherwise necessary or desirable to provide the
services of New P.C., the Physician and the Professional Employees contemplated
by the Business Management Agreement and the Physician Employment Agreements,
and to conduct the intended business of New P.C.
9.16. Physician Employment Agreements. The Company and
the Physician shall cause, at or immediately prior to Closing, each Physician
Employee (except for those non-shareholder Physician Employees identified on
Schedule 9.16) who is then an employee of the Company and Physician agrees at
or immediately prior to Closing (i) to terminate his employment agreement, if
any, with the Company by mutual consent without any liability therefor on the
part of the Company and (ii) to enter into a new Physician Employment Agreement
with New P.C. in accordance with the terms of the Business Management
Agreement.
43
<PAGE> 47
9.17. Optometrist Employment Agreements. The Company
and the Physician shall cause, at or immediately prior to Closing, each
Optometrist Employee (except for those Optometrist Employees identified on
Schedule 9.16) who is then an employee of the Company (i) to terminate his
employment agreement, if any, with the Company by mutual consent without any
liability therefor on the part of the Company and (ii) to enter into a new
Optometrist Employment Agreement with New P.C. in accordance with the Business
Management Agreement.
9.18. Termination of Retirement Plans. Prior to
Closing, the Physician shall cause the Company to take all steps necessary to
discontinue benefits accruals under any Employee Benefit Plan that is intended
to be a qualified employee retirement plan under Section 401(a) of the Code (a
"Retirement Plan") effective as of Closing or as soon thereafter as may be
practical. Effective at the time of Closing, the Company shall cause New P.C.
to assume all of the obligations of the Company as the sponsoring employer
and/or plan administrator of the Retirement Plan in compliance with applicable
law.
Subsequent to Closing, New P.C. and Vision 21 shall review
the extent to which New P.C. can resume contributions to the Retirement Plan
without violating the qualification requirements of Sections 410(b) and
401(a)(4) of the Code taking into account any employees of Vision 21 or the
Subsidiary who would be "leased employees" of New P.C. under Section 414(n) of
the Code. If Vision 21 and New P.C. mutually agree that such qualification
requirements can be satisfied, New P.C. may elect to continue the Retirement
Plan and make contributions in accordance with its terms, provided that New
P.C. shall agree to cover at its own expense any Vision 21 or Subsidiary
employees who are leased employees if such coverage is required to maintain the
tax-qualified status of the Retirement Plan.
9.19. Delivery of Schedules. The Company and the
Physician shall deliver to Vision 21 and the Subsidiary all Schedules required
to be delivered by them prior to the Closing.
9.20. Conversion of Company. After the transfer of the
Medical Assets of the Company to New P.C. and prior to Closing, Physician shall
cause the Company to take such action and file such documents or instruments as
may be necessary to convert the Company into a general business corporation in
accordance with applicable law.
9.21. Assignment of Fees for Medical and Optometry
Services. On or prior to the Closing Date, the Company shall obtain an
irrevocable assignment from all Professional Employees of any and all of their
rights to receive payment for the provision of ophthalmology or optometry
services which are part of the Accounts Receivable to the Company existing on
the Closing Date, except for those fees specified and set forth on Schedule
9.21. Each Professional Employee shall undertake to endorse any payments
received on account of such services to the order of the Company and to take
such other action as may be necessary to confirm to the Company the rights to
collect and retain for its own account such Accounts Receivable. The Company
shall cause its Professional Employees to agree that such security interest of
such
44
<PAGE> 48
lender(s) is intended to be a first priority security interest and is superior
to any right, title or interest which may be asserted by such Professional
Employees with respect to the Accounts Receivable or the proceeds thereof. In
the event that the assignment of rights described in this Section shall be
deemed, for any reason, to be ineffective as an outright assignment, the
Company shall cause each Professional Employee to agree that such Professional
Employee shall be deemed, effective as of the Closing Date, to have granted to
the Company a first priority lien on and security interest in and to any and
all interests of such Professional Employee in any of the Accounts Receivable,
and all proceeds with respect thereto, to secure the collection by the Company
of all Accounts Receivable, and this Agreement shall be deemed to be a security
agreement to the extent necessary to give effect to the foregoing. The Company
shall cause each Professional Employee to execute and deliver, all such
financing statements as the Company or Vision 21 may request in order to
perfect such security interest. The Company shall not suffer any Professional
Employee to grant any other lien on or security interest in or to such Accounts
Receivable or any proceeds thereof.
9.22. Transfer of Ambulatory Surgical Center Line of
Business. Prior to the Closing Date, the Company shall transfer (in a form
acceptable to Vision 21) all of the Company's right, title and interest in the
ambulatory surgical center assets and business of the Company to a newly-formed
professional corporation (which shall not be New P.C.) which shall be
wholly-owned by Physician, and the Company and/or the Physician shall cause
such newly- formed professional corporation to assume all obligations and
liabilities relating to such ambulatory surgical center business. The assets
to be transferred and the liabilities and obligations to be assumed with
respect to such ambulatory surgical business are listed on Schedule 9.22. The
Company shall cause any and all payments received with respect to such transfer
to be paid directly to Physician and not to the Company or New P.C.
10. COVENANTS OF VISION 21. Vision 21 and the Subsidiary agree
that between the date hereof and the Closing:
10.1. Consummation of Agreement. Vision 21 and the
Subsidiary shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions
and take all corporate and other actions necessary to approve the Merger;
provided, however, that this covenant shall not require Vision 21 or the
Subsidiary to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
10.2. Efforts to Effect. Vision 21 and the Subsidiary
will use their best efforts to take, or cause to be taken, all actions
necessary to effect the Merger under applicable law, including without
limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
10.3. Notification of Certain Matters. Vision 21 and
the Subsidiary shall promptly inform the Company and the Physician in writing
of (a) any notice of, or other communication relating to, a default or event
that, with notice or lapse of time or both, would
45
<PAGE> 49
become a default, received by Vision 21 or the Subsidiary subsequent to the
date of this Agreement and prior to the Effective Time under any Vision 21
Commitment material to Vision 21's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; or (b)
any material adverse change in Vision 21's condition (financial or otherwise),
operations, assets, liabilities or business.
10.4. Approvals of Third Parties. Vision 21 and the
Subsidiary shall use their best efforts to secure, as soon as practicable after
the date hereof, all necessary approvals and consents of third parties to the
consummation of the transactions contemplated hereby.
10.5. Licenses and Permits. Vision 21 and the
Subsidiary shall use their best efforts to obtain all licenses, permits,
approvals or other authorizations required under any law, statute, rule,
regulation or ordinance, or otherwise necessary or desirable to consummate the
transactions or provide the services contemplated by the Business Management
Agreement and to conduct the intended business of Vision 21 and the Subsidiary.
10.6. Release of Physician From Practice Liabilities.
Vision 21 and the Subsidiary shall use their best efforts to obtain from third
party creditors the release of Physician from any personal liabilities relating
to the Practice which are identified on Schedule 10.6 and assumed by the
Subsidiary pursuant to the terms of this Agreement.
11. COVENANTS OF VISION 21, THE SUBSIDIARY, THE COMPANY AND THE
PHYSICIAN. Vision 21, the Subsidiary, the Company and the Physician agree as
follows (with respect to New P.C.'s covenants, the Physician agrees to cause
New P.C. to perform):
11.1. Filings; Other Action.
a. Vision 21, the Subsidiary and the
Physician shall cooperate to promptly prepare and file at Vision 21's expense
with the SEC, a Registration Statement on Form S-1 (or other appropriate form)
to be filed by Vision 21 in connection with any Initial Public Offering of
Vision 21 (including the prospectus constituting a part thereof, the
"Registration Statement"). Vision 21 and the Subsidiary shall obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement, and the Company and
the Physician shall furnish all information concerning the Company, the New
P.C., the Nonmedical Assets and the Physician as may be reasonably requested in
connection with any such action.
b. Each of the Company, the Physician,
Vision 21 and the Subsidiary represents and warrants that none of the
information or documents supplied or to be supplied by it specifically for
inclusion in a Registration Statement, by exhibit or otherwise, will, at the
time the Registration Statement and each amendment and supplement thereof, if
any, becomes effective under the Securities Act, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
46
<PAGE> 50
Company, the Physician, Vision 21 and the Subsidiary shall agree as to the
information and documents supplied by the Company and the Physician for
inclusion in the Registration Statement and shall indicate such information and
documents in a letter to be delivered at least ten (10) days prior to the
initial filing of the Registration Statement with the SEC. The Company and the
Physician shall be entitled to review the Registration Statement and each
amendment thereto, if any, prior to the time each becomes effective under the
Securities Act.
c. The Physician and the Company shall,
upon request, furnish Vision 21 and the Subsidiary with all information
concerning himself, itself, their respective partners, the Company's
subsidiaries, directors, officers, and stockholders, and including financial
statements with respect to the same, any consents (and information necessary to
obtain such consents) and such other matters as may be reasonably requested by
Vision 21 in connection with the preparation of the Registration Statement and
each amendment or supplement thereto, or any other statement, filing, notice or
application made by or on behalf of each such party or any of the Company's
subsidiaries to any governmental entity in connection with the Merger, any
Initial Public Offering and the other transactions contemplated by this
Agreement.
11.2. Amendment of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to attach, supplement or amend promptly the Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to the Company or the Nonmedical Assets may be made
unless Vision 21 consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a material adverse change
to Vision 21 may be made unless the Company and the Physician consent to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 12.1 and 13.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
11.2. In the event that the Company is required to amend or supplement a
Schedule in accordance with this Section 11.2 and Vision 21 does not consent to
such amendment or supplement, or Vision 21 is required to amend or supplement a
Schedule in accordance with this Section 11.2 and the Company and the Physician
do not consent, this Agreement shall be deemed terminated by mutual consent as
set forth in Section 17.1(d) or Section 17.1(e) as appropriate.
11.3. Business Management Agreement. The Company and
the Physician shall use their best efforts to cause the Business Management
Agreement to be executed and delivered by New P.C. on or prior to the Closing
Date, which shall be considered a Nonmedical Asset of the Company and shall be
acquired by the Subsidiary in the Merger.
47
<PAGE> 51
11.4. Fees and Expenses.
a. Vision 21 shall pay all costs of the
Audit of the Company's Financial Statements and financial records by Vision
21's auditors (or auditors designated by Vision 21's auditors). All items
prepared by Vision 21's auditors in connection with the Audit ("Prepared Audit
Materials") shall be for use solely by Vision 21; provided, however, that the
Company may utilize the Prepared Audit Materials solely in connection with its
review of Vision 21's calculation of the Merger Consideration. The Prepared
Audit Materials shall not be deemed to include those items which customarily
remain the property of auditors such as their working papers and memos.
b. In the event the Merger is not
consummated, the Company and Physician shall not be entitled to copies or
originals of the Prepared Audit Materials unless the Company or Physician pays
for or reimburses Vision 21 for all expenses of the auditor in connection with
the Audit in advance of receiving the Prepared Audit Materials (either from
Vision 21 or its auditor). For purposes of this Agreement, Audit expenses
shall include all expenses related to the Audit as well as expenses incurred to
present the financial statements in accordance with GAAP and all schedules
related thereto.
c. Each of the Physician and Vision 21
shall pay the costs and expenses of their own legal counsel with respect to
legal services rendered in connection with the preparation and negotiation of
this Agreement and the Merger contemplated hereby.
d. In the event that an Initial Public
Offering does not take place for any reason whatsoever, Vision 21 (but not the
Company or the Physician) shall have sole responsibility for the payment of all
legal fees (except as set forth in Section 11.4(c)), accounting fees (except as
set forth in Section 11.4(a)), underwriters' expenses and other fees, costs and
expenses associated solely in connection with the preparation of any
Registration Statement relating to such Initial Public Offering.
e. If any Initial Public Offering is
consummated as contemplated by this Agreement, all legal fees, audit fees,
printing costs, filing fees, blue sky fees and underwriters' discounts and fees
associated solely with the Initial Public Offering shall be paid by Vision 21
from the proceeds of the Initial Public Offering, except for those expenses,
fees and underwriters' discounts related to any shares sold by the Physician.
12. CONDITIONS PRECEDENT OF VISION 21 AND THE SUBSIDIARY.
Except as may be waived in writing by Vision 21 and the Subsidiary, the
obligations of Vision 21 and the Subsidiary hereunder are subject to the
fulfillment at or prior to the Closing Date of each of the following conditions
precedent:
12.1. Representations and Warranties. The
representations and warranties of the Company and the Physician contained
herein shall have been true and correct in all
48
<PAGE> 52
material respects when initially made and shall be true and correct in all
material respects as of the Closing Date.
12.2. Covenants. The Company and the Physician shall
have performed and complied in all material respects with all covenants
required by this Agreement to be performed and complied with by the Company or
the Physician prior to the Closing Date.
12.3. Legal Opinion. Counsel to the Company and the
Physician shall have delivered to Vision 21 and the Subsidiary their opinions,
dated as of the Closing Date, in form and substance substantially similar to
Exhibit 12.3 which Vision 21, the Subsidiary, Vision 21's and the Subsidiary's
counsel, the underwriters of the Initial Public Offering and their counsel
shall be permitted to rely upon.
12.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened orally or
in writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
12.5. No Material Adverse Change. No material adverse
change in the condition (financial or otherwise), operations, assets,
liabilities or business of the Company shall have occurred since the Company
Balance Sheet Date, whether or not such change shall have been caused by the
deliberate act or omission of the Company or the Physician.
12.6. Government Approvals and Required Consents. The
Company, the Physician, New P.C., Vision 21 and the Subsidiary shall have
obtained all necessary government and other third-party approvals and consents
(other than consents technically required as a result of the transactions
contemplated hereby under the terms of managed care contracts to which the
Company or any of its employees are a party).
12.7. Certification. None of the Company, the
Physician or New P.C. shall have received any notice of or been made a party to
any judicial or administrative proceeding, or threatened to so be made a party,
in any action or proceeding that seeks to deny the continued use or receipt of
any necessary permit, license, authorization, certification or approval under
the Medicare and Medicaid programs to provide ophthalmology or optometry
services.
12.8. Closing Deliveries. Vision 21 and the Subsidiary
shall have received all documents and agreements, duly executed and delivered
in form reasonably satisfactory to Vision 21 and the Subsidiary, referred to in
Section 14.1.
12.9. Due Diligence. Vision 21 shall have completed to
its satisfaction a due diligence review of the Company and the Physician.
12.10. Financial Audit. Vision 21 shall have approved
in Vision 21's sole discretion an audit of the Company and the Practice which
audit shall have been performed by an accounting firm designated by Vision 21
at the sole expense of Vision 21.
49
<PAGE> 53
12.11. Medicare Audit. Vision 21 shall have approved in
Vision 21's sole discretion a Medicare audit of the Company and the Practice
which audit shall be at the sole expense of Vision 21.
12.12. Exemption Under State Securities Laws. The
transfer of Vision 21's Securities to the Physician as contemplated in this
Agreement shall qualify for one or more exemptions from registration under the
State's securities laws. Vision 21 shall pay all filing fees in connection
with any filing required to qualify the transfer of the Securities for such
exemption(s).
12.13. Assignment of Professional Employees' Rights in
Accounts Receivable. The Company shall have caused the Professional Employees
to assign any and all of their rights with respect to Accounts Receivable to
the Company and shall cause such Professional Employees to execute such other
agreements and instruments as contemplated in Section 9.21.
12.14. Transfer of Ambulatory Surgical Center Line of
Business. The Company shall have transferred all of its ambulatory surgical
center line of business to a newly-created professional corporation as
contemplated in Section 9.22 hereof.
13. CONDITIONS PRECEDENT OF THE COMPANY AND THE PHYSICIAN.
Except as may be waived in writing by the Company and the Physician, the
obligations of the Company and the Physician hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions
precedent:
13.1. Representations and Warranties. The
representations and warranties of Vision 21 and the Subsidiary contained herein
shall be true and correct in all respects when initially made and shall be true
and correct in all material respects as of the Closing Date.
13.2. Covenants. Vision 21 and the Subsidiary shall
have performed and complied in all material respects with all covenants and
conditions required by this Agreement to be performed and complied with by them
prior to the Closing Date.
13.3. Legal Opinions. Counsel to Vision 21 and the
Subsidiary shall have delivered to the Company and the Physician their opinion,
dated as of the Closing Date, in form and substance substantially similar to
Exhibit 13.3.
13.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
13.5. Government Approvals and Required Consents. The
Company, the Physician, New P.C., Vision 21 and the Subsidiary shall have
obtained all necessary government and other third-party approvals and consents
(other than consents technically required as a result
50
<PAGE> 54
of the transactions contemplated hereby under the terms of managed care
contracts to which the Company or any of its employees are a party).
13.6. Closing Deliveries. The Company, New P.C. and
the Physician shall have received all documents, instruments and agreements,
duly executed and delivered in form reasonably satisfactory to the Company,
referred to in Section 14.2.
13.7. No Change in Voting or Ownership Control. There
shall have been no changes in the voting or ownership control of Vision 21 from
the date first above written to the Closing Date.
13.8. No Material Adverse Change; Delivery of Amended
Confidential Information Memorandum. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities or business
of Vision 21 shall have occurred since the end of the last fiscal period
reported in the Vision 21 Financial Statements, whether or not such change
shall have been caused by the deliberate act or omission of Vision 21. Vision
21 shall deliver an amended Confidential Information Memorandum updating the
information contained in the initial Confidential Information Memorandum on or
before December 17, 1996, and the Company and the Physician shall have the
right not to close the transactions contemplated in this Agreement if they
determine, based upon their review of the amended Confidential Information
Memorandum, that a material adverse change has occurred with respect to the
condition (financial or otherwise), operations, assets, liabilities or business
of Vision 21.
14. CLOSING DELIVERIES; ESCROW OF DOCUMENTS.
14.1. Deliveries of the Company, New P.C. and the
Physician. At or prior to December 24, 1996, the Company, New P.C. and the
Physician shall deliver to Vision 21 and the Subsidiary, c/o Shumaker, Loop &
Kendrick, LLP, counsel to Vision 21 and the Subsidiary, the following, all of
which shall be in a form reasonably satisfactory to Vision 21 and the
Subsidiary and shall be held by Shumaker, Loop & Kendrick, LLP in escrow
pending Closing, pursuant to an escrow agreement or letter in form and
substance mutually acceptable to the parties hereto:
a. a copy of resolutions of the Board of
Directors of the Company authorizing (i) the execution, delivery and
performance of this Agreement and all related documents and agreements, and
(ii) the consummation of the Merger, certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
b. a copy of resolutions of the Board of
Directors of New P.C. authorizing the execution, delivery and performance of
the Business Management Agreement, the Physician Employment Agreements, and all
other documents to be executed and delivered by New P.C. as contemplated by
this Agreement, certified by the Secretary of New P.C. as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
51
<PAGE> 55
c. a certificate of the President of the
Company, and of the Physician, dated the Closing Date, as to the truth and
correctness of the representations and warranties of the Company and the
Physician contained herein, on and as of the Closing Date;
d. a certificate of the President of the
Company, and of the Physician, dated the Closing Date, (i) as to the
performance of and compliance in all material respects by the Company and the
Physician with all covenants contained herein on and as of the Closing Date and
(ii) certifying that all conditions precedent of the Company and the Physician
to the Closing have been satisfied;
e. a certificate of the Secretary of the
Company and the Secretary of New P.C. certifying as to the incumbency of the
directors and officers of each such corporation and as to the signatures of
such directors and officers who have executed documents delivered pursuant to
the Agreement on behalf of each such corporation;
f. a certificate, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the respective
states of incorporation for the Company and New P.C. establishing that each
such corporation is in existence, has paid all franchise or similar taxes, if
any, and, if applicable, otherwise is in good standing to transact business in
its state of organization;
g. certificates, dated within ten (10)
days prior to the Closing Date, of the Secretaries of State of the states in
which the Company and New P.C. are qualified to do business, to the effect that
each such corporation is qualified to do business and, if applicable, is in
good standing as a foreign corporation in each of such states;
h. an opinion of counsel to the Company
and Physicians dated as of the Closing Date, in form and substance satisfactory
to Vision 21 and the Subsidiary, which Vision 21, the Subsidiary, Vision 21's
and the Subsidiary's counsel and the underwriters of any Initial Public
Offering and their counsel are permitted to rely upon and which shall include
an opinion, subject to normal and customary exceptions, that to the best of
their knowledge the transactions and arrangements contemplated by this
Agreement are in conformity with State laws, rules and regulations governing
the practice of medicine.
i. all authorizations, consents, permits
and licenses referenced in Section 3.8;
j. the resignations of the directors and
officers of the Company as requested by Vision 21;
k. the executed Business Management
Agreement in substantially the form attached hereto as Exhibit 14.1 (k), as
revised in accordance with changes reasonably deemed necessary or advisable by
legal counsel retained by Vision 21 and the Subsidiary in the State to address
regulatory and compliance issues;
52
<PAGE> 56
l. an executed Physician Employment
Agreement between New P.C. and the Physician in substantially the form attached
hereto as Exhibit 14.1 (l);
m. an executed Physician Employment
Agreement between New P.C. and each Physician Employee who is then an employee
of the Company in substantially the form attached hereto as Exhibit 14.1 (m);
n. an executed Optometrist Employment
Agreement between New P.C. and each Optometrist Employee who is then an
employee of the Company in substantially the form attached hereto as Exhibit
14.1 (n);
o. an executed Registration Rights
Agreement between Vision 21 and the Physician in substantially the form
attached hereto as Exhibit 14.1 (o) (the "Registration Rights Agreement");
p. an executed Certificate of Merger
necessary to effect the Merger;
q. a non-foreign affidavit, as such
affidavit is referred to in Section 1445 (b) (2) of the Code, of the Physician,
signed under a penalty of perjury and dated as of the Closing Date, to the
effect that the Physician is a United States citizen or a resident alien (and
thus not a foreign person) and providing the Physician's United States taxpayer
identification number;
r. if desired by Vision 21, a new lease
or leases between the landlords under each lease for real property described on
Schedule 3.14(c) and Vision 21 or the Subsidiary in form and substance
reasonably satisfactory to Vision 21 and the Subsidiary;
s. the Shares of Company Common Stock to
be delivered pursuant to Section 2.9(b); and
t. such other instrument or instruments
of transfer prepared by Vision 21 as shall be necessary or appropriate, as
Vision 21 or its counsel shall reasonably request, to carry out and effect the
purpose and intent of this Agreement.
14.2. Deliveries of Vision 21 and the Subsidiary. At
or prior to December 24, 1996, Vision 21 and the Subsidiary shall deliver to
the Company and the Physician, c/o Shumaker, Loop & Kendrick, LLP, counsel to
Vision 21, the following, all of which shall be in a form reasonably
satisfactory to the Company and the Physician and shall be held by Shumaker,
Loop & Kendrick, LLP in escrow pending Closing, pursuant to an escrow agreement
or letter in form and substance mutually acceptable to the parties hereto:
a. a copy of the resolutions of the Board
of Directors of Vision 21 authorizing (i) the execution, delivery and
performance of this Agreement, and all
53
<PAGE> 57
related documents and agreements, and (ii) the consummation of the Merger,
certified by Vision 21's Secretary as being true and correct copies of the
originals thereof subject to no modifications or amendments;
b. a copy of the resolutions of the Board
of Directors of the Subsidiary authorizing (i) the execution, delivery and
performance of this Agreement, and all related documents and agreements, and
(ii) the consummation of the Merger, certified by the Subsidiary's Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
c. a certificate of an officer of Vision
21 dated the Closing Date as to the truth and correctness of the
representations and warranties of Vision 21 contained herein, on and as of the
Closing Date;
d. a certificate of an officer of the
Subsidiary dated the Closing Date as to the truth and correctness of the
representations and warranties of the Subsidiary contained herein, on and as of
the Closing Date;
e. a certificate of an officer of Vision
21 dated the Closing Date, (i) as to the performance and compliance of Vision
21 with all covenants contained herein on and as of the Closing Date and (ii)
certifying that all conditions precedent of Vision 21 to the Closing have been
satisfied;
f. a certificate of an officer of the
Subsidiary dated the Closing Date, (i) as to the performance and compliance of
the Subsidiary with all covenants contained herein on and as of the Closing
Date and (ii) certifying that all conditions precedent of the Subsidiary to the
Closing have been satisfied;
g. certificates, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the State of
Florida establishing that Vision 21 and the Subsidiary are in existence, have
paid all franchise or similar taxes, if any, and, if applicable, otherwise are
in good standing to transact business in such state;
h. certificates (or photocopies thereof),
dated within ten (10) days prior to the Closing Date, of the Secretary of State
of each state in which Vision 21 and the Subsidiary are qualified to do
business, to the effect that Vision 21 and the Subsidiary are qualified to do
business and, if applicable, are in good standing as a foreign corporation in
each of such states;
i. an opinion of Shumaker, Loop &
Kendrick, LLP, counsel to Vision 21, dated as of the Closing Date, pursuant to
Section 13.3;
j. the executed Registration Rights
Agreement;
54
<PAGE> 58
k. the executed Lease Assignments;
l. the Shares of Vision 21 Common Stock
to be delivered pursuant to Section 2.9(a); and
m. such other instrument or instruments
of transfer, prepared by the Company or the Physician as shall be necessary or
appropriate, as the Company, the Physician or their counsel shall reasonable
request, to carry out and effect the purpose and intent of this Agreement.
14.3. Release of Escrow Materials. Shumaker, Loop &
Kendrick, LLP shall release the agreements, certificates, instruments,
documents and other materials described in Sections 14.1 and 14.2 to the
appropriate parties to effectuate the transactions contemplated in this
Agreement only after all such materials have been delivered by all applicable
parties (or the parties receiving such documents have waived in writing such
delivery requirement) and after counsel for the Physician and the Company have
sent written notice to Shumaker, Loop & Kendrick, LLP stating that the
Physician and the Company have reviewed the amended Confidential Information
Memorandum and have decided, based upon such review, to consummate the
transactions contemplated in this Agreement. In the event that the Physician
and the Company elect not to consummate the transactions contemplated in this
Agreement based upon their review of the amended Confidential Information
Memorandum, and counsel for the Physician and the Company informs Shumaker,
Loop & Kendrick, LLP in writing as to such decision, Shumaker, Loop & Kendrick,
LLP shall promptly return the foregoing materials to the parties sending such
materials.
15. POST CLOSING MATTERS.
15.1. Further Instruments of Transfer. From and after
the Closing Date, at the request of Vision 21 and at Vision 21's sole cost and
expense, the Physician and the Company shall deliver any further instruments of
transfer and take all reasonable action as may be necessary or appropriate to
carry out the purpose and intent of this Agreement.
15.2. Practice Advisory Council; Local Advisory
Council; National Appeals Council. Vision 21 and New P.A. shall establish a
practice advisory council composed of delegates from Vision 21 and New P.A.
which shall advise Vision 21 and New P.A. and determine certain issues as more
fully described in the Business Management Agreement. Vision 21 shall also
establish a local advisory council composed of delegates from certain practice
groups acquired by Vision 21 in connection with the Related Acquisitions. Such
delegates shall be appointed from practice groups which are located in a market
area to be identified by Vision 21 and in which New P.A. is located. The local
advisory council board shall advise Vision 21 and the practice groups within
the market area as to policy and strategy issues and shall determine certain
types of issues and disputes between Vision 21 and such practice groups which
issues and disputes are identified in the Business Management Agreement and
other management agreements entered into between Vision 21 and practice groups.
New
55
<PAGE> 59
P.A. shall have the right to appoint one (1) member to a local advisory council
who shall serve an initial two (2) year term. After the initial two-year term,
election of members to the local advisory council shall be in accordance with
by-laws which shall be adopted and amended by the local advisory council.
Vision 21 shall also establish a national appeals council which shall have,
among other duties and responsibilities, the power to adopt and amend its
by-laws, to review and approve as limited herein certain decisions of the local
advisory councils, and to resolve deadlocks among the members of such local
advisory councils.
15.3. Acquisition of Ambulatory Surgical Center Line of
Business. In the event that the newly- created professional corporation
referred to in Section 9.22 hereof (i) terminates its contractual arrangement
with Medivision, Inc., or its successors or assigns relating to the ambulatory
surgical center line of business (the "ASC Business") which shall be
transferred to such newly-created professional corporation pursuant to Section
9.22, (ii) obtains an independent ambulatory surgical center license, and (iii)
obtains a Medicare certification; then the Physician shall cause such
professional corporation to transfer to New P.C. and New P.C. shall acquire all
of the assets relating to the ASC Business, which transfer shall be conducted
in a tax deferred manner. Following such transfer all revenues and expenses
relating to the ASC Business shall be covered by the Business Management
Agreement and all operations of the ASC Business shall be governed by the
Business Management Agreement. The consideration to be paid by Vision 21 (or,
at the option of Vision 21, the Surviving Corporation) with respect to the
transfer of the ASC Business is set forth in Schedule 15.3. The parties agree
to execute all documents reasonably requested by any party hereto to effectuate
the transactions contemplated in this Section 15.3, and the parties agree that
the acquisition relating to such transfer shall contain representations,
warranties and covenants not to compete in substantially the same form as set
forth in this Agreement. Following the Closing Date and until the acquisition
of the ASC Business, such business shall not be subject to the Business
Management Agreement and none of Vision 21's or the Surviving Corporation's
facilities, equipment, furniture, personnel or other assets or resources shall
be used by or in furtherance of such ASC Business. New P.C.'s and Physician's
obligation to transfer the ASC Business and Vision 21's obligation to acquire
the ASC Business shall terminate if such transfer is not effected within
eighteen (18) months of the Closing Date; provided that during such
eighteen-month period, New P.C. shall not transfer the ASC Business to any
other party, and after such eighteen-month period, Vision 21 shall have a right
of first refusal to acquire the ASC Business upon the same terms and conditions
offered by any legitimate potential transferee. Physician agrees to indemnify,
defend and hold Vision 21, the Surviving Corporation and their respective
directors, officers, members, managers, employees, agents, attorneys and
affiliates harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses asserted against or incurred by such entities and individuals
arising out of or resulting from the ASC Business (an "ASC Claim"), whether or
not (i) the transfer of the ASC Business is consummated, (ii) any party had
knowledge of the basis of such ASC Claim, and (iii) such ASC Claim was
incurred or asserted before or after the Closing Date of this Agreement.
56
<PAGE> 60
16. REMEDIES.
16.1. Indemnification by the Physician. Subject to the
terms and conditions of this Agreement, the Physician agrees to indemnify,
defend and hold Vision 21, the Surviving Corporation and their respective
directors, officers, members, managers, employees, agents, attorneys and
affiliates harmless from and against all losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, reasonable attorneys' fees
and expenses (collectively, "Damages") asserted against or incurred by such
entities and individuals (including, but not limited to, any reduction in
payments to or revenues of New P.C.), arising out of or resulting from:
a. a breach of any representation,
warranty or covenant of the Company or the Physician contained herein or in any
schedule or certificate delivered hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, (i) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact relating to
the Physician, the Company (including its subsidiaries, if any) or New P.C.,
and provided to Vision 21 or its counsel by the Company or the Physician,
specifically for inclusion in a Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (ii)
arising out of or based upon any omission or alleged omission to state therein
a material fact relating to the Physician, the Company (including its
subsidiaries, if any) or New P.C. required to be stated therein or necessary to
make the statements therein not misleading, and not provided to Vision 21 or
its counsel by the Company or the Physician, provided, however, that such
indemnity shall not inure to the benefit of Vision 21 to the extent that such
untrue statement (or alleged untrue statement) was made, in, or omission (or
alleged omission) occurred in, any preliminary prospectus, and such information
was not so included by Vision 21 and properly delivered to shareholders of
Vision 21 who acquire Vision 21 Common Stock in any Initial Public Offering;
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable;
d. any failure of the Merger to qualify
as a reorganization within the meaning of Section 368(a)(1)(A) or Section
368(a)(2)(D) of the Code or any failure of the spin off of the Company's
medical business and Medical Assets to qualify as a tax free spin off under
Section 355 of the Code;
e. any ASC Claim described in
Section 15.3 of this Agreement; and
f. any liability arising from any alleged
unlawful sale or offer to sell or transfer any of the Common Stock by
Physician.
57
<PAGE> 61
16.2. Indemnification by Vision 21 and the Subsidiary.
Subject to the terms and conditions of this Agreement, Vision 21 and the
Subsidiary, jointly and severally, hereby agree to indemnify, defend and hold
the Physician harmless from and against all damages asserted against or
incurred by him arising out of or resulting from:
a. a breach by Vision 21 or the
Subsidiary of any representation, warranty or covenant of Vision 21 or the
Subsidiary contained therein or in any schedule or certificate delivered
hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to
Vision 21 or the Subsidiary, contained in any preliminary prospectus,
Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, arising out of or based upon any
omission or alleged omission to state therein a material fact relating to
Vision 21 (including the Subsidiary and Vision 21's other subsidiaries),
required to be stated therein or necessary to make the statements therein not
misleading; and
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable.
Notwithstanding anything in this Section 16.2, Vision 21 and the
Subsidiary shall not be liable for any Damages resulting from any matter not
disclosed to Vision 21 by any of the third parties to be acquired by Vision 21
in connection with the Related Acquisitions.
16.3. Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
a. A party claiming indemnification under
this Agreement (an "Indemnified Party") shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify the party from whom indemnification is sought
(the "Indemnifying Party") of any third-party claim or claims asserted against
the Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. Except as set forth in Section 16.6, the
failure to promptly deliver a Claim Notice shall not relieve the Indemnifying
Party of its obligations to the Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the
58
<PAGE> 62
Indemnified Party under this Article 16 with respect to such Third Party Claim
and (ii) whether the Indemnifying Party desires, at the sole cost and expense
of the Indemnifying Party, to defend the Indemnified Party against such Third
Party Claim.
If the Indemnifying Party notifies the
Indemnified Party within the Election Period that the Indemnifying Party elects
to assume the defense of the Third Party Claim, then the Indemnifying Party
shall have the right to defend, at its sole cost and expense, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Party to a final conclusion or settled at the
discretion of the Indemnifying Party in accordance with this Section 16.3(b).
The Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof. The Indemnified Party is
hereby authorized, at the sole cost and expense of the Indemnifying Party (but
only if the Indemnified Party is entitled to indemnification hereunder), to
file, during the Election Period, any motion, answer or other pleadings that
the Indemnified Party shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Party and not prejudicial to the
Indemnifying Party (it being understood and agreed that if an Indemnified Party
takes any such action that is prejudicial and causes a final adjudication that
is adverse to the Indemnifying Party, the Indemnifying Party shall be relieved
of its obligations hereunder with respect to such Third Party Claim). If
requested by the Indemnifying Party, the Indemnified Party agrees, at the sole
cost and expense of the Indemnifying Party, to cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, including, without limitation, the making of any
related counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to Section 16.3(b) and shall bear its own
costs and expenses with respect to such participation; provided, however, that
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
b. If the Indemnifying Party fails to
notify the Indemnified Party within the Election Period that the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section 16.3(b), or if
the Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 16.3(b) but fails diligently and promptly to prosecute or settle the
Third Party Claim, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party (if the Indemnified
Party is entitled to indemnification
59
<PAGE> 63
hereunder), the Third Party Claim by all appropriate proceedings, which
proceedings shall be promptly and vigorously prosecuted by the Indemnified
Party to a final conclusion or settled. The Indemnified Party shall have full
control of such defense and proceedings, provided, however, that the
Indemnified Party may not enter into, without the Indemnifying Party's consent,
which shall not be unreasonably withheld, any compromise or settlement of such
Third Party Claim. Notwithstanding the foregoing, if the Indemnifying Party
has delivered a written notice to the Indemnified Party to the effect that the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article 16 and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnifying Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 16.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to the Indemnified Party, then the
Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense
of such action on behalf of the Indemnifying Party.
c. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder that does not
involve a Third Party Claim, the Indemnified Party shall transmit to the
Indemnifying Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not
notify the Indemnified Party within sixty (60) days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim, the claim
specified by the Indemnified Party in the Indemnity Notice shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed such claim, as provided above, such dispute shall be resolved
by mediation or arbitration as provided in Section 20.1 if the parties do not
reach a settlement of such dispute within thirty (30) days after notice of a
dispute is given.
d. Payments of all amounts owing by an
Indemnifying Party pursuant to this Article 16 relating to a Third Party Claim
shall be made within thirty (30) days after the latest of (i) the settlement of
such Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by an
Indemnifying Party pursuant to Section 16.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the sixty (60) day Indemnity
Notice period or (ii) the expiration of the period for appeal, if any, of
60
<PAGE> 64
a final adjudication or arbitration of the Indemnifying Party's liability to
the Indemnified Party under this Agreement.
16.4. Remedies Not Exclusive. The remedies provided in
this Agreement shall not be exclusive of any other rights or remedies available
to one party against the other, either at law or in equity. This Article 16
regarding indemnification shall survive Closing.
16.5. Costs, Expenses and Legal Fees. Each party
hereto agrees to pay the costs and expenses (including attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of
the terms of this Agreement, or (b) proving that another party breached any of
the terms of this Agreement.
16.6. Indemnification Limitations. Notwithstanding the
provisions of Sections 16.1 and 16.2, (a) no party shall be required to
indemnify another party with respect to a breach of a representation, warranty
or covenant unless the claim for indemnification is brought within two (2)
years after the Closing Date, except that a claim for indemnification for a
breach of the representations and warranties contained in Sections 3.1, 3.2,
3.3., 3.4, 3.5, 3.6, 3.14, 3.17, 3.20, 3.23, 4.1, 4.3, 4.4, 4.8, 5.1, 5.2, 5.3,
5.4, 5.6, 5.7, 7.1, 7.2, 7.3 and 7.4 may be made at any time, and a claim for
indemnification for a breach of the representations and warranties contained in
Sections 3.12, 3.18, 3.21, 3.27, 3.28, 3.29, 3.30, 3.31, 3.33, 4.5, 4.7, 4.11,
5.8 and 8.1 may be made at any time within the applicable statute of
limitations; (b) indemnification based upon Sections 16.1(b) through (f) and
16.2(b) may be made at any time within the applicable statute of limitations;
and (c) the Physician shall not be required to indemnify Vision 21 and the
Subsidiary pursuant to Section 16.1 unless, and to the extent that, the
aggregate amount of Damages incurred by Vision 21 shall exceed an amount equal
to two percent (2%) of the total Merger Consideration; and (d) the Physician
shall not be required to indemnify Vision 21 and the Subsidiary with respect to
a breach of a representation, warranty or covenant for Damages in excess of the
aggregate Merger Consideration received by the Physician (other than pursuant
to a requirement to indemnify Vision 21 and the Subsidiary under Sections 3.30
and 3.31, or unless the breach involves an intentional breach or fraud by the
Physician or the Company, which shall be unlimited).
16.7. Tax Benefits; Insurance Proceeds. The total
amount of any indemnity payments owed by one party to another party to this
Agreement shall be reduced by any correlative tax benefit received by the party
to be indemnified or the net proceeds received by the party to be indemnified
with respect to recovery from third parties or insurance proceeds and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
16.8. Payment of Indemnification Obligation. In the
event that the Physician has an indemnification obligation to Vision 21 or the
Subsidiary hereunder, subject to Vision 21's approval as set forth below, the
Physician may satisfy such obligation by transferring to Vision 21 or the
Subsidiary (as the case may be) such number of shares of Vision 21 Common Stock
owned by the Physician having an aggregate fair market value (which is prior
61
<PAGE> 65
to any Initial Public Offering based upon the valuation given at Closing hereof
or after an Initial Public Offering the fair market value at such time based on
the last reported sale price of Vision 21 Common Stock on a principal national
securities exchange or other exchange on which the Vision 21 Common Stock is
then listed or the last quoted ask price on any over-the-counter market through
which the Vision 21 Common Stock is then quoted on the last trading day
immediately preceding the day on which the Physician transfers shares of Vision
21 Common Stock to Vision 21 or the Subsidiary hereunder) equal to the
indemnification obligation, provided that each of the following conditions are
satisfied:
a. The Physician shall transfer to Vision
21 or the Subsidiary good, valid and marketable title to the shares of Vision
21 Common Stock, free and clear of all adverse claims, security interests,
liens, claims, proxies, options, stockholders' agreements and encumbrances;
b. The Physician shall make such
representation and warranties as to title to the stock, absences of security
interests, liens, claims, proxies, stockholders' agreements and other
encumbrances and other matters as reasonably requested by Vision 21 or the
Subsidiary; and
c. The other terms and conditions of any
transaction contemplated pursuant to this Section and the effects thereof,
including any legal or tax consequences, shall be reasonably satisfactory to
Vision 21 and the Subsidiary.
17. TERMINATION.
17.1. Termination. This Agreement may be terminated
and the Merger may be abandoned:
a. at any time prior to the Closing Date
by mutual agreement of all parties;
b. at any time prior to the Closing Date
by Vision 21 if any representation or warranty of the Company or the Physician
contained in this Agreement or in any certificate or other document executed
and delivered by the Company or the Physician pursuant to this Agreement is or
becomes untrue or breached in any material respect or if the Company or the
Physician fails to comply in any material respect with any covenant or
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within twenty (20) days after receipt
of written notice thereof;
c. at any time prior to the Closing Date
by the Company if any representation or warranty of Vision 21 or the Subsidiary
contained in this Agreement is or becomes untrue in any material respect or if
Vision 21 or the Subsidiary fails to comply in any material respect with any
covenant or agreement contained herein, and any such
62
<PAGE> 66
misrepresentation, noncompliance or breach is not cured, waived or eliminated
within twenty (20) days after receipt or written notice thereof;
d. at any time prior to the Closing Date
by the Company in the event of the failure of any of the conditions precedent
set forth in Article 13 of this Agreement;
e. at any time prior to the Closing Date
by Vision 21 in the event of the failure of any of the conditions precedent set
forth in Article 12 of this Agreement;
f. by Vision 21 if at any time prior to
the Closing Date, Vision 21 deems termination to be advisable, provided,
however, that if Vision 21 exercises its right to terminate this Agreement
under this subsection, Vision 21 shall reimburse the Company and the Physician
for all reasonable attorneys' and accountants' fees incurred by the Company and
the Physician in connection with this Agreement; provided that Vision 21 shall
only reimburse the Company and the Physician up to an aggregate maximum amount
of One Hundred Thousand and No/100 Dollars ($100,000.00) for such fees; or
g. by Vision 21 or the Company if the
Merger shall not have been consummated by December 24, 1996.
17.2. Effect of Termination. In the event this
Agreement is terminated pursuant to Section 17.1, Vision 21, the Subsidiary,
the Company and the Physician, shall each be entitled to pursue, exercise and
enforce any and all remedies, rights, powers and privileges available at law or
in equity, subject to the limitations set forth in Section 16.1. In the event
of a termination of this Agreement under the provisions of this Article 17, a
party not then in material breach of this Agreement shall stand fully released
and discharged of any and all obligations under this Agreement.
18. PHYSICIAN EMPLOYMENT AGREEMENT.
18.1. Physician Employment Agreement. The parties
acknowledge that in accordance with the terms of this Agreement, Physician, as
employee, and the Company, as employer, have entered into the Physician
Employment Agreement and that Vision 21 is entitled to enforce such Physician
Employment Agreement as an intended third party beneficiary. Physician and
Vision 21 acknowledge that Vision 21 would suffer severe harm in the event of
Physician's resignation prior to the expiration of the five (5) year term of
such Physician Employment Agreement (without first obtaining the written
consent of Vision 21) or a breach or default of Physician's obligations under
such Physician Employment Agreement, and Physician, the Company and Vision 21
agree that Vision 21 shall be entitled to recover from Physician any and all
damages incurred by Vision 21 caused by such resignation, breach or default.
Notwithstanding the foregoing, Vision 21 shall not be entitled to recover its
damages caused by such resignation, breach or default if such resignation,
breach or default was caused by: (i) the death or disability of Physician,
(ii) circumstances not caused by an act or omission of Physician and which
circumstances are beyond his control, or (iii) loss of Physician's license
63
<PAGE> 67
to practice as an ophthalmologist, unless such loss of license is due to an act
or omission of Physician. Notwithstanding the foregoing, Physician shall have
no obligation to pay the damages contemplated in this Section 18.1 if (a) the
Business Management Agreement has been terminated pursuant to a material breach
by Vision 21, or (b) Physician cures any such breach or default of the
Physician Employment Agreement within a period of thirty (30) days after notice
from Vision 21 of such breach or default.
18.2. Survival. The parties acknowledge and agree that
this Article 18 shall survive the Closing of the transactions contemplated
herein.
19. NON-COMPETITION AND CONFIDENTIALITY COVENANTS.
19.1. Physician Non-Competition Covenant.
a. The Physician recognizes that the
covenants of the Physician contained in this Section 19.1 are an essential part
of this Agreement and that, but for the agreement of the Physician to comply
with such covenants, Vision 21 and the Subsidiary would not have entered into
this Agreement. The Physician acknowledges and agrees that the Physician's
covenant not to compete is necessary to ensure the continuation of the
Management Business (as defined below) and is necessary to protect the
reputation of Vision 21 and the Subsidiary, and that irreparable and
irrevocable harm and damage will be done to Vision 21 and the Subsidiary if the
Physician competes with the Management Business, Vision 21 or the Subsidiary.
The Physician accordingly agrees that for the periods set forth in the Business
Management Agreement, the Physician shall not:
i) directly or indirectly,
either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Physician's
own benefit or for the benefit of any other person or entity knowingly (A)
hire, attempt to hire, contact or solicit with respect to hiring any employee
of Vision 21 (or of the Subsidiary or any of Vision 21's other direct or
indirect subsidiaries) or (B) induce or otherwise counsel, advise or encourage
any employee of Vision 21 (or of the Subsidiary or any of Vision 21's other
direct or indirect subsidiaries) to leave the employment of Vision 21 or the
Subsidiary;
ii) act or serve, directly or
indirectly, as a principal, agent, independent contractor, consultant,
director, officer, employee, employer or advisor or in any other position or
capacity with or for, or acquire a direct or indirect ownership interest in or
otherwise conduct (whether as stockholder, partner, investor, joint venturer,
or as owner of any other type of interest), any Competing Management Business
as such term is defined herein; provided, however, that this clause (ii) shall
not prohibit the Physician from being the owner of up to 1% of any class of
outstanding securities of any company or entity if such class of securities is
publicly traded; or
64
<PAGE> 68
iii) directly or indirectly,
either as principal, agent, independent, contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Physician's
own benefit or for the benefit of any other person or entity, call upon or
solicit any customers or clients of the Management Business; provided however,
that the Physician may send out a general notice to the customers or clients of
the Management Business announcing the termination of his arrangement with the
Subsidiary and Vision 21 and may advertise in a general manner without
violating this covenant. The parties hereto acknowledge and agree that for
purposes of this Section, patients which have in the past received medical or
optometric care from the Company and/or shall in the future receive medical or
optometric care from the New P.C. are not deemed to be customers or clients of
the Management Business.
b. For the purposes of this Section 19.1,
the following terms shall have the meaning set forth below:
i) "Management Business" shall
mean management and administration of the non-medical aspects of medical,
ophthalmology and optometry practices.
ii) "Competing Management
Business" shall mean an individual, business, corporation, association, firm,
undertaking, company, partnership, joint venture, organization or other entity
that either (A) conducts a business substantially similar to the Management
Business within the State, or (B) provides or sells a service which is the same
or substantially similar to, or otherwise competitive with the services
provided by the Management Business within the State; provided, however, that
"Competing Management Business" shall not include Vision 21, the Subsidiary, or
the Physician's internal management and administration of the Physician's
medical practice or participation in the management and administration of a
physician group in which the Physician devotes a significant amount of time to
the practice of medicine.
c. Should any portion of this Section
19.1 be deemed unenforceable because of the scope, duration or territory
encompassed by the undertakings of the Physician hereunder, and only in such
event, then the Physician, Vision 21 and the Subsidiary consent and agree to
such limitation on scope, duration or territory as may be finally adjudicated
as enforceable by a court of competent jurisdiction after the exhaustion of all
appeals.
d. This covenant shall be construed as an
agreement ancillary to the other provisions of this Agreement, and the
existence of any claim or cause of action of the Physician against the
Subsidiary or Vision 21, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Subsidiary and Vision
21 of this covenant; provided, however, that the Physician shall not be bound
by this covenant and shall not be obligated to pay the liquidated damages
contemplated in this Section 19.1 if at the time of a breach of this covenant
the Business Management Agreement has already been terminated pursuant to
Section 6.2(a) thereof. Without limiting other possible remedies to the
65
<PAGE> 69
Subsidiary and Vision 21 for breach of this covenant, the Physician agrees that
injunctive or other equitable relief will be available to enforce the covenants
of this provision, such relief to be without the necessity of posting a bond,
cash or otherwise. The Physician, the Subsidiary and Vision 21 further
expressly acknowledge that the damages that would result from a violation of
this non-competition covenant would be impossible to predict with any degree of
certainty, and agree that liquidated damages in the amount of the aggregate
consideration received by the Physician pursuant to this Agreement is
reasonable in light of the severe harm to the Management Business, the
Subsidiary and Vision 21 which would result in the event that a violation of
this non-competition covenant were to occur. For purposes of calculation of
the liquidated damages contemplated in this Section and for purposes of
calculation of the liquidated damages contemplated in the Business Management
Agreement and the Physician Employment Agreement between the Physician and New
P.C., the aggregate consideration received by Physician pursuant to this
Agreement shall be in those amounts and in such form as set forth in Schedule
19.1. If the Physician violates this non-competition covenant, Vision 21
shall, in addition to all other rights and remedies available at law or equity,
be entitled to (a) cancel the number of shares of Common Stock held by the
Physician or, with respect to shares of Common Stock entitled to be received by
the Physician, terminate its obligation to deliver such number of shares of
Common Stock, valued as set forth in Section 6.6(a) of the Business Management
Agreement, and (b) repayment by Physician to Vision 21 of any and all sums
received in connection with any shares of Vision 21 Common Stock sold by
Physician; but in no event shall Vision 21 be entitled to offset amounts in
excess of the liquidated damages sum pursuant to this Section 19.1. The
Physician agrees to deliver to Vision 21 the certificates representing any such
shares canceled by Vision 21. Payment and satisfaction by Physician shall be
made within sixty (60) days of notification to Physician by Vision 21 that
Physician has violated this non-competition covenant.
e. Notwithstanding anything contained
herein, this Section 19.1 shall not be construed to (i) limit the freedom of
any patient of the Physician to choose the facility or physician from whom such
patient shall receive health-care services or (ii) limit or interfere with the
Physician's ability to exercise his professional medical judgment in treating
his patients or his ability to provide medical services to his patients.
19.2. Physician Confidentiality Covenant. From the
date hereof, the Physician shall not, directly or indirectly, use for any
purpose, other than in connection with the performance of the Physician's
duties under the Physician Employment Agreement with New P.C., or disclose to
any third party, any information of the Subsidiary, Vision 21 or the Company,
as appropriate (whether written or oral), including any business management or
economic studies, patient lists, proprietary forms, proprietary business or
management methods, marketing data, fee schedules, or trade secrets of the
Subsidiary, Vision 21 or of the Company, as applicable, and including the terms
and provisions of this Agreement and any transaction or document executed by
the parties pursuant to this Agreement. Notwithstanding the foregoing, the
Physician may disclose information that the Physician can establish (a) is or
becomes generally available to and known by the public or medical community
(other than as a result of an unpermitted disclosure directly or indirectly by
the Physician or his Affiliates, advisors, or
66
<PAGE> 70
representatives); (b) is or becomes available to the Physician on a
nonconfidential basis from a source other than the Subsidiary or Vision 21, the
Company or their respective Affiliates, advisors or representatives, provided
that such source is not and was not bound by a confidentiality agreement with
or other obligation of secrecy to the Subsidiary or Vision 21, the Company or
their respective Affiliates, advisors or representatives of which the Physician
has knowledge; or (c) has already been or is hereafter independently acquired
or developed by the Physician without violating any confidentiality agreement
with or other obligation of secrecy to the Subsidiary, Vision 21, the Company
or their respective Affiliates, advisors or representatives. Without limiting
the other possible remedies to the Subsidiary and Vision 21 for the breach of
this covenant, the Physician agrees that injunctive or other equitable relief
shall be available to enforce this covenant, such relief to be without the
necessity of posting a bond, cash or otherwise. The Physician further agrees
that if any restriction contained in this Section 19.2 is held by any court to
be unenforceable or unreasonable, a lesser restriction shall be enforced in its
place and the remaining restrictions contained herein shall be enforced
independently of each other.
19.3. Survival. The parties acknowledge and agree that
this Article 19 shall survive the Closing of the transactions contemplated
herein.
20. DISPUTES.
20.1. Mediation and Arbitration. Any dispute,
controversy or claim (excluding claims arising out of an alleged breach of
Article 19 of this Agreement) arising out of this Agreement, or the breach
thereof, that cannot be settled through negotiation shall be settled (a) first,
by the parties trying in good faith to settle the dispute by mediation under
the Commercial Mediation Rules of the AAA (such mediation session to be held in
Tampa, Florida, if the amount in dispute is equal to or in excess of $200,000
or if the dispute is solely of a non-monetary nature, and in Tucson, Arizona if
the amount in dispute is lower than $200,000, and in either case to commence
within 15 days of the appointment of the mediator by the AAA), and (b) if the
controversy, claim or dispute cannot be settled by mediation, then by
arbitration administered by the AAA under its Commercial Arbitration Rules
(such arbitration to be held in Tampa, Florida, if the amount in dispute is
equal to or in excess of $200,000 or if the dispute is solely of a non-monetary
nature, and in Tucson, Arizona if the amount in dispute is lower than $200,000,
and in either case before a single arbitrator and to commence within 15 days of
the appointment of the arbitrator by the AAA), and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
67
<PAGE> 71
21. MISCELLANEOUS
21.1. Taxes. Physician shall pay all transfer taxes,
sales and other taxes and charges imposed by the State, if any, which may
become payable in connection with the transactions and documents contemplated
hereunder (excluding any of such taxes which may be attributable to services to
be provided by Vision 21 under the Business Management Agreement). Vision 21
shall pay all transfer taxes, sales and other taxes and charges imposed by the
State of Florida, if any, which may become payable in connection with the
transactions and documents contemplated hereunder (excluding any of such taxes
which may be attributable to services to be provided by Vision 21 under the
Business Management Agreement).
21.2. Remedies Not Exclusive. No remedy conferred by
any of the specific provisions of this Agreement or any document contemplated
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise. The election of any one or more remedies by any party hereto
shall not constitute a waiver of the right to pursue other available remedies.
21.3. Parties Bound. Except to the extent otherwise
expressly provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
administrators, guardians, successors and assigns; and no other person shall
have any right, benefit or obligation hereunder.
21.4. Notices. All notices, reports, records or other
communications that are required or permitted to be given to the parties under
this Agreement shall be sufficient in all respects if given in writing and
delivered in person, by telecopy, by overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, to the receiving
party at the following address:
If to Vision 21 and the Subsidiary addressed to:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34777
Attn: Richard T. Welch, Chief Financial Officer
With copies to:
Shumaker, Loop & Kendrick
Post Office Box 172609
101 E. Kennedy Boulevard, Suite 2800
Tampa, Florida 33672-0609
Facsimile No. (813) 229-1660
Attn: Darrell C. Smith, Esquire
68
<PAGE> 72
If to the Company and the Physician addressed to:
The Eye Institute of Southern Arizona, P.C.
5632 East 5th Street
Tucson, Arizona 85711
Attn: Jeffrey I. Katz, M.D.
With copies to:
Sacks Tierney, P.A.
2929 North Central Avenue
Fourteenth Floor
Phoenix, Arizona 85012-2742
Attn: Stephen M. Goldstein, Esq.
or to such other address as such party may have given to the other parties by
notice pursuant to this Section 21.4. Notice shall be deemed given on the date
of delivery, in the case of personal delivery or telecopy, or on the delivery
or refusal date, as specified on the return receipt, in the case of overnight
courier or registered or certified mail.
21.5. Choice of Law. This Agreement shall be
construed, interpreted, and the rights of the parties determined in accordance
with, the laws of the State of Florida except with respect to matters of law
concerning the internal affairs of any corporate or partnership entity which is
a party to or the subject of this Agreement, and as to those matters the law of
the state of incorporation or organization of the respective entity shall
govern.
21.6. Entire Agreement; Amendments and Waivers. This
Agreement, together with the documents contemplated by this Agreement and all
Exhibits and Schedules hereto and thereto, constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof. No supplement, modification or
waiver of any of the provisions of this Agreement shall be binding unless it
shall be specifically designated to be a supplement, modification or waiver of
this Agreement and shall be executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
21.7. Confidentiality Agreements. The provisions of
any prior confidentiality agreements and letters of intent between or among
Vision 21, the Company and the Physician, as amended, shall terminate and cease
to be of any force or effect at and upon the Closing.
69
<PAGE> 73
21.8. Reformation Clause. It is the intention of the
parties hereto to conform strictly to applicable laws regarding the practice
and regulation of medicine, whether such laws are now or hereafter in effect,
including the laws of the United States of America, the State or any other
applicable jurisdiction, and including any subsequent revisions to, or judicial
interpretations of, those laws, in each case to the extent they are applicable
to this Agreement (the "Applicable Laws"). Accordingly, if the ownership of
any Nonmedical Asset by the Subsidiary violates any Applicable Law, then the
parties hereto agree as follows: (a) the provisions of this section 21.8 shall
govern and control; (b) if none of the parties hereto are materially
economically disadvantaged, then any Nonmedical Asset, the ownership of which
violates any Applicable Law, shall be deemed to have never been owned by the
Subsidiary; (c) if one or more of the parties hereto is materially economically
disadvantaged, then the parties hereto agree to negotiate in good faith such
changes to the structure and terms of the transactions provided for in this
Agreement as may be necessary to make these transactions, as restructured,
lawful under applicable laws and regulations, without materially disadvantaging
either party; (d) this Agreement shall be deemed reformed; and (e) the parties
to this Agreement shall execute and deliver all documents or instruments
necessary to effect or evidence the provisions of this Section 21.8.
21.9. Assignment. The Agreement may not be assigned by
operation of law or otherwise except that Vision 21 and the Subsidiary shall
have the right to assign this Agreement, at any time, to any Affiliate or
direct or indirect wholly-owned subsidiary. In the event of such assignment,
Vision 21 and the Subsidiary shall remain liable hereunder.
21.10. Attorneys' Fees. Except as otherwise
specifically provided herein, if any action or proceeding is brought by any
party with respect to this Agreement or the other documents contemplated with
respect to the interpretation, enforcement or breach hereof, the prevailing
party in such action shall be entitled to an award of all reasonable costs of
litigation or arbitration, including, without limitation, attorneys' fees, to
be paid by the losing party, in such amounts as may be determined by the court
having jurisdiction of such action or proceeding or by the arbitrators deciding
such action or proceeding.
21.11. Further Assurances. From time to time hereafter
and without further consideration, each of the parties hereto shall execute and
deliver such additional or further instruments of conveyance, assignment and
transfer and take such other actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the transactions
contemplated hereunder or as shall be reasonably necessary or appropriate in
connection with the carrying out of the parties' respective obligations
hereunder for the purposes of this Agreement.
21.12. Announcements and Press Releases. Any press
releases or any other public announcements concerning this Agreement or the
transactions contemplated hereunder shall be approved in advance by Vision 21,
New P.C. and the Company; provided, however, that such approval shall not be
unreasonably withheld and if any party reasonably believes that
70
<PAGE> 74
it has a legal obligation to make a press release and the consent of the other
party cannot be obtained, then the release may be made without such approval.
21.13. No Tax Representations. Each party acknowledges
that it is relying solely on its advisors to determine the tax consequences of
the transactions contemplated hereunder and that no representation or warranty
has been made by any party as to the tax consequences of such transactions
except as otherwise specifically set forth in this Agreement.
21.14. No Rights as Stockholder. The Physician shall
have no rights as a stockholder with respect to any shares of Common Stock
until the issuance of a stock certificate evidencing such shares. Except as
otherwise provided in the Agreement, no adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to such
date any stock certificate is issued.
21.15. Multiple Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
21.16. Headings. The headings of the several articles
and sections herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
21.17. Severability. Each article, section and
subsection of this Agreement constitutes a separate and distinct undertaking,
covenant or provision of this Agreement. If any such provision shall finally
be determined to be unlawful, such provision shall be deemed severed from this
Agreement, but every other provision of this Agreement shall remain in full
force and effect.
21.18. Form of Transaction. If after the execution
hereof, Vision 21 determines that the ownership of the Nonmedical Assets of the
Company can be better achieved through a different form of transaction without
economic injury to the Company or the Physician, or delay of the consummation
of the transaction, the Company and the Physician shall cooperate in revising
the structure of the transaction and shall negotiate in good faith to so amend
this Agreement; provided, that Vision 21 shall reimburse the Company and the
Physician at Closing for all reasonable additional expenses incurred by the
Company and the Physician as a result of such change in form.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
71
<PAGE> 75
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
"COMPANY"
EYE INSTITUTE OF SOUTHERN
ARIZONA, P.C.
/s/
- --------------------------------- By:
Witness ------------------------------------
---------------------,--------------
/s/
- ---------------------------------
Witness
"PHYSICIAN"
/s/ /s/ Jeffrey I. Katz
- --------------------------------- ---------------------------------
Witness Jeffrey I. Katz, M.D.
/s/
- ---------------------------------
Witness
/s/ /s/ Barry Kusman
- --------------------------------- ---------------------------------
Witness Barry Kusman, M.D.
/s/
- ---------------------------------
Witness
72
<PAGE> 76
"VISION 21"
VISION 21, INC.
By:/s/ Theodore N. Gillette
-------------------------------
Theodore N. Gillette, President
"SUBSIDIARY'
VISION 21 OF ARIZONA, INC.
By:/s/ Theodore N. Gillette
-------------------------------
Theodore N. Gillette, President
/s/
- --------------------------------
Witness
/s/
- --------------------------------
Witness
73
<PAGE> 77
Schedule 1.47A
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Medical Assets of the Company
The following constitute the Medical Assets:
Medical records,
Patient lists;
Third-party payer contracts (except for rights to purchased
accounts receivable);
Eyeglasses, lenses and other eyewear;
Licenses, certificates of need, Medicare/Medicaid
certifications and other governmental authorizations necessary
to provide Professional Eye Care Services and to be paid
therefor by applicable third-party payers; and
Any other asset that legally cannot be owned by a party that
is not physician-owned.
<PAGE> 78
Schedule 1.47B
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Personal Effects
None.
<PAGE> 79
Schedule 3
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Individuals - Best knowledge
representations and warranties of the Company
1. Jeffrey I. Katz, M.D.
2. Barry Kusman, M.D.
3. Office Manager
<PAGE> 80
Schedule 3.1
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21") ("Vision 21")
Capital Stock or other interest owned by the
Company, the Physician or any Professional
Employee in any Competitor
None.
<PAGE> 81
Schedule 3.2
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21") ("Vision 21")
Security interests, liens, adverse claims, encumbrances,
equities, proxies or shareholders agreements affecting Company
Common Stock
1. Buy-Sell/Stock Redemption Agreement dated November 30, 1983
among Southern Eye Institute of Southern Arizona, P.C.,
Jeffrey I. Katz, M.D. and Barry Kusman, M.D., as amended by
First Amendment dated March 20, 1992.
<PAGE> 82
Schedule 3.3
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Options, warrants, subscriptions or other
rights to purchase stock in the Company or
Company's obligation
to purchase, redeem or otherwise acquire any
of its equity securities, pay dividends or
make distributions
1. Buy-Sell/Stock Redemption Agreement dated November 30, 1983
among Southern Eye Institute of Southern Arizona, P.C.,
Jeffrey I. Katz, M.D. and Barry Kusman, M.D., as amended by
First Amendment dated March 20, 1992.
<PAGE> 83
Schedule 3.4
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Sale, distribution, or spin-off of
significant assets of the Company or
its Affiliates within the last two years
None.
<PAGE> 84
Schedule 3.7
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Violations or conflicts resulting from
execution, delivery and consummation
of transaction by the Company
None.
<PAGE> 85
Schedule 3.8
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Consents required for Company from
Governmental Authority or any other persons
Physician Professional Services Agreement with Eye Specialists
of Arizona Network (Noncompete clause at Section 2).
<PAGE> 86
Schedule 3.9(a)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Barry Kusman, M.D. and
Jeffrey T. Katz, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plans sponsored by the
Company or to which the Company contributes on
behalf of its Employees in the past three years
Cash or deferred 401(k) profit sharing plan
Group medical and life insurance plans
<PAGE> 87
Schedule 3.9(b)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Barry Kusman, M.D. and
Jeffrey T. Katz, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Exceptions to Employee Benefit Plan Compliance
None.
<PAGE> 88
Schedule 3.9(c)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Barry Kusman, M.D. and
Jeffrey T. Katz, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plan audits,
investigations or enforcement actions
None.
<PAGE> 89
Schedule 3.9(d)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Barry Kusman, M.D. and
Jeffrey T. Katz, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plan Prohibited Transactions
None.
<PAGE> 90
Schedule 3.9(f)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Barry Kusman, M.D. and
Jeffrey T. Katz, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plan determination letter or IRS ruling
None.
<PAGE> 91
Schedule 3.9(g)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Barry Kusman, M.D. and
Jeffrey T. Katz, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plan Accumulated Funding Deficiency
Not applicable.
<PAGE> 92
Schedule 3.9(h)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Barry Kusman, M.D. and
Jeffrey T. Katz, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plan Excise Taxes
None.
<PAGE> 93
Schedule 3.10
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Liabilities of the Company not
reflected in Financial Statements
None.
<PAGE> 94
Schedule 3.11(a)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Compensation of All Employees of the Company
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 95
Schedule 3.11(b)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Compensation plans, arrangements or practices
sponsored by the Company or to which the
Company contributes on behalf of its
employees (other
than Employment Agreements and Employee Benefit Plans)
1. Medical Reimbursement Plan dated December 1, 1983, as amended
January 1, 1993 and January 1, 1995
Participation requirements: full time employees
Maximum reimbursement: $3,000.00
<PAGE> 96
Schedule 3.11(c)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employment Agreements
1. Employment Agreement dated December 1, 1983 between the
Company and Jeffrey I. Katz, M.D.
2. Employment Agreement dated December 1, 1983 between the
Company and Barry Kusman, M.D.
3. Employment Agreement dated July 5, 1994 between the Company
and John Carolan, M.D.
4. Consulting Agreement dated December, 1990 with Medivision,
Inc.
5. Affiliation Agreement dated November 18, 1985 with Medivision,
Inc.
<PAGE> 97
Schedule 3.11(d)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Policies and Procedures
See attached.
[EMPLOYEE POLICIES AND PROCEDURES WHICH WERE ATTACHED TO THIS
SCHEDULE HAVE BEEN OMITTED.]
<PAGE> 98
Schedule 3.11(f)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Exceptions to Labor Compliance
None.
<PAGE> 99
Schedule 3.11(g)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Union participation of Company Employees
None.
<PAGE> 100
Schedule 3.12(a)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plans sponsored
by the Company or to which the
Company contributes on behalf of
its Employees in the past three years
1. The Eye Institute of Southern Arizona, P.C. 401(k) Profit
Sharing Plan & Trust, dated January 1, 1996.
<PAGE> 101
Schedule 3.12(c)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plan audits,
investigations or enforcement actions
None.
<PAGE> 102
Schedule 3.12(f)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Employee Benefit Plan
determination letter or IRS ruling
See attached.
[IRS DETERMINATION LETTERS AND/OR RULINGS HAVE BEEN OMITTED.]
<PAGE> 103
Schedule 3.13
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Changes to Company
since Balance Sheet Date
None.
<PAGE> 104
Schedule 3.14(b)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Permitted Encumbrances
on Personal Property
None.
<PAGE> 105
Schedule 3.14(c)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Real Property Leases and
Personal Property Leases
1. Lease of Real Property dated December 1, 1983 between Kuskat
Investment Company, an Arizona general partnership, as Lessor,
and the Company, as Lessee, covering medical building premises
(6,650 square feet) located at 5632 East 5th Street, Tucson,
Arizona 85711.
Term expires - April 28, 2014.
2. Lease of Personal Property dated December 1, 1983 between
Kuskat Investment Company, an Arizona general partnership, as
Lessor, and the Company, as Lessee, covering equipment.
Term expires - November 30, 1999.
3. Medivision, Inc. Facility Sublease and Equipment Lease in
effect as of October 26, 1994.
<PAGE> 106
Schedule 3.15
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Commitments of the Company
None.
<PAGE> 107
Schedule 3.16
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Insurance Policies; Cancellations;
Outstanding Claims, Settlements or
Premiums Owed; Professional Liability
Insurance Denials since January 1, 1994;
and All Claims since January 1, 1994
See chart attached hereto and made a part hereof.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 108
Schedule 3.17
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Description of Proprietary Rights; Consents
None.
<PAGE> 109
Schedule 3.18
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Good faith disputes over payment
of Taxes; Tax deficiency or delinquency
None.
<PAGE> 110
Schedule 3.19
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
List of licenses, franchises, permits and
governmental authorizations for conduct of
the Company's business; Notices of Noncompliance
1. Arizona Department of Health Services, Health Care Institution
License, Outpatient Surgical Center, No. OSC-18 (Medivision,
Inc., d/b/a Eye Institute of Southern Arizona)
Effective Date: June 1, 1995, Termination Date: May 31, 1997
2. Department of Health and Human Services, Health Care Financing
Administration, CLIA Laboratory Certificate of Waiver (CLIA
No. 03DO532620) Effective Date: June 24, 1995, Termination
Date: June 23, 1997
3. Arizona Corporation Commission, Business Corporation Annual
Report and Certificate of Disclosure (Corporate File No.
0509908.2)
4. Arizona Board of Medical Examiners Licenses for Jeffrey I.
Katz (No. 9969), Barry Kusman (No. 12771) and John A. Carolan
(No. 22587) and DEA Certificates
5. Accreditation Association for Ambulatory Health Care, Inc.
(granted July 2, 1993)
<PAGE> 111
Schedule 3.20
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Finder's, broker's or
agent's fee owed by the Company
None.
<PAGE> 112
Schedule 3.21
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Company Litigation
None.
<PAGE> 113
Schedule 3.24
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
List of Company borrowing and investing arrangements
None.
<PAGE> 114
Schedule 3.25
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Ownership Interests of
Interested Persons and Material
Affiliations in the last three years
None.
<PAGE> 115
Schedule 3.26
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Company Investments in Competitors
None.
<PAGE> 116
Schedule 3.32
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Description of and relationship with Payors
1. Subcontract Agreements dated April 1, 1996 between Eye Care &
Surgery Center and Jeffrey I. Katz, M.D. and between Barry
Kusman to provide ophthalmology services to CIGNA members.
2. Affiliation Agreements dated July 14, 1996 between Eye
Specialists of Arizona Network and Jeffrey I. Katz, M.D. and
between Barry Kusman, M.D. to render general ophthalmology
services and care.
<PAGE> 117
Schedule 4.2
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Violations or conflicts
resulting from execution, delivery or
consummation of transaction by the Physician
None.
<PAGE> 118
Schedule 4.4
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
List of transfers or other
transactions involving Company
capital stock since January 1, 1994
None.
<PAGE> 119
Schedule 4.7
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Finder's, broker's or
agent's fees owed by the Physician
None.
<PAGE> 120
Schedule 4.8
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Physician Ownership of Interested
Persons and Material Affiliations
1. Jeffrey I. Katz, M.D. and Barry Kusman, M.D. are each parties
in Kuskat Investment Company, an Arizona general partnership,
which leases real and personal property to the Company.
<PAGE> 121
Schedule 4.9
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Physician Investments in Competitors
None.
<PAGE> 122
Schedule 4.10
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Physician Litigation
None.
<PAGE> 123
Schedule 4.12
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
List of hospitals at which
Physician has full staff privileges
Jeffrey I. Katz, M.D. and Barry Kusman, M.D.
FULL STAFF PRIVILEGES
St. Joseph's Hospital
350 North Wilmot Road
Tucson, Arizona 85711
El Dorado Hospital
1500 North Wilmot Road
Tucson, Arizona 85711
Tucson Medical Center
5301 E. Grant Road
Tucson, Arizona 85712
John A. Carolan, M.D.
Courtesy Staff Privileges
at all of the above hospitals
<PAGE> 124
Schedule 4.13
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Exceptions to continued Physician
intent to practice medicine
None.
<PAGE> 125
Schedule 5
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Individuals - Best knowledge
representations and warranties of Vision 21
1. Theodore N. Gillette
2. Richard L. Sanchez
3. Richard T. Welch
4. Nicholas M. Arfaras
<PAGE> 126
Schedule 5.1
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Jurisdictions where Vision 21
is qualified to do business
1. Florida
2. Arizona
3. Minnesota
4. New York
<PAGE> 127
Schedule 5.6
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Consents required for Vision 21
from Governmental Authority or other persons
None.
<PAGE> 128
Schedule 5.7
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Finder's, brokers or
agent's fees owed by Vision 21
None.
<PAGE> 129
Schedule 5.11
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Liabilities of Vision 21
not reflected in Financial Statements
None.
<PAGE> 130
Schedule 7.6
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Other Contracts or
Agreements of New, P.C.
None.
<PAGE> 131
Schedule 8.1(b)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Exception to Physician "accredited investor"
or "sophisticated investor" representation
None.
<PAGE> 132
Schedule 8.1(d)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Physician's principal residence
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 133
Schedule 9.16
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Non-Shareholder Physician
Employees not required to enter into
Physician Employment Agreement with New, P.C.
Status of Employment Agreement between The Eye Institute of Southern
Arizona, P.C. and John A. Carolan, M.D. to be reviewed at time of
execution of transaction.
<PAGE> 134
Schedule 9.17
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Optometrist Employees not
required to enter into Optometrist
Employment Agreement with New, P.C.
None.
<PAGE> 135
Schedule 9.21
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Exceptions to Assignment of Fees
for Medical and Optometry Services
from All Professional Employees of Company
None.
<PAGE> 136
Schedule 9.22
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Ambulatory Surgical Center Transferred
Assets and Assumed
Liabilities
See attached list and agreed upon values.
<PAGE> 137
Schedule 10.6
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Personal liabilities of
Physician for which Vision 21 will
use best efforts to obtain release
None.
<PAGE> 138
Schedule 11.5
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Joint Personal liabilities of
Physician and Company for which Vision 21 will
use best efforts to obtain release
None.
<PAGE> 139
Schedule 15.3
to Agreement and Plan of Reorganization among Eye Institute of Southern
Arizona, P.C. (the "Company"),
Jeffrey I. Katz, M.D. and Barry Kusman, M.D. (together, the "Physician") and
Vision 21, Inc. ("Vision
21")
Consideration for Transfer of Ambulatory Surgical Center
Assets and Assumption of Liabilities
As full consideration for the transfer of assets to the New P.C. and
the assumption of liabilities by the New P.C. relating to the ambulatory
surgical line of business described in Sections 9.22 and 15.3 of the Agreement
and Plan of Reorganization (the "Agreement"), Vision 21, Inc. shall pay to the
shareholders of the newly-created professional corporation described in Section
9.22 of the Agreement Two Hundred Ten Thousand Three Hundred and Two (210,302)
shares of Vision 21, Inc. common stock (the "ASC Consideration"). The ASC
Consideration shall be increased or decreased (effected through corresponding
increases or decreases in the number of shares of stock of Vision 21, Inc. to
be paid to the shareholders of the newly-created professional corporation) to
the same extent that: (i) the aggregate value of the transferred assets minus
the aggregate amount of the assumed liabilities as of the effective date of the
closing of the transfer of such ambulatory surgical center assets to the New
P.C. and the assumption of such liabilities by the New P.C. (the "ASC Transfer
Date") differ from (ii) the aggregate value of the transferred assets minus the
aggregate amount of the assumed liabilities as set forth on Schedule 9.22. If
the shareholders of the newly-created professional corporation and Vision 21,
Inc. cannot agree as to the value of the transferred assets and the amount of
the assumed liabilities as of the ASC Transfer Date, such value and amount
shall be determined by the accounting firm of Ernst & Young LLP, any successor
thereof, or such other big six accounting firm agreed to by the parties. If
Ernst & Young LLP or its successor or replacement acts as an arbitrator of a
valuation issue described in this Schedule 15.3, Ernst & Young LLP (or its
successor or replacement) shall act as an impartial and independent arbitrator.
The parties hereby waive and release and agree to indemnify and hold harmless
Ernst & Young LLP (and its successor or replacement) from and for any and all
claims, demands, liabilities, losses, damages, costs and expenses relating to
its determinations made in good faith as described in this Schedule 15.3 and
agree to execute any documents reasonably requested by Ernst & Young LLP (or
its successor or replacement) to effectuate the same. In the event that the
ASC Consideration is reduced or increased in accordance with this Schedule
15.3, the Vision 21, Inc. common stock to be subtracted from or added to the
ASC Consideration shall be valued at (i) its market price at the end of trading
on the ASC Transfer Date if the stock is then publicly traded, or (ii) the
value determined by the parties or the arbitrator in accordance with the
mediation and arbitration procedures described in Section 20.1 of the
Agreement.
<PAGE> 140
Schedule 18.1
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Liquidated damages for Physician
breaching Physician Employment Agreement
Liquidated damages for Jeffrey I. Katz, M.D. shall equal $2.77 per
share of Vision 21 common stock times 297,459 shares of Vision 21 common stock
granted to Jeffrey I. Katz, M.D. in connection with the Merger, which total
equals $823,961.
Liquidated damages for Barry Kusman, M.D. shall equal $2.77 per share
of Vision 21 common stock times 297,459 shares of Vision 21 common stock
granted to Barry Kusman, M.D. in connection with the Merger, which total equals
$823,961.
<PAGE> 141
Exhibit 2.8(a)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
Share Exchange
A total of 594,918 shares of Vision 21 common stock for all of the
issued and outstanding common stock of Eye Institute of Southern Arizona, P.C.
<PAGE> 142
Exhibit 14.1(o)
to Agreement and Plan of Reorganization among Eye Institute of
Southern Arizona, P.C. (the "Company"), Jeffrey I. Katz, M.D.
and Barry Kusman, M.D. (together, the "Physician") and Vision
21, Inc. ("Vision 21")
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of December
1, 1996, is by and between Vision 21, Inc., a Florida corporation and any
successor ("Vision 21"), and __________________, M.D. ("Shareholder").
1. Registration Rights.
(a) In the event that Vision 21 proposes to file a
registration statement under the Securities Act for purposes of effecting an
underwritten public offering of shares of Vision 21 common stock for cash
(including, but not limited to, a registration statement relating to a
secondary offering of Vision 21 common stock, but excluding registration
statements relating to any employee benefit plan or a corporate
reorganization), Vision 21 shall give written notice of such proposed filing to
the Shareholder at least fifteen (15) days before the anticipated filing date,
and such notice shall offer Shareholder the opportunity to register such number
of the Shareholder's shares of common stock as Shareholder may request in
writing within ten (10) days after receipt of such notice; provided, however,
that the maximum number of shares of common stock that such Shareholder may
request to include in any registration statement shall be limited as provided
in Section 1(c).
(b) In the event that (i) one (1) year has elapsed from
the date of effectiveness of the registration statement filed in connection
with an underwritten initial public offering of shares of Vision 21 common
stock, and (ii) Vision 21 receives a written request from holders holding in
the aggregate a minimum of 300,000 shares of Vision 21 common stock issued to
the founding practices described in Vision 21's Confidential Information
Memorandum dated September 27, 1996, as amended, and issued to certain
professionals owning equity interests in such founding practices (the founding
practices and professionals of such practices holding share's of common stock
of Vision 21 are collectively referred to as the "Founding Shareholders"), that
Vision 21 file a registration statement under the Securities Act effecting an
offering of shares of Vision 21 common stock; then Vision 21 shall as soon as
practicable file a registration statement at its own expense effecting a public
offering of shares of Vision 21 common stock held by Founding Shareholders, as
well as any other Vision 21 shares owned by any other shareholders which Vision
21 wishes to include in the offering (which offering may be an underwritten
offering at Vision 21's sole discretion); provided however that Vision 21 shall
be obligated to effect only one registration statement containing each
Shareholder, and Vision 21 shall be obligated to file only two (2) registration
statements in the aggregate, pursuant to this Section 1(b).
(c) The maximum aggregate number of shares of common
stock that Shareholder may request to be registered under this Agreement shall
be sixty percent (60%) of
<PAGE> 143
Shareholder's original shares of Vision 21 common stock. In no event shall the
total number of Shareholder's shares of common stock that Vision 21 is
obligated to register under this Agreement exceed sixty percent (60%) of
Shareholder's original shares of Vision 21 common stock, and in no event shall
Vision 21 be obligated to register more than (i) in an initial offering, thirty
percent (30%) of Shareholder's original shares of Vision 21 common stock or
(ii) in a second offering, sixty percent (60%) of the Shareholder's original
shares minus the percent of the Shareholder's original shares that the
Shareholder registered in the first offering. The "original shares" of Vision
21 as described herein shall be deemed to be the _____________ shares of common
stock received by the Shareholder on the date of this Agreement.
(d) Vision 21 shall have the sole and exclusive right to
select the underwriters of any public offering of shares of Vision 21 common
stock, including any public offering conducted pursuant to the demand
registration right set forth in Section 1(b) above. The use of underwriters in
any demand registration right set forth in Section 1(b) above is subject to
Vision 21's ability to engage underwriters under terms and conditions deemed
reasonable by Vision 21.
(e) If the managing underwriter of any offering advises
Vision 21 that the total number of shares of Vision 21's common stock which
Vision 21, the Shareholder and any other persons intend to include in such
offering would adversely affect the success of such offering, then the amount
of shares of common stock to be offered for the account of Shareholder shall be
reduced to the extent necessary to reduce the total number of shares of common
stock to be included in such offering to the amount recommended by such
managing underwriter.
(f) Vision 21 shall not be required to (i) reduce the
amount of shares of common stock to be offered by Vision 21 in such offering
for any reason or (ii) include any shares of common stock of Shareholder in any
public offering for which a registration statement is or is proposed to be
filed if such shares of common stock are, at the time of effectiveness of such
registration statement, eligible to be sold under Rule 144 under the Securities
Act or otherwise eligible for sale to the public without registration.
(g) Vision 21 shall have the right to extend or delay the
effectiveness of any registration statement for a period of up to ninety (90)
days if, upon the advice of counsel, such delay is advisable and in the best
interests of Vision 21 because of the existence of non-public material
information, or to allow Vision 21 to complete any pending audit of its
financial statements or any public financing plan.
(h) Shareholder agrees to cooperate with Vision 21 in all
respects in connection with registration of the common stock, including timely
supplying all information and executing and returning all documents requested
by Vision 21 and its managing underwriter.
Exhibit 14.1(o) - Page 2
<PAGE> 144
(i) Vision 21 shall not be required to include any of
Shareholder's shares of common stock in any registration statement unless
Shareholder accepts the terms of the underwriting as agreed upon between Vision
21 and its underwriters.
(j) Vision 21 shall have the right to defer the filing of
any registration statement if the Board of Directors of Vision 21 determines in
good faith that it would be seriously detrimental to Vision 21 and its
shareholders for such registration statement to be filed.
(k) This Agreement shall expire two (2) years from the
date of an initial public offering of Vision 21 common stock.
2. Covenants of Vision 21. Vision 21 hereby covenants and
agrees:
(a) To take such steps as may be necessary to comply with the Blue
Sky laws of such states as the managing underwriter may reasonably request;
provided that in no event shall Vision 21 be obligated to qualify to do
business in any state where it is not so qualified or to take any action which
would subject it to unlimited service of process in any state where it is not
at such time so subject;
(b) To use reasonable efforts to cause the registration statement
to become effective and to keep the registration statement effective for such
period as may be required under the terms of the underwriting agreement
relating thereto but no longer than for a period of forty-five (45) days, to
file such post-effective amendments as may be necessary to keep any prospectus
contained in such registration statement true and complete during such period
as the registration statement shall be effective, and to furnish and file such
other amendments, supplements, and other documents the managing underwriter may
reasonably request;
(c) To supply such numbers of prospectuses as may be reasonably
required by the managing underwriter;
(d) To pay the reasonable costs and expenses of the registration
statement including without limitation all registration and Blue Sky filing
fees, all fees and expenses of Vision 21's counsel (but not the fees and
expenses of counsel for Shareholder), all accounting costs (including costs
associated with the preparation of interim period financial statements), NASD
fees, printing costs, experts' fees, expenses, costs of post-effective
amendments, and all other usual and customary expenses in connection with the
registration statement, except for Shareholder's pro rata share of underwriting
discounts, fees, and selling commissions (calculated in the manner set forth in
Section 3(a)(ii) of this Agreement); and
(e) With respect to any registration statement filed pursuant to
this Agreement, where underwriters are utilized, to cooperate with the
underwriters to the best of its abilities and to enter into an underwriting
agreement with such underwriters containing such representations,
Exhibit 14.1(o) - Page 3
<PAGE> 145
warranties, and covenants on the part of Vision 21 as are usual and customary
in an underwritten public sale of common stock.
3. Covenants of Shareholder.
(a) Shareholder hereby covenants and agrees:
(i) To cooperate with Vision 21 in its compliance with
all federal and state securities laws, including without limitation providing
such information and signing such documents as are necessary to effect a
registration or reasonably requested by underwriters pursuant to this
Agreement;
(ii) To pay his pro rata portion (calculated on the basis
of the ratio of the aggregate offering price attributable to the shares of
Shareholder being registered and sold in relation to the aggregate offering
price attributable to the total number of securities being registered and sold,
including securities being registered and sold by other selling stockholders)
of the underwriting discounts and selling commissions and to pay all the fees
and disbursements of his counsel; and
(iii) To the entry of stop transfer instructions with the
Company's transfer agent against the transfer of any shares of Shareholder's
Vision 21 common stock except in compliance with the restrictions as set forth
in this Section 3.
(b) Shareholder shall be considered an "affiliate" of Vision 21
for purposes of Rule 144 under the Securities Act, even in the event
Shareholder is not technically an affiliate of Vision 21 as defined in Rule
144, and the Vision 21 common stock owned by Shareholder shall be subject to
the restrictions and limitations on resale imposed by Rule 144 on affiliates of
Vision 21. Shareholder shall not sell any of his shares of Vision 21 common
stock under Rule 144 unless Shareholder would be eligible to do so under the
provisions applicable to affiliates.
(c) In addition to the transfer restrictions otherwise provided
for herein, Shareholder shall not, whether or not Shareholder elects to cause
the registration of his shares pursuant to this Agreement, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise dispose of any shares of Vision 21 common stock
(other than the shares covered by such registration, which may be sold in
accordance with the plan or plans of distribution described in the registration
statement) owned by Shareholder for a period of one hundred eighty (180) days
or such shorter period as negotiated by the Company following the effective
date of such registration statement without the prior written consent of Vision
21. In the event that Shareholder is a corporation, professional corporation
or professional limited liability company, Shareholder may after receiving the
written approval of Vision 21 (which approval shall not be unreasonably
withheld) transfer its shares of Vision 21 Common Stock to any of the
individuals and/or trusts described in Sections 7(a), (b) and (c) hereof. Such
transferee
Exhibit 14.1(o) - Page 4
<PAGE> 146
shall, for purposes of the transfer restrictions contained in this Agreement,
be deemed to have held such transferred shares for the same period as
Shareholder.
4. Indemnification of Shareholder. Whenever registration with
respect to any shares of Shareholder's common stock is effected under the
Securities Act pursuant hereto, Vision 21 will indemnify and hold harmless
Shareholder, each underwriter, the directors, officers, employees and agents of
each underwriter, and each person, if any, who controls each underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, liabilities, expenses and
damages (including any and all investigative, legal and other expenses
reasonably incurred in connection with, and any amount paid in settlement of,
any action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise,
(including any securities law violations) insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged omission to state in such document a material fact
required to be stated in it or necessary to make the statements in it not
misleading, provided that Vision 21 will not be liable to Shareholder to the
extent that such loss, claim, liability, expense or damage is based on an
untrue statement or omission made in reliance on and in conformity with
information furnished to Vision 21 by Shareholder, or by Shareholder through
any attorney-in- fact, expressly for inclusion in the registration statement or
any prospectus included in such registration statement.
5. Indemnification of Vision 21. Whenever registration with
respect to any shares of Shareholder's common stock is effected under the
Securities Act pursuant hereto, Shareholder will indemnify and hold harmless
Vision 21, each of Vision 21's directors and officers, each person who controls
Vision 21 within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, each underwriter, the directors, officers, employees and
agents of each underwriter, and each person, if any, who controls each
underwriter within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, from and against any and all losses, claims,
liabilities, expenses and damages (including any and all investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, at common
law or otherwise, insofar as such losses, claims, liabilities, expenses or
damages arise out of or are based on any untrue statement or alleged untrue
statement of a material fact required to be stated in it or necessary to make
the statements in it not misleading; provided that Shareholder will not be
liable except to the extent that such loss, claim, liability, expense or damage
arises from or is based upon an untrue statement or omission or alleged untrue
statement or omission made in reliance on and in conformity with information
furnished to Vision 21 by the Shareholder, or by Shareholder through any
attorney-in-fact, expressly for inclusion in the registration statement or any
prospectus included in such registration statement.
Exhibit 14.1(o) - Page 5
<PAGE> 147
6. Defense of Claim. Promptly after receipt by an indemnified
party of notice of the commencement of any action, the indemnified party shall
notify the indemnifying party in writing of the commencement thereof if a claim
in respect thereof is to be made against an indemnifying party under this
Agreement, but the omission of such notice shall not relieve the indemnifying
party from liability which it may have to the indemnified party under this
Agreement, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice, and shall not relieve the
indemnifying party from any liability which it may have to any indemnified
party otherwise than under this Agreement. In case any action is brought
against the indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and to the extent that it chooses, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party, and after notice from
the indemnifying party to the indemnified party that it so chooses, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof; provided however that (i) if the indemnifying party fails to take
reasonable steps necessary to defend diligently the claim within twenty (20)
days after receiving notice from the indemnified party that the indemnified
party believes the indemnifying party has failed to diligently defend such
claim, or (ii) if the indemnified party who is a defendant in any action or
proceeding which is also brought against the indemnifying party reasonably
shall have concluded that there are legal defenses available to the indemnified
party which conflict with the defense strategy of the indemnifying party, or
(iii) if representation under applicable standards of professional conduct
require separate representation of the indemnified party and the indemnifying
party, then the indemnified party shall have the right to assume or continue
its own defense as set forth above and the indemnifying party shall reimburse
the indemnified party for the costs of such defense as provided in Section 4
and 5. In no event shall the indemnifying party be responsible for the fees of
more than one firm for all indemnified parties.
7. Non-Transferability. The registration rights and benefits set
forth herein, including indemnification by Vision 21 are granted for the sole
and personal benefit of Shareholder and may not be transferred or assigned
except for (a) gifts to his/her family members (b) assignment to a trust
controlled by the Shareholder, (c) transfers to Shareholder;s heirs which occur
by operation of law as a result of the death of the Shareholder, or (d) if the
Shareholder is a corporation, professional corporation or professional limited
liability company, transfers or assignments to the individuals who are current
equity holders of Shareholder and by such equity holders to the individuals
and/or trusts described in subsection (i) and (ii) of this Section.
8. Survival of Indemnity. The indemnifications provided by this
Agreement shall be a continuing right to indemnification and shall survive the
registration and sale of any securities by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
9. Delay of Registration. Shareholder agrees that he shall have
no right to obtain or seek an injunction restraining or otherwise delaying any
registration statement filed by Vision 21.
Exhibit 14.1(o) - Page 6
<PAGE> 148
10. Notices.
(a) All communications under this Agreement shall be in
writing and shall be sufficient in all respects if when personally delivered
or mailed by prepaid certified or registered mail, return receipt requested,
addressed as follows:
(i) If to Vision 21, at:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Theodore N. Gillette,
Chief Executive Officer
With a copy to:
Darrell C. Smith, Esquire
c/o Shumaker, Loop & Kendrick, LLP
101 E. Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
or at such other address as Vision 21 may have furnished in writing to
Shareholder at the time outstanding, or
(ii) If to Shareholder at:
Eye Institute of Southern Arizona, P.C.
5632 East 5th Street
Tucson, Arizona 85711
Attn: __________________, M.D.
Exhibit 14.1(o) - Page 7
<PAGE> 149
With a copy to:
Steven M. Goldstein, Esquire
Sacks Tierney P.A.
2929 North Central Avenue
Phoenix, Arizona 85012-2742
(b) Any notice so addressed, when mailed by registered or
certified mail shall be deemed to be given three days after so mailed, and when
delivered by hand shall be deemed to be given immediately.
11. Counterparts. One or more counterparts of this Agreement may
be signed by the parties, each of which shall be an original but all of which
together shall constitute one and the same instrument.
12. Governing Law. This Agreement shall be construed in
accordance with and governed by the internal laws of the State of Florida,
which shall prevail in all matters arising under or in connection with this
Agreement.
13. Headings. The headings in this Agreement are for convenience
of reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
14. Stock Lettering. The Company shall have the right to provide
a legend on the shares of stock covered hereunder reflecting the restriction
described hereunder.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date and year first above written.
"VISION 21"
VISION 21, INC.
By:
-------------------------------------
Theodore N. Gillette, Chief
Executive Officer
Exhibit 14.1(o) - Page 8
<PAGE> 150
"SHAREHOLDER"
----------------------------------------
Signature of Shareholder
----------------------------------------
Print Name of Shareholder
----------------------------------------
----------------------------------------
Print Address of Shareholder
Exhibit 14.1(o) - Page 9
<PAGE> 1
EXHIBIT 10.24
BUSINESS MANAGEMENT AGREEMENT
(PROFESSIONAL)
This Business Management Agreement is made and entered into effective
as of December 1, 1996, by and between EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.,
an Arizona professional corporation ("Business Manager"), and ExcelCare, P.C.,
a professional corporation, organized and existing under the laws of the State
of Arizona (the "Practice").
R E C I T A L S
A. The Practice is a professional corporation duly organized and
validly existing under the laws of the State of Arizona (the "State") which is
engaged in the provision of Professional Eye Care Services (as defined below)
to the general public in the State through individual Professionals (as defined
below) who are licensed to practice medicine or optometry in the State and who
are employed or otherwise retained by the Practice.
B. Business Manager is a professional corporation duly organized
and validly existing under the laws of the State.
C. The Practice desires to devote substantially all of its
energies, expertise and time on the delivery of Professional Eye Care Services
to patients.
D. The Practice desires to engage Business Manager to provide
facilities, equipment and such management, administrative and business services
as are necessary and appropriate for the day-to-day administration of the non-
medical and non-optometric aspects of the Practice's professional eye care
practice, and Business Manager desires to provide such, upon the terms and
conditions hereinafter set forth, for the purpose of enhancing the
cost-efficiency and quality of services rendered by the Practice to its
patients.
NOW, THEREFORE, for and in consideration of the mutual agreements,
terms, covenants and conditions contained herein and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties agree as follows:
1. DEFINITIONS. For the purposes of this Business Management
Agreement, the following terms shall have the following meanings ascribed
thereto, unless otherwise clearly required by the context in which such term is
used:
1.1. Account. The term "Account" shall mean the bank account
described in Sections 3.9 and 3.10(a) and (c).
<PAGE> 2
1.2. Acquisition Transaction. The term "Acquisition Transaction"
shall mean the completed Agreement and Plan of Reorganization entered into by
and between Business Manager and Vision 21, Inc.
1.3. Adjusted Gross Revenue. The term "Adjusted Gross Revenue"
shall mean all revenues, for Professional Eye Care Services and any other
revenues, calculated on an accrual basis under GAAP, generated by or on behalf
of the Practice and its Professionals and Capitation Revenues during the term
of this Business Management Agreement, including, without limitation, all
technical fees from ancillary services, all proceeds from key person life
insurance policies purchased by Business Manager in accordance with Section
3.15, all amounts paid by third parties for contractual liabilities, including
payments under non-shareholder Professionals' non-competition agreements, and
all medical director, consultant, teaching and expert witness fees except for
those fees set forth in Exhibit 1.3 (unless the time and efforts of the
individuals responsible for such excluded revenues are materially greater than
the historical time or efforts expended in obtaining such revenues or if such
excluded revenues historically flowed through the Practice), minus any
allowances for bad debts, uncollectible accounts, Medicare, Medicaid and other
payor contractual adjustments, discounts, workers' compensation adjustments,
reasonable professional courtesies, and other reductions in collectible revenue
that result from activities that do not result in collectible charges.
1.4. Agreement or Business Management Agreement. The term
"Agreement" or "Business Management Agreement" shall mean this instrument as
originally executed and delivered, or, if amended or supplemented, as so
amended or supplemented.
1.5. Budget. The term "Budget" shall mean an operating budget and
capital expenditure budget for each fiscal year as prepared in accordance with
Section 3.11(a).
1.6. Business Manager. The term "Business Manager" shall have the
meaning set forth in the Recitals hereto.
1.7. Business Manager Consent. The term "Business Manager Consent"
shall mean the consent granted by Business Manager's representatives (or either
representative) to the Practice Advisory Council created pursuant to Article II
herein, which consent shall not be unreasonably withheld or delayed and shall
be binding on the Business Manager.
1.8. Business Manager Expense. The term "Business Manager Expense"
shall mean an expense or cost incurred by the Business Manager, for which the
Business Manager is financially liable and is not entitled to reimbursement
from the Practice. Business Manager Expense shall specifically include: (a)
any amortization of intangible assets resulting from the Acquisition
Transaction, (b) any income or franchise taxes of the Business Manager, (c) any
expense or cost relating to any underwritten initial public offering of
Business Manager's common stock pursuant to which a registration statement is
filed under the Securities Act of 1933 (except for underwriter's commissions,
charges or discounts related to the sale of stock by
-2-
<PAGE> 3
any Shareholder of the Practice which shall be borne individually by them), (d)
expenses and costs relating to the acquisition of any other health care
companies unless all or a specific portion of such expenses and costs are
approved as an Office Expense by the Practice Advisory Council, or unless the
Practice participates in the acquisition through the Practice's acquisition of
medical assets of the acquired health care company, and (e) any other expense
or cost that are not reasonable and customary reimbursements based upon a usual
national practice management company's arrangement with a practice. Business
Manager Expenses (as of the date hereof) are more specifically identified in
Exhibit 1.8. In the case of any inconsistency between specifics in Exhibit 1.8
and the general descriptions in (a) through (d) above, Exhibit 1.8 shall govern
(as of the date hereof).
1.9. Capitation Revenues. The term "Capitation Revenues" shall
mean all collections from managed care organizations or third-party payors
where such payment is made periodically on a per member basis for the partial
or total needs of a subscribing patient, less amounts that are payable to other
providers of health care items and services to capitation patients. Capitation
Revenues shall include any co-payments and incentive bonuses received as a
result of a capitation plan.
1.10. Clinical Personnel. The term "Clinical Personnel" shall mean
those individuals who are (to the extent permitted by law) employed by or
otherwise under contract or associated with Business Manager as nurse
anesthetists, physician assistants, technicians, nurse practitioners or similar
positions, or any position that generates a professional charge except for
Professionals. In the event that such individuals are not permitted by the
laws of the State to be employed by or otherwise under contract with Business
Manager, such individuals shall instead be employed by or under contract with
the Practice, and all expenses associated with the employment of or contracting
with such individuals shall be Practice Expenses.
1.11. Confidential Information. The term "Confidential Information"
shall mean any information of Business Manager or the Practice, as appropriate
(whether written or oral), including all business management or economic
studies, patient lists, proprietary forms, proprietary business or management
methods, marketing data, fee schedules, or trade secrets of the Business
Manager or of the Practice, as applicable, whether or not such Confidential
Information is disclosed or otherwise made available to one Party by the other
Party pursuant to this Business Management Agreement. Confidential Information
shall also include the terms and provisions of this Business Management
Agreement and any transaction or document executed by the Parties pursuant to
this Business Management Agreement. Confidential Information does not include
any information that the receiving party can establish (a) is or becomes
generally available to and known by the public or medical community (other than
as a result of an unpermitted disclosure directly or indirectly by the
receiving party or its affiliates, advisors, or Representatives); (b) is or
becomes available to the receiving party on a nonconfidential basis from a
source other than the furnishing party or its affiliates, advisors or
Representatives, provided that such source is not and was not bound by a
confidentiality agreement with or other obligation of secrecy to the furnishing
party of which the receiving
-3-
<PAGE> 4
party has knowledge; or (c) has already been or is hereafter independently
acquired or developed by the receiving party without violating any
confidentiality agreement with or other obligation of secrecy to the furnishing
party.
1.12. GAAP. The term "GAAP" shall mean generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of the determination. All financial reporting which is required pursuant to
this Agreement to be made in conformity with GAAP shall also be prepared in a
manner acceptable to the Securities and Exchange Commission for reports made
pursuant to the Securities and Exchange Commission's rules and regulations.
1.13. Local Advisory Council. The term "Local Advisory Council"
shall have the meaning set forth in Section 2.10 of this Agreement.
1.14. Management Fee. The term "Management Fee" shall mean the
Business Manager's compensation established as described in Article V hereof.
1.15. Management Services. The term "Management Services" shall
mean the business, administrative, and management services to be provided for
the Practice, including, without limitation, the provision of equipment,
inventory and supplies (including the use of all assets owned by Business
Manager which are located at the Office on the effective date hereof), support
services, personnel (including Clinical Personnel but excluding Professionals),
office space, management, administration, financial record keeping and
reporting, and other business office services, all as reasonably necessary for
the conduct of the Practice's business.
1.16. National Appeals Council. The term "National Appeals Council"
shall have the meaning set forth in Section 2.11 hereto.
1.17. Office. The term "Office" shall mean any office space,
clinic, or facility, including satellite facilities, that Business Manager
shall own or lease or otherwise procure for the use of the Practice.
1.18. Office Expense. The term "Office Expense" shall mean all
operating and non-operating expenses incurred by the Business Manager in the
provision of Management Services to the Practice and shall include all
operating and non- operating expenses incurred by the Practice relating to the
items set forth in this Section. The Business Manager shall be reimbursed by
the Practice for any Office Expense incurred by the Business Manager in the
provision of services to the Practice, upon request by the Business Manager.
Office Expense shall not include any Business Manager Expense, Practice Expense
or Shareholder Expense or
-4-
<PAGE> 5
any state, local or federal income or franchise tax. Without limitation,
Office Expense shall include the following expenses, as such expenses are more
specifically described in Exhibit 1.18:
(a) the salaries, benefits, payroll taxes, and other
direct costs of all employees of Business Manager (including Clinical
Personnel) primarily working at the Office and the salaries, benefits, payroll
taxes, and other direct costs of the non-Professional and non-clinical
employees of the Practice, but not the salaries, benefits, payroll taxes or
other direct costs of the Professionals;
(b) the direct cost of any employee or consultant that
provides services at or in connection with the Office for improved clinic
performance, such as management, billing and collections, business office
consultation, and accounting and legal services, but only when such services
are coordinated by Business Manager and/or included in the Budget;
(c) reasonable recruitment costs and out-of-pocket
expenses of Business Manager or the Practice associated with the recruitment of
additional Professionals and other employees of the Practice and Business
Manager's employees primarily located at the Office;
(d) personal property and intangible property taxes
assessed against Business Manager's assets used in connection with the
operation of the Office;
(e) comprehensive and general liability insurance
covering the Office and employees of the Practice and Business Manager at the
Office;
(f) the expense of using, leasing, purchasing or
otherwise procuring and maintaining the Office and related equipment, including
depreciation in the case of furniture, fixtures and equipment (not to exceed,
for any existing item, the amount of current depreciation for such existing
item) owned by Business Manager and used at the Office, except for those
equipment expenses described in Section 3.2(d), which shall be a Shareholder
Expense.
(g) the cost of capital (whether as actual interest on
indebtedness incurred on behalf of the Practice, as reasonable imputed interest
on capital advanced by Business Manager, which shall be equal to the average
cost of borrowing by Business Manager as reflected on its most recent published
financial statements, or in the absence of either of the foregoing, eight
percent (8%)), to finance or refinance obligations of the Practice, purchase
additional (new or used) medical or non-medical equipment to be used in
connection with the Office, or to finance new ventures of the Practice; in any
such case only as such cost of capital is set forth in the Budget or otherwise
approved in advance by the Practice Advisory Council;
(h) the reasonable travel expenses associated with
attending meetings, conferences, or seminars to benefit the Practice so long as
such expenses are related to individuals located at the Office and the
Practice's pro rata share for individuals who are consultants of or employed by
Business Manager who provide material services to the Practice;
-5-
<PAGE> 6
(i) the cost of non-medical office supplies, inventory
and utilities;
(j) billing and collection costs and expenses;
(k) the Practice's pro-rata share of reasonable
corporate overhead charges or other reasonable expenses (including computer and
data processing costs) which are incurred by Business Manager or any parent or
affiliate of Business Manager in connection with regional expenses or corporate
headquarters expenses which: (i) relate to the provisions of benefits or
services by Business Manager on behalf of the Practice as reflected in the
Budget, or (ii) are a substitute at the same or less cost as the existing level
of expenses historically incurred by the Practice or set forth in the Budget;
(l) all other expenses which are set forth in the
Budget and which directly or indirectly benefit the Practice incurred by
Business Manager in carrying out its obligations under this Business Management
Agreement;
(m) reasonable costs and expenses (to the extent not
covered by insurance) of lawsuits or claims against the Business Manager, the
Practice or its Professional(s) related to their performance of duties at the
Office or their interest in the leasehold or other assets used in connection
with the Office, provided that if the Business Manager, the Practice or its
Professional(s) does not prevail in the lawsuit or claim or settles the matter
with a material payment by the party (the party at "fault"), such costs and
expenses shall be deemed a Business Manager Expense in the event of Business
Manager's fault, and a Shareholder Expense in the event of fault by the
Practice or Professional, whereupon the Practice and such Professional(s) shall
be jointly responsible for the immediate reimbursement of the sums advanced
(which may at the option of Business Manager be offset by Business Manager
against sums otherwise due the Practice under Section 3.10(b)); provided
further that Business Manager shall not advance such costs and expenses from
the account if the Practice Advisory Council concludes that (i) it is unlikely
that the Account will be reimbursed if the party involved will not prevail in
the lawsuit or claim, or (ii) it is reasonable to believe that obtaining a
reimbursement of the advanced sums will be difficult to achieve.
(n) key person life insurance premiums related to
policies which the Parties agree to acquire on the life of the Practice's
Professionals, whereupon any proceeds shall be paid to the Account as Adjusted
Gross Revenues, unless the Parties agree to a specific split of the proceeds.
Should only the Practice choose to obtain key person life insurance, the
Practice shall pay all premiums as a Shareholder Expense and shall receive all
proceeds. Further, if only the Business Manager chooses to obtain such
insurance, Business Manager shall pay all premiums as a Business Manager
Expense and shall receive all proceeds. The Practice shall cause its
Professionals to submit to a medical examination necessary to obtain such
insurance.
In the event that any of the above described individuals described in
Section 1.18(b) devote a substantial amount of time to serving one or more
health care practices other than the
-6-
<PAGE> 7
Practice, which is not prohibited hereunder, or the above described equipment
or Office are utilized to a substantial degree by one or more health care
practices other than the Practice, the Office Expenses shall be allocated
between the Practice and such other health care practices to reflect each
practice's pro-rata share of any expenses or costs relating to such
individuals, equipment or Office (including the recruitment costs of such
individuals and the comprehensive and general liability insurance expenses with
respect to such individuals). Expenses contemplated in this paragraph which
potentially and primarily relate to Sections 1.18(b), (c), (d), (e), (f), (g),
(h), (k) and (l) shall be in the Budget or approved by the Practice Advisory
Council, and where reasonably determinable, are intended to be reasonable and
customary based upon similar relationships generally existing between national
practice management companies and practices they manage. The Practice's
pro-rata portion of expenses related to individuals who are consultants of or
employed by Business Manager and who provide services benefiting more than one
practice shall be based upon the actual time expended by the individuals in
performing such services as compared to the time spent by such individuals with
other practices managed by the Business Manager, or, if not reasonably
calculable, as determined by Business Manager, based upon the estimated
proportionate revenue size of the Practice as compared to the aggregate revenue
size as estimated in all of the Budgets of all other practices managed by the
Business Manager which are benefiting from such individual's services.
Likewise, equipment and other benefits provided by the Business Manager to
several Practices shall be split pro-rata based upon the use or benefit derived
by each Practice, but if not calculable, shall be based upon the estimated
proportionate revenue size as set forth in the preceding sentence.
Notwithstanding anything to the contrary herein, unless an expense is expressly
designated as a Business Manager Expense, a Practice Expense or a Shareholder
Expense in this Business Management Agreement or any exhibit thereto, all
expenses incurred by Business Manager in providing services pursuant to this
Business Management Agreement shall be considered an Office Expense.
1.19. Ophthalmologist. The term "Ophthalmologist" shall mean each
individually licensed physician who is employed or otherwise retained by or
associated with the Practice, each of whom shall meet at all times the
qualifications described in Section 4.2 and Section 4.3, including, without
limitation, any Shareholder of the Practice who is a licensed physician.
1.20. Optometrist. The term "Optometrist" shall mean each
individually licensed Optometrist, if any, who is employed or otherwise
retained by or associated with the Practice, each of whom shall meet at all
times the qualifications described in Section 4.2 and Section 4.3.
1.21. Parties. The term "Parties" shall mean the Practice and
Business Manager.
1.22. Practice. The term "Practice" shall have the meaning set
forth in the Recitals.
1.23. Practice Advisory Council. The term "Practice Advisory
Council" shall have the meaning set forth in Section 2.6 of this Agreement.
-7-
<PAGE> 8
1.24. Practice Consent. The term "Practice Consent" shall mean the
consent granted by the Practice's representatives (or either representative) to
the Practice Advisory Council created pursuant to Article II herein, which
consent shall not be unreasonably withheld or delayed and shall be binding on
the Practice.
1.25. Practice Expenses. The term "Practice Expenses" shall mean
(a) all reasonable non-shareholder Professionals' salaries, benefits, payroll
taxes and other direct costs related to their services at the Office (including
reasonable and customary professional dues, subscriptions, continuing education
expenses, severance payments, (b) the cost of medical supplies (including, but
not limited to, optical supplies, drugs, pharmaceuticals, products, substances,
items or medical devices), (c) reasonable and customary professional liability
insurance expenses of Professionals, (d) travel costs for continuing education
and necessary business travel for non-shareholder Professionals, and (e) costs
of goods sold in any optical business of the Practice. Notwithstanding the
foregoing, the term Practice Expenses shall specifically exclude (i) business
travel requested by Business Manager, which shall be an Office Expense, (ii)
any and all compensation or expenses attributable to Shareholders, which shall
be a Shareholder Expense (except reasonable and customary expenses for
malpractice insurance which shall be a Practice Expense), (iii) "tail"
insurance coverage for Shareholders, which shall be a Shareholder Expense, or
(iv) such other items agreed to in advance in writing by the Parties hereto.
During this Agreement, for so long as a current Shareholder of the Practice is
an employee of, or contractor to, or Shareholder of the Practice, such
Shareholder shall be deemed to be a Shareholder for the purposes of this
definition. Such expenses are to be approved annually in the Budget. Practice
Expenses are more specifically described in attached Exhibit "1.18."
1.26. Practice Territory. The term "Practice Territory" shall mean
the geographic area described in Exhibit 1.26, representing the geographic
boundaries in which the Practice renders Professional Eye Care Services.
1.27. Professional. The term "Professional" shall mean any
Ophthalmologist or Optometrist.
1.28. Professional Eye Care Services. The term "Professional Eye
Care Services" shall mean professional health care items and services,
including, but not limited to, the practice of ophthalmology, and the practice
of optometry, and all related professional health care services provided by the
Practice through the Practice's Ophthalmologists, Optometrists, if any, and
other professional health care providers that are retained by or professionally
affiliated with the Practice. The term shall also include any and all business
whatsoever in connection with any current or future ambulatory surgery centers
or optical businesses owned or operated, or to be owned or operated in the
future, in whole or in part, by the Practice or any of its Professionals during
the terms of this Agreement.
1.29. Representatives. The term "Representatives" shall mean a
Party's officers, directors, managers, employees, or other agents.
-8-
<PAGE> 9
1.30. Shareholder. The term "Shareholder" shall mean any current or
future shareholder of the Practice.
1.31. Shareholder Expense. The term "Shareholder Expense" shall be
limited to the following expenses, as such expenses are more specifically
described in Exhibit 1.18: (a) Shareholders' salaries, benefits, payroll
taxes, and other direct costs (including professional dues, subscriptions,
continuing education expenses, severance payments, entertainment, and travel
costs for continuing education or other business travel but excluding business
travel requested by Business Manager, which shall be an Office Expense, and
excluding any other expense of a Shareholder approved as an Office Expense in
advance by the Parties); (b) those portions of leasehold obligations of the
Business Manager which are deemed in excess of fair market value as set forth
in Exhibit 1.31; (c) to the extent not covered by insurance and subject to the
advance provisions contained herein, the defense costs of any litigation
brought against the Practice or the Professionals by any third party and any
liability judgment assessed against the Practice or the Professionals; (d)
certain equipment expenses described in Section 3.2(d); (e) interest on any
funds advanced to the Practice by Business Manager to the extent that Business
Manager is a net lender in accordance with the terms of this Agreement; (f)
"tail" coverage malpractice insurance expenses for the Shareholders and any
malpractice insurance expenses of any Professional which are in excess of those
which are customary and reasonable; (g) any income taxes or franchise tax of
the Practice; and (h) consulting, accounting, or legal fees which relate solely
to the Shareholders. The Practice shall reimburse the Business Manager for any
Shareholder Expense incurred by the Business Manager.Unless an expense is
expressly designated as a Business Expense, an Office Expense or a Practice
Expense in this Business Management Agreement or in any exhibit hereto, all
expenses incurred by the Practice shall be considered a Shareholder Expense.
Notwithstanding the above, the Practice may require certain Professionals to
pay certain expenses incurred for them specifically.
1.32. State. The term "State" shall have the meaning set forth in
the Recitals.
1.33. Term. The term "Term" shall mean the initial and any renewal
periods of duration of this Business Management Agreement as described in
Section 6.1.
2. APPOINTMENT OF BUSINESS MANAGER AND ESTABLISHMENT OF
PRACTICE ADVISORY COUNCIL, LOCAL ADVISORY COUNCIL AND
NATIONAL APPEALS COUNCIL.
2.1 Appointment. The Practice hereby appoints Business Manager as
its sole and exclusive agent for the management and administration of the
business functions and business affairs of the Practice and; Business Manager
hereby accepts such appointment, subject at all times to the provisions of this
Business Management Agreement.
2.2 Authority. Consistent with the provisions of this Business
Management Agreement, Business Manager shall have the responsibility and
commensurate authority to
-9-
<PAGE> 10
provide Management Services for the Practice. The Practice shall give Business
Manager thirty (30) days' prior notice of the Practice's intent to execute any
agreement creating a binding legal obligation on the Practice. The Parties
acknowledge and agree that the Practice, through its Professionals, shall be
responsible for and shall have complete authority, responsibility, supervision,
and control over the provision of all Professional Eye Care Services and other
professional health care services performed for patients, and that all
diagnoses, treatments, procedures, and other professional health care services
shall be provided and performed exclusively by or under the supervision of
Professionals as such Professionals, in their sole discretion, deem
appropriate. Business Manager shall have and exercise absolutely no control,
influence, authority or supervision over the provision of Professional Eye Care
Services.
2.3 Patient Referrals. Business Manager and the Practice agree
that the benefits to the Practice hereunder do not require, are not payment
for, and are not in any way contingent upon the referral, admission, or any
other arrangement for the provision of any item or service offered by Business
Manager to patients of the Practice in any facility, laboratory, center, or
health care operation controlled, managed, or operated by Business Manager.
2.4 Internal Decisions of the Practice. Matters involving the
Practice's allocation of professional income among its Shareholders and the
Professional employees of the Practice, tax planning, and investment planning
shall remain the responsibility of the Practice and the Shareholders of the
Practice.
2.5 Practice of Ophthalmology and Optometry. The Parties
acknowledge that Business Manager is not authorized or qualified to engage in
any activity that may be construed or deemed to constitute the practice of
ophthalmology or optometry. To the extent any act or service herein required
by Business Manager should be construed by a court of competent jurisdiction or
by the State Board of Medicine or the State Board of Optometry to constitute
the practice of ophthalmology or optometry, the requirement to perform that act
or service by Business Manager shall be deemed waived and unenforceable.
2.6 Formation and Operation of the Practice Advisory Council. The
Parties hereby establish a Practice Advisory Council which shall be responsible
for advising Business Manager and the Practice with respect to developing and
implementing management and administrative policies for the overall operation
of the Practice's facilities and for providing dispute resolution on certain
matters. The Practice Advisory Council shall consist of four (4) members.
Business Manager shall designate, in its sole discretion, two (2) members of
the Practice Advisory Council or may have one (1) member with two (2) votes.
The Practice shall designate, in its sole discretion, two (2) members of the
Practice Advisory Council or may have one (1) member with two (2) votes. The
Practice Advisory Council members selected by the Practice shall be full-time
Professional employees of the Practice. Each Party's representatives to the
Practice Advisory Council shall have the authority to make decisions on behalf
of the respective Party. Except as may otherwise be provided, the act of a
majority of the members of the Practice Advisory Council shall be the act of
the Practice Advisory Council. The decisions, resolutions,
-10-
<PAGE> 11
actions, or recommendations of the Practice Advisory Council shall be
implemented by Business Manager or the Practice, as appropriate.
2.7 Duties and Responsibilities of the Practice Advisory Council.
The Practice Advisory Council shall review, evaluate, make recommendations, and
where specifically authorized herein and permitted by law, make decisions with
respect to the following matters:
(a) Facility Improvements and Expansion. Any
renovation and expansion plans and capital equipment expenditures with respect
to the Practice's facilities (including with respect to any ambulatory surgical
center or optical business) shall be reviewed by the Practice Advisory Council
which shall make recommendations to Business Manager with respect to proposed
changes therein. Such renovation and expansion plans and capital equipment
expenditures shall be based upon economic feasibility, ophthalmology and
optometry support, productivity and then current market conditions.
(b) Marketing and Public Relations. The Practice
Advisory Council shall review and make recommendations to the Practice with
respect to all marketing and public relations services and programs promoting
the Practice's Professional Eye Care Services.
(c) Patient Fees; Collection Policies. As a part of
the annual operating budget, the Practice Advisory Council shall review and
make recommendations to the Practice concerning the fee schedule and collection
policies for all Professional Eye Care Services and ancillary services rendered
by the Practice.
(d) Ancillary Services. The Practice Advisory Council
must approve any new non-professional ancillary services to be rendered by the
Practice including ambulatory surgical center and optical business, and
concerning the pricing, continuation of, access to, and quality of such
services.
(e) Provider and Payor Relationships. The Practice
Advisory Council shall review and make recommendations to Business Manager and
the Practice regarding the establishment or maintenance of relationships
between the Practice and institutional health care providers and third-party
payors, and shall review and approve all agreements with institutional health
care providers and third-party payors which contain terms which are materially
different from those terms set forth in guidelines established by the Local
Advisory Council. The Practice Advisory Council shall also make
recommendations to Business Manager and the Practice concerning discounted fee
schedules, including capitated fee arrangements of which the Practice shall be
a party, and shall review and approve all such capitated fee arrangements.
(f) Strategic Planning. The Practice Advisory Council
may make recommendations to Business Manager concerning development of
long-term strategic planning objectives for the Practice.
-11-
<PAGE> 12
(g) Capital Expenditures. The Practice Advisory
Council shall make recommendations to Business Manager and the Practice
concerning the priority of major capital expenditures and shall review and
approve any commitment to make any capital expenditures for non-medical
equipment relating to the Office involving amounts in excess of $15,000
individually, or $50,000 in the aggregate, in any one fiscal year, which
amounts may be increased from time- to-time by the Local Advisory Council.
(h) Hiring of Professionals. The Practice Advisory
Council shall recommend to the Practice the number and type of Professionals
required for the efficient operation of the Practice's facilities.
(i) Fee Dispute Resolution. At the request of Business
Manager or the Practice, the Practice Advisory Council shall make
recommendations to Business Manager with respect to any dispute concerning a
set-off or reduction in Management Fees.
(j) Grievance Referrals. The Practice Advisory Council
shall consider and make recommendations to Business Manager and the Practice
regarding grievances pertaining to matters not specifically addressed in this
Business Management Agreement as referred to it by Business Manager or the
Practice's Board of Directors.
(k) Termination of Business Manager's Personnel. The
Practice Advisory Council shall review and approve any decision by the Business
Manager to terminate any of Business Manager's personnel primarily located at
the Office who occupy office manager or higher level positions.
(l) Approval of New Office. The Practice Advisory
Council shall approve any move of the current Office location or the expansion
to an additional Office location. Additionally, the Practice Advisory Council
shall approve the establishment of any ambulatory surgical center or optical
business of the Practice and the move or expansion of any such business.
(m) Approval of Budget. The Practice Advisory Council
shall have the power to adopt, approve and amend the Budget and to approve
various expenses as set forth herein, which shall be subject to change upon
submission of any dispute thereon to Ernst & Young LLP (or its successor or
replacement) and appeal to the National Appeals Council as provided in Section
3.11(a).
Except in those specific instances set forth above in which the Practice
Advisory Council has been granted the authority to make decisions binding upon
the Business Manager and the Practice, it is acknowledged and agreed that
recommendations of the Practice Advisory Council are intended for the advice
and guidance of Business Manager and the Practice and that the Practice
Advisory Council does not have the power to bind Business Manager or the
Practice. Where discretion with respect to any matter is vested in Business
Manager or the Practice under
-12-
<PAGE> 13
the terms of this Agreement, Business Manager or the Practice, as the case may
be, shall have ultimate responsibility for the exercise of such discretion,
notwithstanding any recommendations of the Practice Advisory Council. Business
Manager and the Practice shall, however, take such recommendations of the
Practice Advisory Council into account in good faith in the exercise of such
discretion.
2.8 Professional Health Care Decisions. Despite the above listing
of activities and areas of interest, all decisions required by applicable law
to be made solely by health care professionals will be made solely by the
appropriate Professionals, but non-Professional members of the Practice
Advisory Council may participate in the discussion process. The Professional
representatives of the Practice on the Practice Advisory Council shall have
exclusive authority to review and resolve issues related to:
(a) Types and levels of Professional Eye Care Services
to be provided; (provided, however, that the Practice Advisory Council shall
have the authority set forth in Section 2.7(d) with respect to new ambulatory
surgical centers and new optical business);
(b) Recruitment of Professionals to the Practice,
including the specific qualifications and specialties of recruited
Professionals;
(c) Any medical or optometric related functions;
(d) Fee schedules; and
(e) Any other decisions required by applicable law to
be made solely by Professionals and not by non-Professionals.
2.9 Meetings of the Practice Advisory Council. The Practice
Advisory Council shall meet on a regular basis as mutually agreed by the
Parties. A special meeting of the Practice Advisory Council may be called by
either Business Manager or the Practice upon two (2) weeks' notice, except in
the event of an emergency, in which case a special meeting may be called by
either Business Manager or the Practice upon three (3) business days' notice.
Meetings may be held telephonically or by any other means agreeable to the
Parties.
2.10 Formation and Operation of Local Advisory Council. Business
Manager shall, within six (6) months of the effective date of this Business
Management Agreement establish a Local Advisory Council composed of delegates
from health care practices for which Business Manager is then providing
management services similar to those services contemplated in this Business
Management Agreement. All of such health care practices shall be located
within the market area described on Exhibit 2.10, as such market area may be
expanded from time-to-time by the Local Advisory Council. For six (6) years
from the date hereof, the Practice shall be entitled to appoint one delegate to
the Local Advisory Council, of which the initial delegate shall serve an
initial two (2) year term. Thereafter, for the two (2) subsequent two (2) year
terms,
-13-
<PAGE> 14
the Practice may appoint the same or a different delegate to the Local Advisory
Council. After the six (6) year period, the Practice shall have the right to
vote, along with other Practices managed in the market by the Business Manager,
for the delegates to the Local Advisory Council in accordance with the by-laws,
as modified time by time as described below. Business Manager shall be
entitled to appoint two delegates to the Local Advisory Council who may be
replaced from time-to-time at the Business Manager's discretion, and who
together shall have a voting power equal to the combined voting power of all
delegates appointed by the health care practices. If any market contains only
one health care practice, such practice shall appoint one (1) individual to the
Local Advisory Council who shall have two (2) votes. Any matter to be
determined by the Local Advisory Council must receive the affirmative vote of a
majority of the votes cast of the delegates appointed to the Local Advisory
Council. The Local Advisory Council shall make recommendations to Business
Manager and such health care practices as to regional policy and strategy
issues within the market area and as to the following:
(a) The establishment of private pay fee schedules
where permitted by law;
(b) The establishment of guidelines for agreements with
institutional health care providers and third-party payors; and
(c) Any agreement with an institutional health care
provider or third-party payor which materially differs from guidelines
established by the Local Advisory Council.
The Local Advisory Council may, from time-to-time, select commercial
carriers for professional, casualty and comprehensive general liability
coverage for health care practices in the market area and such selection shall
be binding upon such health care practices.
The Local Advisory Council shall consider and determine any issue upon
which the Practice Advisory Council is deadlocked (except for the determination
of the Budget). In determining such disputes, the Local Advisory Council shall
make findings of fact relating to evidence presented by the Parties to the
dispute. Decisions by the Local Advisory Council may be appealed by any party
adversely affected to the National Appeals Council, which shall have the option
of hearing the appeal. The Local Advisory Council's rules of operation and
procedure shall be governed by by-laws to be adopted by the delegates, and such
by-laws may be amended or restated from time-to-time. Such by-laws shall be
reasonable and in accord with the terms and spirit of this Agreement. The
Practice and Business Manager covenant and agree to abide by the Local Advisory
Council's by-laws, as such by-laws may be amended from time-to-time.
2.11 Formation and Operation of the National Appeals Council.
Business Manager shall within six (6) months of the effective date of this
Business Management Agreement establish a National Appeals Council composed of
one (1) delegate appointed by each of the initial Local Advisory Councils to be
established by Business Manager, and two (2) delegates appointed by the
Business Manager. The initial delegates of the Local Advisory Councils shall
-14-
<PAGE> 15
serve an initial two (2) year term, and thereafter, if the local advisory
council qualifies under the then current by-laws of the National Appeals
Council with respect to the eligibility of Local Advisory Councils to appoint
delegates to the National Appeals Council, the local advisory council may
appoint the same or a different delegate to the National Appeals Council.
Business Manager's delegates to the National Appeals Council shall together
have a voting power equal to the combined voting power of all delegates
appointed by the Local Advisory Councils. Any matter to be determined by the
National Appeals Council must receive the affirmative vote of a majority of the
votes cast of the delegates appointed to the National Appeals Council. The
National Appeals Council shall serve as a forum of appeal of any determinations
of the Local Advisory Councils over which it chooses to have jurisdiction. In
resolving such appeals it determines to hear, the National Appeals Council
shall review findings of fact made by the applicable local advisory council and
shall only reverse a decision of the local advisory council if the local
advisory council's decision was based upon manifest error. The National
Appeals Council shall also determine disputes which it chooses to have
jurisdiction over and which cannot be decided because of a deadlock among the
delegates of any Local Advisory Council. In the event of a deadlock among the
delegates of the National Appeals Council, the dispute may be submitted by
either party to the dispute to arbitration in accordance with Section 8.7 of
this Agreement. In all other instances, the determination of a dispute by the
National Appeals Council shall be final. The National Appeals Council's rules
of operation and procedure shall be governed by by-laws to be adopted by the
Local Advisory Councils' and Business Manager's delegates, and such by-laws may
be amended or restated from time-to-time. Such by-laws shall be reasonable and
reflect the terms and spirit of this Agreement. The National Appeals Council's
decisions shall be binding upon the parties. The Practice and Business Manager
covenant and agree to abide by the National Appeal Council's by-laws, as such
by-laws may be amended from time-to-time.
3. OBLIGATIONS AND RESPONSIBILITIES OF BUSINESS MANAGER.
3.1 Management Services. Business Manager shall provide all
Management Services as are necessary and appropriate for the day-to-day
administration of the business aspects of the Practice's operations, pursuant
to the terms of this Business Management Agreement. Business Manager shall
operate in a reasonable and customary manner with due consideration to the
Practice's past business practices and shall operate in accordance with all
applicable laws, rules and regulations which are necessary and material to the
Business Manager's performance of the Management Services. Business Manager
will provide in good faith and with due diligence its services consistent with
management services generally provided in operations of a medical practice
similar in size, type and operations in the State of the Practice. All costs
and expenses related to Business Manager's duties contained in this Section 3
shall be Office Expenses unless limited or excluded as an Office Expense
pursuant to the terms of this Agreement.
-15-
<PAGE> 16
3.2 Office and Equipment.
(a) Business Manager shall lease, sublease, acquire or
otherwise procure one or more Offices that are deemed by the Parties to be
reasonably necessary and appropriate, and the expenses associated with such
lease, sublease, acquisition, or procurement shall be Office Expenses. Any
Office procured by Business Manager for the use by the Practice shall be
procured at commercially reasonable rates. Any relocation from the Practice's
present Office location or expansion of the Practice's Office into an
additional Office shall be done only after Business Manager has received
Practice Consent, which shall not be unreasonably withheld.
(b) In the event the Practice is the lessee of an
Office under a lease with an unrelated and nonaffiliated lessor, Business
Manager may require the Practice to assign such lease to Business Manager upon
receipt of consent from the lessor. The Practice shall use its best efforts to
assist in obtaining the lessor's consent to the assignment. Any expenses
incurred in the assignment shall be Office Expenses.
(c) Business Manager shall provide all non-health care
equipment, fixtures, office supplies, furniture and furnishings as are
reasonable and approved in the Budget for the operation of the Office and the
provision of Professional Eye Care Services. If the Practice wishes to choose
additional equipment, which the Business Manager determines not to acquire or
lease, the Practice may acquire or lease such equipment, and the expense
related thereto shall be deemed a Shareholder Expense.
(d) Business Manager shall provide, finance, or cause
to be provided or financed health care related equipment as reasonably required
by the Practice. The Practice shall have final authority in all health care
equipment selections; provided, however, that if the Practice chooses to
acquire health care equipment which is not in the Budget and which Business
Manager reasonably chooses not to acquire, expenses related thereto shall be
treated as a Shareholder Expense and such equipment shall be owned by the
Practice; provided further that following such acquisition or lease by the
Practice, if the Practice Advisory Council determines that after a period of
six months of use such equipment is reasonably certain to result in material
profit to Business Manager (taking into account the cost or expense and
anticipated revenues associated with such equipment), then Business Manager
shall acquire such equipment from the Practice by either (at Business Manager's
option), paying cash or by assuming the liability associated with such
equipment, or if such equipment is then being leased by the Practice, by
assuming such lease. In the event of such an acquisition by Business Manager,
it shall reimburse the Practice for previous expenses applied thereto.. Except
for equipment which Business Manager elects not to acquire or lease which are
acquired or leased by the Practice pursuant to Section 3.2(c) or (d), all
health care and non-health care equipment, other than Professional-owned
automobiles, acquired for the use of the Practice shall be owned by Business
Manager and the depreciation and related capital charge shall be an Office
Expense. Business Manager may make recommendations to the Practice on the
relationship between its health care equipment decisions and the overall
administrative and financial operations of the practice.
-16-
<PAGE> 17
(e) Business Manager shall be responsible for the
repair and maintenance of the Office, consistent with Business Manager's
responsibilities under the terms of any lease or other use arrangement, and for
the prompt repair, maintenance, and replacement of all equipment other than
such repairs, maintenance and replacement necessitated by the gross negligence
or willful misconduct of the Practice, its Professionals or other personnel
employed by the Practice, the repair or replacement of which shall be a
Shareholder Expense and not an Office Expense. Replacement equipment shall be
acquired where Business Manager in good faith determines that such replacement
is necessary or where the Budget has made allowances for such replacement.
(f) Any portion of the foregoing lease payments in
excess of fair market value (as set forth in Exhibit 1.31) relating to leases
of equipment or an Office shall be treated as a Shareholder Expense.
3.3 Health Care Supplies. Business Manager shall order, procure,
purchase and provide on behalf of and as agent for the Practice all reasonable
health care supplies unless otherwise prohibited by federal and/or state law.
Furthermore, Business Manager shall ensure that the Office is at all times
adequately stocked with the health care supplies that are necessary and
appropriate for the operation of the Practice and required for the provision of
Professional Eye Care Services. The ultimate oversight, supervision and
ownership for all health care supplies is and shall remain the sole
responsibility of the Practice and all costs and expenses relating to such
supplies shall be a Practice Expense. As used in this provision, the term
"health care supplies" shall mean all drugs, pharmaceuticals, optical supplies,
products, substances, items or devices the whose purchase, possession,
maintenance, administration, prescription or security of which requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or state law.
3.4 Support Services. Business Manager shall provide or arrange
for all printing, stationery, forms, postage, duplication or photocopying
services, and other support services as are reasonably necessary and
appropriate for the operation of the Office and the provision of Professional
Eye Care Services therein.
3.5 Quality Assurance, Risk Management, and Utilization Review.
Business Manager shall assist the Practice in the Practice's establishment and
implementation of procedures to ensure the consistency, quality,
appropriateness, and medical necessity of Professional Eye Care Services
provided by the Practice, and shall provide administrative support for the
Practice's overall quality assurance, risk management, and utilization review
programs. Business Manager shall perform these tasks in a manner to ensure the
confidentiality and non-discoverability of these program actions to the fullest
extent allowable under state and federal law.
3.6 Licenses and Permits. Business Manager shall, on behalf of
and in the name of the Practice, coordinate all development and planning
processes, and apply for and use
-17-
<PAGE> 18
reasonable efforts to obtain and maintain all federal, state and local licenses
and regulatory permits required for or in connection with the operation of the
Practice and the equipment (existing and future) located at the Office, other
than those relating to the practice of ophthalmology or optometry or the
administration of drugs by Professionals retained by or associated with the
Practice. The expenses and costs associated with obtaining and maintaining
permits with respect to the Office and licenses for professional practice by
the non-shareholder Professionals shall be deemed an Office Expense.
3.7 Personnel. Except as specifically provided in Section 4.2 of
this Business Management Agreement, Business Manager shall employ or otherwise
retain and shall be responsible for selecting, hiring, training, supervising,
and terminating, all management, administrative, clerical, secretarial,
bookkeeping, accounting, payroll, billing and collection and other personnel
(including Clinical Personnel but excluding Professionals) as Business Manager
deems reasonably necessary and appropriate for Business Manager's performance
of its duties and obligations under this Business Management Agreement.
Consistent with reasonably prudent personnel management policies, Business
Manager shall seek and consider the advice, input, and requests of the Practice
in regard to personnel matters. Business Manager shall have sole
responsibility for determining the salaries and providing fringe benefits, and
for withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable law
or governmental requirement. Business Manager does not currently intend to
change the existing composition or employment terms of any of Business
Manager's personnel which have employment arrangements with the Practice on the
effective date of this Agreement (unless there are unsettled issues regarding
such arrangements as described in Exhibit 3.7). Business Manager reserves the
right, however, to change the number, composition or employment terms of such
personnel in the future at Business Manager's discretion; provided, however,
that the termination of any of Business Manager's personnel who are Clinical
Personnel or occupy office manager or higher level positions, and are primarily
located at the Office must receive the approval of the Practice Advisory
Council. Business Manager and the Practice recognize and acknowledge that
Business Manager and personnel retained by Business Manager may from
time-to-time perform services for persons other than the Practice. This
Business Management Agreement shall not be construed to prevent or prohibit
Business Manager from performing such services for others or restrict Business
Manager from using its personnel to provide services to others. Business
Manager hereby disclaims any liability relating to the effect of its employees
on the qualification of the Practice's retirement plans under the Internal
Revenue Code, and all liabilities for such classification shall be solely the
responsibility of the Practice.
3.8 Contract Negotiations. Business Manager shall evaluate,
assist in negotiations and administer on behalf of the Practice contracts that
do not relate to the provision of Professional Eye Care Services as set forth
in this Agreement and/or as approved in the Budget. To the extent permitted by
law, Business Manager shall evaluate, assist in negotiations, administer and
execute on the Practice's behalf, all contractual arrangements with third
parties as are reasonably necessary and appropriate for the Practice's
provision of Professional Eye Care Services,
-18-
<PAGE> 19
including, without limitation, negotiated price agreements with third-party
payors, alternative delivery systems, or other purchasers of group health care
services. However, the Practice shall have the final authority with regard to
the entry into all of such contractual arrangements relating to the provision
of Professional Eye Care Services.
3.9 Billing and Collection. As an agent on behalf of and for the
account of the Practice, Business Manager shall establish and maintain credit
and billing and collection services, policies and procedures, and shall use
reasonable efforts to timely bill and collect all Professional and other fees
for all billable Professional Eye Care Services provided by the Practice, or
Professionals employed or otherwise retained by the Practice. The Practice
Advisory Council shall make recommendations to and consult with Business
Manager and the Practice regarding the fees for Professional Eye Care Services
provided by the Practice. In connection with the billing and collection
services to be provided hereunder, and throughout the Term (and thereafter as
provided in Section 6.3), the Practice hereby grants to Business Manager an
exclusive special power of attorney and appoints Business Manager as the
Practice's exclusive true and lawful agent and attorney-in-fact (which shall be
deemed revoked in the event of termination for cause by the Practice), and
Business Manager hereby accepts such special power of attorney and appointment,
for the following purposes:
(a) To bill the Practice's patients, in the Practice's
name using the Practice's tax identification number and on the Practice's
behalf, for all billable Professional Eye Care Services provided by the
Practice to patients.
(b) To bill, in the Practice's name using the
Practice's tax identification number and on the Practice's behalf, all claims
for reimbursement or indemnification from health maintenance organizations,
self-insured employers, insurance companies, Medicare, Medicaid, and all other
third-party payors or fiscal intermediaries for all covered billable
Professional Eye Care Services provided by the Practice to patients.
(c) To collect and receive (to the extent permitted by
law), in the Practice's name and on the Practice's behalf, all accounts
receivable generated by such billings and claims for reimbursement, to
administer such accounts including, but not limited to, extending the time of
payment of any such accounts; suing, assigning or selling at a discount such
accounts to collection agencies; or taking other measures to require the
payment of any such accounts; provided, however, that the Practice shall review
and approve (which approval shall not be unreasonably withheld) any decision by
Business Manager to undertake extraordinary collection measures, such as filing
lawsuits, discharging or releasing obligors, or assigning or selling accounts
at a discount to collection agencies. Business Manager shall act in a
professional manner and in compliance with all federal and State fair debt
collection practices laws in rendering billing and collection services.
(d) To deposit all amounts collected into the Account
which shall be a cash collateral account held in the name of Business Manager
and shall be opened at a financial
-19-
<PAGE> 20
institution chosen by Business Manager. All amounts received or collected are
hereby pledged to the Business Manager and shall be held or deposited in the
Account to secure the performance of the Practice's obligations under this
Agreement. The Account shall be held under Business Manager's tax
identification number. The Practice covenants to transfer and deliver to the
Account all funds received by the Practice from patients or third-party payors
for Professional Eye Care Services. Upon receipt by Business Manager of any
funds from patients or third-party payors or from the Practice pursuant hereto
for Professional Eye Care Services, Business Manager shall immediately deposit
the same into the Account. Business Manager shall administer, be responsible
for, and be obligated to pay for all Office Expenses; provided, however, that
Business Manager shall only be liable for Office Expenses to the extent of
funds in the Account plus any amounts borrowed by Business Manager in
accordance with Section 5.4. Business Manager shall disburse such deposited
funds to creditors and other persons on behalf of the Practice, maintaining
records of such receipt and disbursement of funds. Business Manager may borrow
amounts from the Account in excess of amounts due Business Manager pursuant to
this Agreement and to the full extent of funds in the Account. Such borrowed
amounts shall bear interest to the Account in the amount of six percent (6%)
per annum, and any of such borrowed amounts outstanding shall be repaid by
Business Manager to the Account when needed to cover all expenses and
obligations under this Agreement and shall be repaid within thirty (30) days of
the termination of this Agreement.
(e) To take possession of, endorse in the name of the
Practice, and deposit into the Account any notes, checks, money orders,
insurance payments, and any other instruments received in payment of accounts
receivable for Professional Eye Care Services.
(f) To sign checks on behalf of the Practice, and to
make withdrawals from the Account for payments specified in this Business
Management Agreement. Upon request of Business Manager, the Practice shall
execute and deliver to the financial institution wherein the Account is
maintained, such additional documents or instruments as may be necessary to
evidence or effect the special power of attorney granted to Business Manager by
the Practice pursuant to this Section 3.9. The special power of attorney
granted herein shall be coupled with an interest and shall be irrevocable
except with Business Manager's written consent. The irrevocable power of
attorney shall expire when this Business Management Agreement has been
terminated, all accounts receivable payable to Business Manager pursuant to
this Business Management Agreement have been collected and all Management Fees
due to Business Manager have been paid. If Business Manager assigns this
Business Management Agreement in accordance with its terms, the Practice shall
execute a power of attorney in favor of the assignee in a form acceptable to
Business Manager.
3.10 Maintenance of Account. During the term of this Business
Management Agreement, all Adjusted Gross Revenues collected resulting from the
rendering of Professional Eye Care Services by the Practice shall be deposited
directly into the Account in which Business Manager shall have the sole signing
capacity.
-20-
<PAGE> 21
(a) Payments from the Account. Each month Business
Manager shall pay from funds that are in the Account all sums due and payable
as an Office Expense and Practice Expenses. Additionally, on or before the
15th day of the following month, (i) Business Manager shall pay from funds that
are in the Account to the Practice Adjusted Gross Revenue less accrued Office
Expense, accrued Practice Expense (excluding optical supplies), accrued
Management Fee, and (at the discretion of Business Manager) all sums advanced
by the Business Manager, and (ii) the accrued Management Fee for the previous
month shall be paid.
(b) Payments to the Practice's Account. To the extent
funds are available, the Business Manager shall be responsible for remitting
from the Account to an account to be owned by and held in the Practice's name,
separate from the Account, the amounts which the Practice is entitled to
receive under Section 3.10(a). Within sixty (60) days of the end of each of
the first three (3) fiscal quarters in each fiscal year and within one hundred
twenty (120) days of the end of each fiscal year, a settlement process shall be
undertaken pursuant to which adjustments, if necessary, shall be made in the
total payments to the Practice based upon the financial statements prepared in
accordance with Section 3.11(b). Any additional payment due to the Practice
will be made within thirty (30) days of the completion of the settlement
process. Any reduction in payments to the Practice as the result of such
settlement process shall be made by reducing future payments to the Practice,
commencing with the month following completion of the settlement process, until
such adjustments are made in full.
Business Manager and the Practice shall each have signing capacity to
withdraw funds from the Practice's account; provided however that Business
Manager shall only be entitled to withdraw funds relating to such account in
connection with the payment of Practice Expenses and Shareholders' salaries,
benefits and payroll taxes. Subject to the foregoing, the Practice hereby
grants to Business Manager a special power of attorney and appoints Business
Manager as the Practice's true and lawful agent and attorney-in-fact, and
Business Manager hereby accepts such special power of attorney and appointment,
to sign checks on behalf of the Practice for payments of the Practice Expenses
and Shareholders' salaries, benefits and payroll taxes in accordance with this
Business Management Agreement. Upon request of Business Manager, the Practice
shall execute and deliver to the financial institution wherein the Practice's
account is maintained, such additional documents or instruments as may be
necessary to evidence or effect the special power of attorney granted to
Business Manager by the Practice pursuant to this Section 3.10(b). The special
power of attorney granted herein shall be coupled with an interest and shall be
irrevocable except with Business Manager's written consent. The irrevocable
power of attorney shall expire when this Business Management Agreement has been
terminated. If Business Manager assigns this Business Management Agreement in
accordance with its terms, the Practice shall execute a power of attorney in
favor of the assignee in a form acceptable to Business Manager. Business
Manager shall not make any withdrawal from the Practice's account unless
expressly authorized in this Agreement.
A Practice payroll account shall be established on behalf of the
practice for payroll to non-shareholder Professionals of the Practice. Funds
for this account shall be received as
-21-
<PAGE> 22
Practice Expenses. Business Manager and the Practice shall each have signing
capacity to access the account for payroll.
(c) Insufficient Funds in Account. During the Term of
this Agreement, Business Manager shall advance sufficient funds to cover all
expenses and obligations only if, and to the extent that, the amount of such
advances, plus accrued interest thereon, does not exceed the reasonably
collectable value of the Practice's accounts receivable as determined by
Business Manager in its reasonable discretion plus any amounts borrowed by
Business Manager pursuant to Section 5.4. Business Manager may, however, elect
from time to time to advance additional funds to the Practice at its
discretion. Any of such advances shall be deemed loans to the Practice to be
repaid by the Practice along with interest at six percent (6%) per annum. Any
of such advanced amounts which have not been paid to Business Manager pursuant
to Section 3.10(a)(i) on the date of termination of this Agreement shall become
due and payable on the date of such termination.
3.11 Fiscal Matters.
(a) Annual Budget. Annually and at least thirty (30)
days prior to the commencement of each fiscal year of the Practice, the
Practice Advisory Council shall prepare and deliver to the Practice a proposed
budget, setting forth an estimate of the Practice's revenues and expenses for
the upcoming fiscal year (including, without limitation, the Management Fee
associated with the Management Services provided by Business Manager hereunder
and the salaries and benefits of all non-shareholder Professionals employed by
the Practice). The Budget may be amended by the Practice Advisory Council from
time-to-time during any applicable fiscal year to reflect changing
circumstances affecting the Practice. Disputes concerning the Budget will, at
the request of either Party hereto, be submitted to the accounting firm of
Ernst & Young LLP, any successor thereof, or such other big six accounting firm
agreed to by the Parties, which shall determine an appropriate resolution of
the dispute. Such determination shall be binding upon the Practice and the
Business Manager, subject to either Party's right to petition the National
Appeals Council to consider the determination of Ernst & Young LLP (or its
successor or replacement), which petition may be granted at the discretion of
the National Appeals Council. In all situations described in this Agreement in
which Ernst & Young LLP or its successor or replacement is to act as an
arbitrator of any matter relating to this Agreement, Ernst & Young LLP (or its
successor or replacement) shall act as an impartial and independent arbitrator.
The Parties hereby waive and release and agree to indemnify and hold harmless
Ernst & Young LLP (and its successor or replacement) from and for any and all
claims, demands, liabilities, losses, damages, costs and expenses relating to
its determinations made in good faith pursuant to this Agreement and agree to
execute any documents reasonably requested by Ernst & Young LLP (or its
successor or replacement) to effectuate the same. Any final decision of Ernst
& Young LLP or its successor or replacement, or the National Appeals Council
concerning the Budget shall be retroactive to the first day of the Budget
period in question. Notwithstanding the above, should Business Manager be in
material default hereunder, the Practice shall have the exclusive right to
establish the Budget. Additionally, notwithstanding the
-22-
<PAGE> 23
above, no change in an adopted Budget shall be contrary to the terms and spirit
of this Agreement nor shall it have any effect on the Management Fee expressly
agreed to herein, unless approved in advance in writing by the Parties hereto.
(b) Accounting and Financial Records. Business Manager
shall establish and administer accounting procedures, controls, and systems for
the development, preparation, and safekeeping of administrative or financial
records and books of account relating to the business and financial affairs of
the Practice and the provision of Professional Eye Care Services, all of which
shall be prepared and maintained in accordance with GAAP. Business Manager
shall prepare and deliver to the Practice (i) within sixty (60) days of the end
of each of the first three (3) fiscal quarters in each fiscal year, and (ii)
within one hundred twenty (120) days of the end of each fiscal year, a balance
sheet and a profit and loss statement reflecting the financial status of the
Practice in regard to the provision of Professional Eye Care Services as of the
end of such period, all of which shall be prepared in accordance with GAAP
consistently applied. In addition, Business Manager shall prepare or assist in
the preparation of any other financial statements or records as the Practice
may reasonably request.
(c) Sales and Use Taxes. Business Manager and the
Practice acknowledge and agree that to the extent that any of the services to
be provided by Business Manager hereunder may be subject to any state sales and
use taxes, Business Manager may have a legal obligation to collect such taxes
from the Practice and to remit the same to the appropriate tax collection
authorities. The Practice agrees to have applicable state sales and use taxes
attributable to the services to be provided by Business Manager hereunder
treated as an Office Expense.
3.12 Reports and Records.
(a) Health Care Records. To the extent permitted by
applicable law, Business Manager shall establish, monitor, and maintain
procedures and policies for the timely creation, preparation, filing and
retrieval of all health care records generated by the Practice in connection
with the Practice's provision of Professional Eye Care Services; and, subject
to applicable law, shall ensure that health care records are promptly available
to Professionals and any other appropriate persons. All such health care
records shall be retained and maintained by the Practice, and the Business
Manager as agent for the Practice, in accordance with all applicable State and
federal laws relating to the confidentiality and retention thereof. All health
care records shall be and remain the property of the Practice. The Practice
shall at all times during the term of this Agreement grant Business Manager
unrestricted access to such health care records and shall in the course of the
Practice's business obtain the written consent of the Practice's patients to
Business Manager's access to, and review and use of such records.
(b) Other Reports and Records. Business Manager shall
timely create, prepare, and file such additional reports and records as are
reasonably necessary and appropriate
-23-
<PAGE> 24
for the Practice's provision of Professional Eye Care Services, and shall be
prepared to analyze and interpret such reports and records upon the request of
the Practice.
3.13 Recruitment of the Practice's Professionals. Upon the
Practice's request, Business Manager shall perform all administrative services
reasonably necessary and appropriate to recruit potential Professionals to
become employees of the Practice. Business Manager shall provide the Practice
with model agreements to document the Practice's employment, retention or other
service arrangements with such individuals. It will be and remain the sole and
complete responsibility of the Practice to interview, select, contract with,
supervise, control and terminate all Professionals performing Professional Eye
Care Services or other professional services.
3.14 Confidential and Proprietary Information.
(a) Business Manager agrees and acknowledges that all
materials provided by the Practice to the Business Manager constitute
Confidential Information disclosed in confidence and with the understanding
that it constitutes valuable business information developed by the Practice at
great expenditures of time, effort, and money. Business Manager further agrees
that it shall not, directly or indirectly, disclose any Confidential
Information of the Practice to other persons without the Practice's express
written authorization, such Confidential Information shall not be used in any
way directly or indirectly detrimental to the Practice, and Business Manager
will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations; provided, however, that Business Manager
may disclose Confidential Information to those of its Representatives who need
to know Confidential Information for the purposes of this Business Management
Agreement, it being understood and agreed to by Business Manager that such
Representatives will be informed of the confidential nature of the Confidential
Information, will agree to be bound by this Section, and will be directed by
Business Manager not to disclose to any other person any Confidential
Information. Business Manager agrees to be responsible for any breach of this
Section by its affiliates, advisors, or Representatives. If Business Manager
is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoenas, civil investigative demands, or similar
processes) to disclose or produce any Confidential Information furnished in the
course of its dealings with the Practice or its affiliates, advisors, or
Representatives, Business Manager will (i) provide the Practice with prompt
notice thereof and copies, if possible, and, if not, a description, of the
Confidential Information requested or required to be produced so that the
Practice may seek an appropriate protective order or waive compliance with the
provisions of this Section and (ii) consult with the Practice as to the
advisability of the Practice's taking of legally available steps to resist or
narrow such request. Business Manager further agrees that, if in the absence
of a protective order or the receipt of a waiver hereunder Business Manager is
nonetheless, in the written opinion of its legal counsel, compelled to disclose
or produce Confidential Information concerning the Practice to any tribunal
legally authorized to request and entitled to receive such Confidential
Information or to stand liable for contempt or suffer other censure or penalty,
Business Manager may disclose or produce such Confidential Information
-24-
<PAGE> 25
to such tribunal without liability hereunder; provided, however, that Business
Manager shall give the Practice written notice of the Confidential Information
to be so disclosed or produced as far in advance of its disclosure or
production as is practicable and shall use its best efforts to obtain, to the
greatest extent possible, an order or other reliable assurance that
confidential treatment will be accorded to such Confidential Information so
required to be disclosed or produced. Upon expiration or termination of this
Business Management Agreement by either Party for any reason whatsoever,
Business Manager shall immediately return and shall cause its Representatives,
affiliates, and independent contractors to immediately return to the Practice
all Confidential Information, and Business Manager shall not, and will cause
its Representatives, affiliates, and independent contractors not to, thereafter
use, appropriate or reproduce such Confidential Information. Business Manager
further expressly acknowledges and agrees that any such use, appropriation, or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to the Practice, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, the Practice, in addition to any other remedies
or damages available to it, shall be entitled to injunctive or other equitable
relief without the necessity of posting a bond, cash, or otherwise, and without
the necessity of proving actual damages. Such rights to relief shall not
preclude the Practice from other remedies which may be available to it
hereunder.
(b) Notwithstanding clause (a) above, Business Manager
may share, subject to the restrictions of this Section, with other professional
corporations, associations, ophthalmology and optometry practices, or health
care delivery entities the practice statistics of the Practice, including
utilizing review data, quality assurance data, cost data, outcomes data, or
other practice data. In addition, Business Manager may disclose all
practice-related information necessary or desirable in connection with any
public or private offering of any debt or equity security. No such data will
disclose or divulge patient identifying information or, to the extent possible,
Professional identifying information.
3.15 Business Manager's Insurance. Throughout the Term, Business
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof, appropriate
workers' compensation coverage for Business Manager's employed personnel
provided pursuant to this Business Management Agreement, and professional,
casualty and comprehensive general liability insurance covering Business
Manager, Business Manager's personnel, and all of Business Manager's equipment
in such amounts, on such basis and upon such terms and conditions as Business
Manager deems appropriate. Such insurance policies shall be issued by a
carrier or carriers having a current rating of not less than "A" as rated by
A.M. Best Company, unless the Practice agrees in writing to the purchase of a
policy or policies from a carrier having a lesser rating than "A". Business
Manager shall cause the Practice to be named as an additional insured on
Business Manager's casualty and comprehensive general liability policy.
Business Manager hereby releases the Practice from any and all liability for
losses or damages caused by any act or neglect of the Practice occurring after
-25-
<PAGE> 26
the effective date hereof to the extent that such losses or damages are covered
by insurance; provided, however, that such release shall not apply to any loss
or damage caused by the willful, wanton, or premeditated negligence of the
Practice. Business Manager shall obtain from any insurance company issuing the
foregoing policies its consent to the release from liability contained in this
Section. Upon the request of the Practice, Business Manager shall provide the
Practice with a certificate evidencing such insurance coverage. Business
Manager may also obtain key man life insurance policies on the life of any
Shareholder as is consistent with 1.18(n).
3.16 No Warranty. The Practice acknowledges that Business Manager
has not made and will not make any express or implied warranties or
representations that the Management Services provided by Business Manager will
result in any particular amount or level of ophthalmology or optometry practice
or income to the Practice. Specifically, Business Manager has not represented
that its Management Services will result in higher revenues, lower expenses,
greater profits or growth in the number of patients treated by the Practice's
Professionals.
3.17 Non-Competition Covenant from Business Manager. The Business
Manager hereby recognizes and acknowledges that the Practice shall incur
substantial costs in modifying its business activities to carry out this
Business Management Agreement and that in the process of Business Manager's
providing services under this Business Management Agreement, the Business
Manager will be privy to financial and Confidential Information, to which the
Business Manager would not otherwise be exposed. Business Manager agrees and
acknowledges that the non-competition covenants described hereunder are
necessary for the protection of the Practice, and that the Practice would not
have entered into this Business Management Agreement without such covenants.
Business Manager represents, warrants and covenants that during the Term of
this Business Management Agreement and for a period of two (2) years from the
date this Business Management Agreement is terminated, other than if terminated
by Business Manager for cause, neither Business Manager nor any person or
entity affiliated directly or indirectly with Business Manager will, anywhere
within five (5) miles of any Office existing on the effective date of this
Business Management Agreement, enter into a direct or indirect relationship
similar to the relationship between the Practice and Business Manager, or
acquire the nonmedical assets of, any professional practice group or engage in
any other eye care business currently engaged in by the Business Manager
without approval of the Practice. The Local Advisory Council shall consult
with Business Manager with respect to any acquisition of or merger with a
health care practice outside such five (5) mile area and within the region
described in Exhibit 2.10. Notwithstanding anything to the contrary in this
Section, Business Manager (a) may establish and maintain relationships with the
entities described on Exhibit 3.17, (b) may enter into managed care agreements
with (i) other practices on the one hand, and national or regional payor
entities on the other hand, if the Practice, upon being offered the opportunity
to enter into such managed care agreements, elects not to enter into such
managed care agreements, (ii) other health care practices within the
above-described five (5) mile area if and to the extent that the Practice is
unable to provide the specific services, reasonable access to, or minimum
standards as required by, a managed care payor for all of the patients to be
covered by a managed care
-26-
<PAGE> 27
agreement, and (iii) other health care practices where Business Manager
reasonably believes additional providers are required to obtain a contract;
provided, however, that the exceptions to Business Manager's covenant not to
compete contained in this subsection (b) shall not permit Business Manager to
enter into business management agreements with such other health care
practices. If the Business Manager breaches any obligation set forth in this
Section, in addition to any other remedies available under this Business
Management Agreement, at law or in equity, the Practice shall be entitled to
enforce this Business Management Agreement by injunctive relief and by specific
performance of the Business Management Agreement, such relief to be without the
necessity of posting a bond, cash or otherwise. Additionally, nothing in this
Section 3.17 shall limit the Practice's right to recover any other damages to
which it is entitled as a result of the Business Manager's breach. The time
period for which the non-competition covenants are effective shall be extended
day for day for the time period the Business Manager is in violation of the
non-competition covenants. If any provision of the covenants is held by a
court of competent jurisdiction to be unenforceable due to an excessive time
period, geographic area, or restricted activity, the covenants shall be
reformed to comply with such time period, geographic area, or restricted
activity that would be held enforceable. Following termination of this
Agreement pursuant to Section 6.2(b) hereof, Business Manager shall be released
from any and all of the restrictions imposed in this Section 3.17.
3.18 Marketing and Public Relations. In accordance with applicable
laws, regulations and ethical standards, Business Manager shall use its best
efforts to provide such marketing, support, advertising and public relations
services as are appropriate to promote and market the Practice's Professional
Eye Care Services. Such services shall be subject to review by the Local
Advisory Council. At the option of Business Manager and to the extent
permitted by law, the Business Manager's corporate name may be included on any
or all signage, letterhead, advertisements, announcements and the like relating
to Professional Eye Care Services provided by the Practice. Marketing support
services include training the Practice's personnel concerning marketing
techniques, providing written materials that may be used in marketing, and
providing technical assistance to the Practice's personnel engaged in direct
marketing efforts such as administrative support and assistance in contract
negotiation and implementation. Business Manager shall not perform direct
marketing to potential sources of business, but shall provide assistance to the
Practice's personnel who perform any such direct marketing as set forth above.
Use of the Practice's name in any advertising or promotions shall require the
Practice's advance approval.
3.19 Inconsistent Transaction by Business Manager. The Business
Manager agrees that in performing the Management Services with respect to the
Practice, it shall not enter into any agreements, commitments or transactions
or engage in any activities which are exclusively within the authority and
responsibility of the Practice as set forth in this Agreement or are otherwise
materially inconsistent with the provisions of this Agreement.
3.20 Payment of Cash Portion of Note. From and after the effective
date hereof, Business Manager covenants and agrees to use its best efforts to
either (a) obtain from a
-27-
<PAGE> 28
financially secure third party such third party's direct unconditional guaranty
of payment of the mandatory cash portion of any promissory note delivered by
Business Manager in connection with an Acquisition Transaction, or arrange a
commercially reasonable credit facility or financing arrangement from a
financial institution or investor to be used for the payment or direct security
in form acceptable to the Practice for the payment of the mandatory cash
portion of such promissory note. Until payment of the mandatory cash portion
of the promissory note is protected in the foregoing manner, Business Manager
shall accumulate and reserve all of its net income, shall not make any
distributions of such net income to its shareholders, and shall not use any of
such reserved funds for acquisitions of, or mergers with, additional health
care practices. Notwithstanding the foregoing, Business Manager and its
subsidiaries shall be entitled to (i) continue its acquisitions and mergers
with the founding practices from the effective date hereof until December 31,
1996, (ii) enter into mergers with additional health care practices so long as
no cash consideration is used, and (iii) acquire or merge with additional
health care practices using such reserved funds so long as 2/3rds (66 2/3%) of
the shares held by the Founding Practices are voted in favor of such
acquisition or merger. For the purposes of this Section a "financially secure
third party" shall be deemed to be a financial institution or investor having a
lending ability, fund size or net worth in excess of $100.0 million.
4. OBLIGATIONS AND RESPONSIBILITIES OF THE PRACTICE.
4.1 Organization and Operation. The Practice, as a continuing
condition of Business Manager's obligations under this Business Management
Agreement, shall at all times during the Term be and remain legally organized
and operated to provide Professional Eye Care Services in a manner consistent
with all State, federal and local laws. The Practice shall operate and
maintain within the Practice Territory a full-time practice of ophthalmology
specializing in the provision of Professional Eye Care Services and shall
maintain and enforce employment agreements in the form of Exhibit 4.1A with the
Shareholders of the Practice specified in Exhibit 4.1B; provided, however, that
after the expiration of such employment agreements, and in the event that such
Shareholders continue a relationship with the Practice thereafter, the Practice
shall maintain and enforce employment agreements with such Shareholders and all
future Shareholders in the form of Exhibit 4.1C. Shareholders agree and the
Practice shall take steps to obtain the executed employment agreements in the
form of Exhibit 4.1C from such Shareholders after the five (5) year period and
all future Shareholders during the entire term of this Agreement if the
Shareholder elects to continue his relationship. After five (5) years from the
effective date of this Agreement, or earlier in the event of death or permanent
disability, a Shareholder may choose a successor to replace him as a
Shareholder. A Shareholder who wishes to have a successor replace him as a
Shareholder must first demonstrate to and obtain consent from Business Manager
that the successor is licensed to practice ophthalmology in the State, and is
competent and capable to assume ownership of the Practice. Business Manager
Consent shall not be unreasonably withheld with respect to such replacement.
In the event of disability, death or planned retirement after five years,
Vision 21 will make a good faith effort in assisting the Practice in locating a
possible successor. It is understood however that Vision 21 has no ultimate
responsibility to find the ultimate successor, which shall be the sole
-28-
<PAGE> 29
responsibility of the Shareholder. The Practice shall not amend the employment
agreements or waive any rights thereunder without the prior approval of
Business Manager. Recognizing that Business Manager would not have entered
into this Business Management Agreement but for the Practice's covenant to
maintain employment agreements with its Shareholders, the Practice shall pay to
Business Manager, in addition to the Management Fee, any damages, compensation,
payment, or settlement received by the Practice from each Shareholder specified
in Exhibit 4.1B pursuant to any non- competition covenant contained in Exhibit
4.1A. Such payment shall constitute liquidated damages of Business Manager for
the Practice's breach of the covenant contained in this Section 4.1. All
expenses and costs in enforcing the foregoing covenants not to compete shall be
deemed to be Office Expenses. The Practice shall take steps to have all future
Shareholders execute any reasonable documentation as required by Business
Manager in connection with this Section.
4.2 Practice Personnel. The Practice shall retain, as a Practice
Expense or Shareholder Expense, as the case may be, and not as an Office
Expense, that number of Professionals sufficient in the sole discretion of the
Practice as are reasonably necessary and appropriate for the provision of
Professional Eye Care Services, each of whom shall act in accordance with the
applicable provisions of this Business Management Agreement. Each
Ophthalmologist retained by the Practice shall hold and maintain a valid and
unrestricted license to practice ophthalmology in the State, and shall be
competent in the practice of ophthalmology. The Practice shall enter into and
maintain with each such retained Ophthalmologist and enforce a written
employment agreement substantially in the form of either Exhibit 4.1A for
Shareholders of the Practice or Exhibit 4.2A for non-shareholders. Each
Optometrist retained by the Practice shall hold and maintain a valid and
unrestricted license to practice optometry in the State, and shall be competent
in the practice of optometry. The Practice shall enter into and maintain with
each such retained Optometrist and enforce a written employment agreement
substantially in the form of Exhibit 4.2B. Notwithstanding the foregoing
provisions, the employment contracts currently in effect on the effective date
of this Agreement with the non-shareholder Professionals identified on Exhibit
4.2C shall remain in force during the existing term; provided, however, that
upon completion of such term should the non-shareholder remain at the Practice
or at such time the non-shareholder Professional is granted options by Vision
21, such Professionals' employment contracts shall then be immediately replaced
with employment contracts in substantially the form of Exhibit 4.1C. The
Practice shall be responsible for hiring, training, supervision, discipline,
termination and paying the compensation, and benefits as applicable, for all
Professional personnel and other contracted or affiliated Professionals, and
for withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable
law. Business Manager shall, however, on behalf of the Practice, administer
the compensation with respect to such individuals in accordance with the
written employment agreement between the Practice and each Professional. The
Practice shall cause its Professionals to obtain and maintain all licenses and
permits required in connection with the practice of ophthalmology or optometry,
any other business it has or the administration of drugs by such Professionals.
Business Manager shall neither control nor direct any Professional in the
performance of Professional Eye Care Services
-29-
<PAGE> 30
for patients. All damages recovered for violations of non-competition
covenants from Professionals subject to employment agreements in the forms of
Exhibit 4.1C, Exhibit 4.2A, or Exhibit 4.2B shall be treated as Adjusted Gross
Revenue.
4.3 Professional Standards. As a continuing condition of Business
Manager's obligations hereunder:
(a) Each Ophthalmologist and any other Ophthalmologist
personnel retained by the Practice to provide ophthalmology services must (i)
have and maintain a valid and unrestricted license to practice ophthalmology in
the State, (ii) have and maintain a D.E.A. number, (iii) comply with, be
controlled and governed by and otherwise provide ophthalmology services in
accordance with applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethics and standard of care of the
medical community wherein the principal Office of the Practice is located and
(iv) unless otherwise approved by the Local Advisory Council, obtain and retain
appropriate medical staff membership with appropriate clinical privileges at
any hospital or health care facility at which ophthalmology services are to be
provided. Procurement of temporary staff privileges pending the completion of
the medical staff approval process shall satisfy this provision, provided the
Ophthalmologist actively pursues full appointment and actually receives full
appointment within a reasonable time.
(b) Each Optometrist and any other Optometrist
personnel retained by the Practice to provide optometry services must (i) have
and maintain a valid and unrestricted license to practice optometry in the
State, (ii) comply with, be controlled and governed by and otherwise provide
optometry services in accordance with applicable federal, State and municipal
laws, rules, regulations, ordinances and orders, and the ethics and standard of
care of the optometric community wherein the principal Office of the Practice
is located, (iii) obtain and retain appropriate staff membership with
appropriate privileges at any hospital or health care facility at which
optometry services are to be provided, and (iv) provide on a continual basis,
quality care to its patients. Procurement of temporary staff privileges
pending the completion of the staff approval process shall satisfy this
provision, provided the Optometrist actively pursues full appointment and
actually receives full appointment within a reasonable time.
4.4 Professional Eye Care Services. The Practice shall ensure
that Professionals are available as necessary to provide quality Professional
Eye Care Services to patients and shall assist the Business Manager in ensuring
that Clinical Personnel are available as necessary to provide quality
Professional Eye Care Services to patients. In the event that Professionals
employed by, or Shareholders of, the Practice are not available to provide
Professional Eye Care Services coverage, the Practice shall engage and retain
locum tenens coverage. Professionals retained on a locum tenens basis shall
meet all of the requirements of Section 4.3, and the cost of providing locum
tenens coverage shall be a Practice Expense. With the assistance of the
Business Manager, the Practice and the Professionals shall be responsible for
scheduling Professional and Clinical Personnel coverage of all medical and
optometric procedures. The Practice shall cause all Professionals to exert
their best efforts to develop and promote the
-30-
<PAGE> 31
Practice in such manner as to ensure the Practice is able to serve the diverse
needs of the community.
4.5 Peer Review/Quality Assurance. The Practice shall adopt a
peer review/quality assurance program to monitor and evaluate the quality and
cost-effectiveness of Professional Eye Care Services provided by Professional
personnel of the Practice, the expenses of which shall be deemed an Office
Expense. Pursuant to such program, the Practice shall designate a committee of
Professionals to function as a medical peer review committee to review
credentials of potential recruits, perform quality assurance functions, and
otherwise resolve medical competence issues. The medical peer review committee
shall function pursuant to formal written policies and procedures. Upon
request of the Practice, Business Manager shall provide administrative
assistance to the Practice in performing its peer review/quality assurance
activities, but only if such assistance can be provided consistent with
maintaining the confidentiality, immunity, and non-discoverability of the
processes and actions of the peer review/quality assurance process of the
Practice.
4.6 Practice's Insurance. The Practice shall, as a Practice
Expense, obtain and maintain with commercial carriers chosen by the Practice
appropriate workers' compensation coverage for the Practice's employed
personnel, if any, and professional and comprehensive general liability
insurance covering the Practice and each of the Professionals and Clinical
Personnel the Practice retains to provide Professional Eye Care Services. The
comprehensive general liability coverage with respect to each Professional and
Clinical Personnel shall be in the minimum amount of One Million Dollars
($1,000,000) and professional liability coverage shall be in the minimum amount
of One Million Dollars ($1,000,000) for each occurrence and Three Million
Dollars ($3,000,000) annual aggregate; provided, however, that with Business
Manager Consent, which shall not be unreasonably withheld or delayed, the
Practice may from time-to-time change such liability coverage amounts to
amounts which are consistent with industry standards. The insurance policy or
policies shall provide for at least thirty (30) days' advance written notice to
the Practice from the insurer as to any alteration of coverage, cancellation,
or proposed cancellation for any cause. The Practice hereby releases Business
Manager from any and all liability for losses or damages caused by any act or
neglect of Business Manager occurring after the effective date hereof to the
extent that such losses or damages are covered by insurance; provided, however,
that such release shall not apply to any loss or damage caused by the willful,
wanton, or premeditated negligence of Business Manager. The Practice shall
obtain from any insurance company issuing the foregoing policies its consent to
the release from liability contained in this Section. The Practice shall cause
to be issued to Business Manager by such insurer or insurers a certificate
reflecting such coverage and obtain the consent of such insurer or insurers to
provide prior written notice to Business Manager equal to notice given to a
Professional of the cancellation or proposed cancellation of such insurance for
any cause. Such insurance policies shall be issued by a carrier or carriers
having a current rating of not less than "A" as rated by A.M. Best Company,
unless Business Manager agrees in writing to the purchase of a policy or
policies from a carrier having a lesser rating than "A". The Local Advisory
Council may, from time-to-time, select a different commercial carrier or
carriers for
-31-
<PAGE> 32
such workers' compensation and professional and general liability coverage upon
the establishment of a program affecting substantially all practice groups
within the market in which the Practice is located for which Business Manager
provides management services, which decision shall be binding upon the
Practice. After such election of a single carrier or carriers by the Local
Advisory Council, the costs of such coverage shall continue to be treated as a
Practice Expense. Upon the termination of this Business Management Agreement
for any reason, the Practice shall continue to carry professional liability
insurance in the amounts specified herein for the shorter period of (i) the
period set forth in the State's statute of repose (or if no statute of repose
exists, the State's statute of limitations) for bringing professional
malpractice claims based upon injuries which are not immediately discoverable
plus any applicable tolling periods, or (ii) ten (10) years after termination;
or if the Practice dissolves or ceases to practice ophthalmology or optometry,
the Practice shall obtain and maintain as a Shareholder Expense "tail"
professional liability coverage, in the amounts specified in this Section for
the shorter period of (i) the period set forth in the State's statute of repose
(or if no statute of repose exists, the State's statute of limitations) for
bringing professional malpractice claims based upon injuries which are not
immediately discoverable plus any applicable tolling periods, or (ii) ten (10)
years. The Practice shall be responsible for paying all premiums for
Shareholder "tail" insurance coverage and such coverage shall be a Shareholder
Expense; provided, however, that the Practice may cause its Professionals to be
responsible for paying the premiums for such "tail" insurance coverage. Except
as determined by the Local Advisory Council, the professional liability
insurance carrier shall not be replaced or changed without Practice Consent and
Business Manager Consent.
4.7 Confidential and Proprietary Information. The Practice agrees
and acknowledges that all materials provided by Business Manager to the
Practice constitute Confidential Information disclosed in confidence and with
the understanding that it constitutes valuable business information developed
by Business Manager at great expenditures of time, effort, and money. The
Practice further agrees that it shall not, directly or indirectly, disclose any
Confidential Information of the Business Manager to other persons without
Business Manager's express written authorization, such Confidential Information
shall not be used in any way directly or indirectly detrimental to Business
Manager, and the Practice will keep such Confidential Information confidential
and will ensure that its affiliates and advisors who have access to such
Confidential Information comply with these nondisclosure obligations; provided,
however, that the Practice may disclose Confidential Information to those of
its Representatives who need to know Confidential Information for the purposes
of this Business Management Agreement, it being understood and agreed to by the
Practice that such Representatives will be informed of the confidential nature
of the Confidential Information, will agree to be bound by this Section, and
will be directed by the Practice not to disclose to any other person any
Confidential Information. The Practice agrees to be responsible for any breach
of this Section by its affiliates, advisors, or Representatives. If the
Practice is requested or required (by oral questions, interrogatories, requests
for information or documents, subpoenas, civil investigative demands, or
similar processes) to disclose or produce any Confidential Information
furnished in the course of its dealings with Business Manager or its
affiliates, advisors, or Representatives,
-32-
<PAGE> 33
the Practice will (i) provide Business Manager with prompt notice thereof and
copies, if possible, and, if not, a description, of the Confidential
Information requested or required to be produced so that Business Manager may
seek an appropriate protective order or waive compliance with the provisions of
this Section and (ii) consult with Business Manager as to the advisability of
Business Manager's taking of legally available steps to resist or narrow such
request. The Practice further agrees that, if in the absence of a protective
order or the receipt of a waiver hereunder, the Practice is nonetheless, in the
written opinion of its legal counsel, compelled to disclose or produce
Confidential Information concerning Business Manager to any tribunal legally
authorized to request and entitled to receive such Confidential Information or
to stand liable for contempt or suffer other censure or penalty, the Practice
may disclose or produce such Confidential Information to such tribunal without
liability hereunder; provided, however, that the Practice shall give Business
Manager written notice of the Confidential Information to be so disclosed or
produced as far in advance of its disclosure or production as is practicable
and shall use its best efforts to obtain, to the greatest extent possible, an
order or other reliable assurance that confidential treatment will be accorded
to such Confidential Information so required to be disclosed or produced. The
Practice acknowledges that the disclosure of Confidential Information to it by
Business Manager is done in reliance upon its representations and covenants in
this Business Management Agreement. Upon expiration or termination of this
Business Management Agreement by either Party for any reason whatsoever, the
Practice shall immediately return and shall cause its Representatives,
affiliates, and independent contractors to immediately return to Business
Manager all Confidential Information, and the Practice will not, and will cause
its Representatives, affiliates, and independent contractors not to, thereafter
use, appropriate or reproduce such Confidential Information. The Practice
further expressly acknowledges and agrees that any such use, appropriation, or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to Business Manager, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, Business Manager, in addition to any other
remedies or damages available to it, shall be entitled to injunctive or other
equitable relief without the necessity of posting a bond, cash, or otherwise,
and without the necessity of proving actual damages. Such rights to relief
shall not preclude Business Manager from other remedies which may be available
to it hereunder.
4.8 Non-Competition. The Practice hereby recognizes and
acknowledges that Business Manager will incur substantial costs in providing
the equipment, support services, personnel, management, administration, and
other items and services that are the subject matter of this Business
Management Agreement and that in the process of providing services under this
Business Management Agreement, the Practice will be privy to financial and
Confidential Information, to which the Practice would not otherwise be exposed.
The Parties also recognize that the services to be provided by Business Manager
will be feasible only if the Practice operates an active practice to which the
Professionals associated with the Practice devote their full time and
attention. The Practice agrees and acknowledges that the non-competition
-33-
<PAGE> 34
covenants described hereunder are necessary for the protection of Business
Manager, and that Business Manager would not have entered into this Business
Management Agreement without the following covenants.
(a) During the Term of this Business Management
Agreement and except for its obligations pursuant to this Business Management
Agreement, the Practice shall not establish, operate, or provide Professional
Eye Care Services at a medical office, clinic or other health care facility
anywhere within twenty (20) miles of any current or future location at which
Business Manager provides business management services similar to the services
contemplated in this Agreement; provided, however, that the Practice may carry
on the activities described in Exhibit 1.3 without violating this Section 4.8.
(b) Except as specifically agreed to by Business
Manager in writing, the Practice and its Shareholders covenant and agree that
during the Term of this Business Management Agreement and for a period of two
(2) years from the date this Business Management Agreement is terminated, other
than if terminated by the Practice for cause, or expires, the Practice shall
not directly or indirectly own (excluding ownership of less than one percent
(1%) of the equity of any publicly traded entity and excluding ownership of the
common stock of Business Manager), manage, operate, control, contract with,
lend funds to, lend its name to, maintain any interest whatsoever in, or be
employed by, any enterprise (i) having to do with the provision, distribution,
promotion, or advertising of any type of management or administrative services
or products to third parties in competition with Business Manager, located
anywhere in the United States of America; and/or (ii) offering any type of
service(s) or product(s) to third parties substantially similar to those
offered by Business Manager to the Practice located anywhere in the United
States of America. Notwithstanding the above restriction, nothing herein shall
prohibit (i) the Practice or any of its Shareholders from providing management
and administrative services to this or their own ophthalmology practices after
the termination of this Business Management Agreement, (ii) the Practice or its
Shareholders from contracting with a third-party manager to provide
administrative or management services for its or their professional eye care
practices after termination of this Business Management Agreement and two (2)
years thereafter, as long as such relationship complies with the provisions of
this Section 4.8(b); (iii) any of the Practice's Shareholders from providing
management and administrative services to their own ophthalmology practices
after the termination of their employment relationship with the Practice in
accordance with this Business Management Agreement, and (iv) such Shareholders
from contracting with a third-party manager to provide administrative or
management services for their professional eye care practices after the
termination of their employment relationship with the Practice in accordance
with this Business Management Agreement. If the Practice violates this
Section, the Practice shall pay to Business Manager the amount received as
consideration by the Practice and/or the Shareholders in connection with the
Acquisition Transaction, as agreed upon liquidated damages. The Practice and
the Shareholders acknowledge and agree that such sum is reasonable in light of
the severe harm that Business Manager would suffer as a result of the
Practice's breach of this restrictive covenant. If the Practice fails to make
payment of liquidated damages as
-34-
<PAGE> 35
contemplated by this Section, Business Manager shall be entitled among all
other rights and remedies available at law or equity, to (i) cancel the number
of shares of Business Manager's common stock held by the Practice or the
Shareholders or, with respect to shares of Business Managers' common stock
entitled to be received by the Practice or the Shareholders pursuant to the
Acquisition Agreement, terminate its obligation to deliver such number of
shares of Business Manager's common stock, valued at the market price per share
representing such liquidated damages sum, or (ii) set off all or any of such
liquidated damages sum against amounts payable under any promissory note held
by the Practice or the Shareholders, or do both of the foregoing, but in no
event shall Business Manager be entitled to offset amounts in excess of the
liquidated damages sum pursuant to this Section.
(c) The written employment agreements in the form of
Exhibit 4.1A shall contain covenants of the Shareholder employees pursuant to
which the Shareholders agree not to compete with the Practice or with the
Business Manager within the Practice Territory for two (2) years after
termination or expiration of the employment agreement.
(d) The Practice shall obtain and enforce formal
written agreements from its Ophthalmologist employees in the form of Exhibit
4.2A or Exhibit 4.1C, as the case may be, and agreements from its Optometrist
employees in the form of Exhibit 4.2B, pursuant to which the employees agree
not to compete with the Practice or with the Business Manager within the
Practice Territory for one (1) year after termination or expiration of the
employment agreement.
(e) The Practice understands and acknowledges that
Business Manager shall suffer severe harm in the event that the foregoing
non-competition covenants in Section 4.8 are violated, and accordingly, if the
Practice breaches any obligation of Section 4.8, in addition to any other
remedies available under this Business Management Agreement, at law or in
equity, Business Manager shall be entitled to enforce this Business Management
Agreement by injunctive relief and by specific performance of the Business
Management Agreement, such relief to be without the necessity of posting a
bond, cash or otherwise. Additionally, nothing in this Section 4.8(e) shall
limit Business Manager's right to recover any other damages to which it is
entitled as a result of the Practice's breach. The time period for which the
non-competition covenant is effective shall be extended day for day for the
time period the Practice is in violation of the non-competition covenant. If
any provision of the covenants is held by a court of competent jurisdiction to
be unenforceable due to an excessive time period, geographic area, or
restricted activity, the covenant shall be reformed to comply with such time
period, geographic area, or restricted activity that would be held enforceable.
Following termination of this Agreement pursuant to Section 6.2(b) hereof, the
Practice shall not amend, alter or otherwise change any term or provision of
the restrictive covenants or liquidated damages provisions of the employment
agreements with the Professionals. Following termination of this Agreement
pursuant to Section 6.2(a) hereof, the Practice and the Professionals shall be
relieved of the restrictions imposed by this Section 4.8.
-35-
<PAGE> 36
4.9 Name, Trademark. The Practice represents and warrants that
the Practice conducts its professional practice under the name of, and only
under the names of "ExcelCare", "Eye Institute of Southern Arizona" and "Katz &
Kusman" and that such names are duly registered, qualified, or licensed under
the law of the State, and that, to the Practice's knowledge, the Practice is
the sole and absolute owner of the names in the State. The Practice covenants
and promises that, without the prior written consent of the Business Manager,
the Practice will not:
(a) take any action that is reasonably likely to result
in the loss of registration, qualification or licensure of the names;
(b) fail to take any reasonably necessary action that
will maintain the registration, qualification, or licensure current;
(c) license, sell, give, or otherwise transfer the
names or the right to use the names to any medical practice, ophthalmology or
optometry practice, Ophthalmologist, Optometrist, professional corporation, or
any other entity; or
(d) cease conducting the professional practice of the
Practice under the names.
4.10 Lease Assignment. Upon Business Manager's request, if the
Practice is the lessee of the Office under a lease with an unrelated and
unaffiliated lessor, the Practice shall assign the lease to Business Manager
upon receipt of consent from the lessor. The Practice shall use its best
efforts to assist in obtaining the lessor's consent to the assignment. Upon
request, the Practice shall execute any instruments and shall take any acts
that Business Manager may deem necessary to accomplish the assignment of the
lease.
4.11 Billing Information and Assignments; Establishment of Fees.
The Practice shall promptly provide the Business Manager with all billing and
other information reasonably requested by the Business Manager to enable it to
bill and collect the Practice's fees and other charges and reimbursement claims
pursuant to Section 3.9, and the Practice shall use its best efforts to procure
consents to assignments and other approvals and documents necessary to enable
the Business Manager to obtain payment or reimbursement from third parties for
such fees, other charges and claims. The Practice shall establish reasonable
fees for all professional and ancillary services and pharmaceutical items in
connection with the provision of Professional Eye Care Services.
4.12 Provider Agreements. The Practice shall not enter into
contractual arrangements with third parties for the Practice's provision of
Professional Eye Care Services which are inconsistent with guidelines
established by the Local Advisory Council or any capitated fee arrangement
without the prior approval of the Practice Advisory Council. Subject to the
-36-
<PAGE> 37
foregoing provision, the Practice shall have the final authority with regard to
all of such contractual arrangements.
4.13 Inconsistent Transaction by the Practice. The Practice agrees
that it shall not enter into any agreements, commitments or transactions or
engage in any activities which are within the authority and responsibility of
the Business Manager as set forth in this Agreement or otherwise materially
inconsistent with the provisions of this Agreement.
4.14 Recommendations. The Practice shall make recommendations to
Business Manager regarding the Office, the equipment, the business operations,
and the services to be provided by Business Manager under this Business
Management Agreement.
4.15 General Obligations. The Practice shall take all lawful
actions reasonably necessary to maximize revenues and shall not take any action
to reduce revenues other than in the ordinary course of business.
4.16 Tax Matters. The Practice shall prepare or arrange for the
preparation by an accountant selected by the Practice of all appropriate
corporate tax returns and reports required of the Practice including such
returns and reports required with respect to the Account. All costs and
expenses relating to the preparation of such returns and reports shall be
deemed a Shareholder Expense.
4.17 Shareholders' Undertaking to Enforce Certain Provisions of
Agreement. The Practice shall cause to be executed by all Shareholders of the
Practice an undertaking in the form of Exhibit 4.17 by such Shareholders to
ensure that the corporate existence of the Practice is maintained and that the
covenants not to compete described in Sections 4.1 and 4.2 of this Agreement
are enforced by the Practice against any individuals violating such covenants.
5. BUSINESS MANAGER'S COMPENSATION.
5.1 Management Fee. The Practice and Business Manager agree to
the compensation set forth herein as being paid to Business Manager in
consideration of a substantial commitment made by Business Manager hereunder
and that such fees are fair and reasonable. Each month Business Manager shall
be paid that percentage set forth in Exhibit 5.1 of the amount remaining after
(a) Office Expenses and Practice Expenses (excluding optical supplies) are
subtracted from (b) Adjusted Gross Revenue (the "Management Fee"). Business
Manager shall not be liable for any losses generated by the Practice, and in no
event shall the Management Fee be less than zero dollars. The payment of the
Management Fee shall take into account any losses generated by the Practice
arising after the effective date of this Agreement, with losses being carried
forward to offset future net revenues of the Practice (which for purposes of
this Section shall be deemed to be Adjusted Gross Revenue minus Office Expenses
and Practice Expenses).
-37-
<PAGE> 38
5.2 Reasonable Value. Payment of the Management Fee is not
intended to be and shall not be interpreted or applied as permitting Business
Manager to share in the Practice's fees for Professional Eye Care Services or
any other services, but is acknowledged as the Parties' negotiated agreement as
to the reasonable fair market value of Business Manager's commitment to pay all
Office Expenses and the fair market value of the equipment, contract analysis
and support, other support services, purchasing, personnel, office space,
management, administration, strategic management and other items and services
furnished by Business Manager pursuant to the Business Management Agreement,
considering the nature and volume of the services required and the risks
assumed by Business Manager. The Practice and Business Manager recognize and
acknowledge that Business Manager will incur substantial costs and business
risks in undertaking to pay all Office Expenses, arranging for the Practice's
use of the Office and in providing the equipment, support services, personnel,
marketing, office space, management, administration, and other items and
services that are the subject matter of this Business Management Agreement, and
certain of such costs and expenses can vary to a considerable degree according
to the extent of the Practice's business and services. It is the intent of the
Parties that the Management Fee reasonably compensate Business Manager for the
value to the Practice of Business Manager's administrative expertise, given the
considerable business risk to Business Manager in providing the Management
Services that are the subject of this Business Management Agreement.
5.3 Payment of Management Fee. To facilitate the payment of the
Management Fee as provided in Section 5.1(a) hereof, the Practice hereby
expressly authorizes Business Manager to make withdrawals of the Management Fee
from the Account as such fee becomes due and payable during the Term in
accordance with Section 3.10(a) and after termination as provided in Section
6.3. Business Manager shall deliver to the Practice an invoice for the
Management Fee accompanied by a reasonably detailed statement of the
information upon which the Management Fee calculation is based.
5.4 Assignment of Fees for Medical and Optometry Services.
(a) As security for the performance of its obligations
under this Business Management Agreement, the Practice hereby irrevocably
assigns and sets over to Business Manager all of its right to receive payment
for Professional Eye Care Services (other than rights to receive payments
relating to the activities described in Exhibit 1.3) to the extent permitted by
law (the "Accounts Receivable") and retain such payment for its own account,
and shall obtain a like assignment from all Professionals. To the extent such
rights to receive payment cannot legally be assigned, the "Accounts Receivable"
shall include the right to have any amounts received by the Practice pursuant
to such non-assignable rights paid over to Business Manager upon receipt. The
Practice shall take such action as may be necessary to confirm to Business
Manager the rights set forth in this Section 5.4(a).
(b) Without limiting the generality of the foregoing,
it is the intent of the Parties that the assignments to Business Manager of the
rights described in Section 5.4(a) above
-38-
<PAGE> 39
shall be inclusive of the rights of the Practice and the Professionals to
receive payment with respect to any services rendered prior to the effective
date of any expiration or termination of this Agreement; provided, however,
that the right to receive payments relating to the activities described in
Exhibit 1.3 shall be excluded from such assignment. The Practice agrees and
shall cause each Professional to agree, that Business Manager shall retain the
right to collect and hold as security any Accounts Receivable relating to any
such services rendered prior to the effective date of any such expiration or
termination ("Pre-Termination Accounts Receivable").
(c) Business Manager acknowledges that it is the intent
of Business Manager to grant a security interest in (i) prior to an initial
public offering of Business Manager's common stock, sixty-five percent (65%) of
the Pre-Termination Accounts Receivable, and (ii) after an initial public
offering of Business Manager's common stock, one hundred percent (100%) of the
Pre-Termination Accounts Receivable; to the lender(s) under its working capital
credit facility (whether one or more, the "Credit Facility Lender"), as in
effect from time-to-time. Pursuant to the 65% grant, the Credit Facility
Lender shall be entitled to collect and retain, upon default of Business
Manager, 65% of each dollar of the Pre-Termination Accounts Receivable amounts
received, with the remaining 35% received to be returned to the Account. The
Practice agrees that such security interest of the Credit Facility Lender is
intended to be a first priority security interest and is superior to any right,
title or interest which may be asserted by the Practice or any Professional
with respect to the then applicable portion of the Pre-Termination Accounts
Receivable or the proceeds thereof. The Practice further agrees, and shall
cause each Professional to agree, that, upon the occurrence of an event which,
under the terms of such working capital credit facility, would allow the Credit
Facility Lender to exercise its right to collect such portion of the
Pre-Termination Accounts Receivable and apply the proceeds thereof toward
amounts due under such working capital credit facility, the Credit Facility
Lender will succeed to all rights and powers of Business Manager under the
powers of attorney provided for in Section 3.9(f) above as if such Credit
Facility Lender had been named as the attorney-in-fact therein, and the
Practice and each Professional hereby waive, and the Credit Facility Lender
shall not take the Pre-Termination Accounts Receivable subject to, any and all
defenses the Practice and/or such Professionals may have with respect to money
coming into the Account and any defenses they may have against the Credit
Facility Lender. The Practice shall, and shall cause its Professionals to,
execute any and all documents, financing statements, and agreements reasonably
requested by such Credit Facility Lender to evidence and effectuate the Credit
Facility Lender's rights contemplated in this Section.
(d) In the event that, contrary to the mutual intent of
Business Manager and the Practice, the assignment of rights described in this
Section 5.4 shall be deemed, for any reason, to be ineffective as an outright
assignment, the Practice and each Professional shall, effective as of the date
of this Business Management Agreement, be deemed to have granted (and the
Practice does hereby grant, and shall cause each Professional to grant) to
Business Manager a first priority lien on and security interest in and to any
and all interests of the Practice and such Professionals in any accounts
receivable generated by the provision of Professional Eye Care Services by the
Practice and its Professionals or otherwise generated
-39-
<PAGE> 40
through the operations of the Office, and all proceeds with respect thereto, to
secure the payment to Business Manager of all amounts due to Business Manager
hereunder, and this Business Management Agreement shall be deemed to be a
security agreement to the extent necessary to give effect to the foregoing.
The Practice shall execute and deliver, and cause each Professional to execute
and deliver, all such financing statements as Business Manager may request in
order to perfect such security interest. The Practice shall not grant (and
shall not suffer any Professional to grant) any other lien on or security
interest in or to such accounts receivable or any proceeds thereof.
(e) Upon termination of this Business Management
Agreement, Business Manager shall release the foregoing lien with respect to
Accounts Receivable generated after the effective date of such termination and
shall execute and cause to be filed any termination statements relating to such
release of lien. However, it is understood that all rights of the Parties to
the Accounts Receivable shall be subordinate to any interest of the Credit
Facility Lender.
5.5 Disputes Regarding Fees.
(a) It is the Parties' intent that any disputes
regarding performance standards of the Business Manager be resolved to the
extent possible by good faith negotiation. To that end, the Parties agree that
if the Practice in good faith believes that Business Manager has failed to
perform its obligations, and that as a result of such failure, the Practice is
entitled to a set-off or reduction in its Management Fees, the Practice shall
give Business Manager notice of the perceived failure and request in the notice
a set-off or reduction in Management Fees. Business Manager and the Practice
shall then negotiate the dispute in good faith, and if an agreement is reached,
the Parties shall implement the resolution without further action.
(b) If the Parties cannot reach a resolution within a
reasonable time, the Parties shall submit the dispute to mediation to be
conducted in accordance with the Arizona Mediation Rules.
(c) If the mediation process fails to resolve the
dispute, the dispute shall be submitted by either Party to binding arbitration
under Section 8.7.
6. TERM AND TERMINATION.
6.1 Initial and Renewal Term. The Term of this Business
Management Agreement will be for an initial period of forty (40) years after
the effective date, and shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business Manager nor the
Practice shall have given notice of termination of this Business Management
Agreement at least one hundred twenty (120) days before the end of the initial
term or any renewal term, or unless otherwise terminated as provided in Section
6.2 of this Business Management Agreement.
-40-
<PAGE> 41
6.2 Termination.
(a) Termination by the Practice. The Practice may
immediately terminate this Agreement at its discretion, upon written notice
pursuant to Section 8.3, as follows:
i) If Business Manager becomes insolvent by
reason of its inability to pay its debts as they mature; is adjudicated
bankrupt or insolvent; files a petition in bankruptcy, reorganization or
similar proceeding under the bankruptcy laws of the United States or shall have
such a petition filed against it which is not discharged within thirty (30)
days; has a receiver or other custodian, permanent or temporary, appointed for
its business, assets or property; makes a general assignment for the benefit of
creditors; has its bank accounts, property or accounts attached; has execution
levied against its business or property; or voluntarily dissolves or liquidates
or has a petition filed for corporate dissolution and such petition is not
dismissed with thirty (30) days;
ii) If the Business Manager fails to comply
with any material provision of this Agreement, or any other agreement with the
Practice, and does not correct such failure within sixty (60) days after
written notice of such failure to comply is delivered by the Practice
specifying the nature of the breach in reasonable detail.
(b) Termination by Business Manager. Business Manager
may immediately terminate this Agreement at its discretion, upon written notice
pursuant to Section 8.3, as follows:
i) If the Practice becomes insolvent by
reason of its inability to pay its debts as they mature; is adjudicated
bankrupt or insolvent; files a petition in bankruptcy, reorganization or
similar proceeding under the bankruptcy laws of the United States or shall have
such a petition filed against it which is not discharged within thirty (30)
days; has a receiver or other custodian, permanent or temporary, appointed for
its business, assets or property; makes a general assignment for the benefit of
creditors; has its bank accounts, property or accounts attached; has execution
levied against its business or property; or voluntarily dissolves or liquidates
or has a petition filed for corporate dissolution and such petition is not
dismissed with thirty (30) days; or
ii) If the Practice fails to comply with any
material provision of this Agreement, or any other agreement with Business
Manager, and does not correct such failure within sixty (60) days after written
notice of such failure to comply is delivered by Business Manager specifying
the nature of the breach in reasonable detail.
(c) Termination by Agreement. In the event the
Practice and Business Manager shall mutually agree in writing, this Business
Management Agreement may be terminated on the date specified in such written
agreement.
-41-
<PAGE> 42
(d) Legislative, Regulatory or Administrative Change.
In the event there shall be a change in the Medicare or Medicaid statutes,
federal statutes, state statutes, case laws, administrative interpretations,
regulations or general instructions, the adoption of new federal or state
legislation, or a change in any third-party reimbursement system, any of which
are reasonably likely to materially and adversely affect the manner in which
either Party may perform or be compensated for its services under this Business
Management Agreement or which shall make this Business Management Agreement or
any related agreements unlawful or unenforceable, or which would be reasonably
likely to subject either Party to this Agreement, or any member, shareholder,
officer, director, employee, agent or affiliated organization to any civil or
criminal penalties or administrative sanctions, the Parties shall immediately
use their best efforts to enter into a new service arrangement or basis for
compensation for the services furnished pursuant to this Business Management
Agreement that complies with the law, regulation, or policy, or which minimizes
the possibility of such penalties, sanctions or unenforceability, and that
approximates as closely as possible the economic position of the Parties prior
to the change. If the Parties are unable to reach a new agreement within a
reasonable time, then either Party may submit the issue to arbitration pursuant
to Section 8.7 for the purpose of reaching an alternative arrangement that is
equitable under the circumstances.
6.3 Effects of Termination. Upon termination of this Business
Management Agreement, as hereinabove provided, neither Party shall have any
further obligations hereunder except for (i) obligations accruing prior to the
date of termination, including, without limitation, payment of the Management
Fee relating to services provided prior to the termination of this Business
Management Agreement, (ii) obligations, promises, or covenants set forth herein
that are expressly made to extend beyond the Term, including, without
limitation, insurance, indemnities and non-competition provisions, which
provisions shall survive the expiration or termination of this Business
Management Agreement, (iii) the obligation of the Practice described in Section
6.4, (iv) the obligation of Business Manager to repay amounts borrowed from the
Account pursuant to Section 5.4(a), and (v) the obligation of the Practice to
repay amounts advanced by Business Manager to the Practice. In effectuating
the provisions of this Section 6.3, the Practice specifically acknowledges and
agrees that if this Business Management Agreement terminates pursuant to
Sections 6.2(b) or (d), Business Manager shall continue for a period not to
exceed ninety (90) days to exclusively collect and receive on behalf of the
Practice all cash collections from accounts receivable in existence at the time
this Business Management Agreement is terminated, it being understood that (a)
such cash collections will represent compensation to Business Manager for
Management Services already rendered, (b) Business Manager shall not be
entitled to collect accounts receivables after the termination date if this
Agreement is terminated pursuant to Section 6.2(a), and (c) the Business
Manager shall deduct from such cash collections any other amounts owed to
Business Manager under this Business Management Agreement, including, without
limitation, (i) ten percent (10%) of such cash collections as its Management
Fee during any period after the termination of this Business Management
Agreement while such collections are taking place, (ii) any reasonable costs
incurred by Business Manager in carrying out the post termination procedures
and transactions contemplated herein, and (iii) any adjustments pursuant to
Section 3.10(b). Business Manager
-42-
<PAGE> 43
shall remit remaining amounts from such collection activities, if any, to the
Practice. Upon the expiration or termination of this Business Management
Agreement for any reason or cause whatsoever, Business Manager shall surrender
to the Practice all books and records pertaining to the Practice's
ophthalmology and optometry practices. All sums received or collected by
either Party after termination for Adjusted Gross Revenues earned prior to
termination shall be split in accordance with this Section 6.3.
6.4 Purchase Obligation. Upon expiration of this Business
Management Agreement in accordance with Section 6.1 or termination of this
Business Management Agreement by Business Manager, as set forth in Section
6.2(b) above, the Practice shall upon Business Manager's demand:
(a) Pay to Business Manager the difference between the
consideration received in the Acquisition Transaction minus the book value of
the net tangible assets (for purposes of such repurchase obligations such
difference shall be amortized over a forty (40) year period), deferred charges,
and all other amounts on the books of the Business Manager relating to the
Business Management Agreement, as such amounts shall be established pursuant to
the Acquisition Transaction and including amounts, if any, for the covenants
described in Section 4.8 above, as adjusted through the last day of the month
most recently ended prior to the date of such termination in accordance with
GAAP to reflect amortization or depreciation of the intangible assets, deferred
charges, or covenants;
(b) Purchase from Business Manager any real estate
owned by Business Manager and used as an Office at the greater of the appraised
fair market value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by
Business Manager and the Practice, each selecting a duly qualified appraiser,
who in turn will agree on a third appraiser. This agreed-upon appraiser shall
perform the appraisal which shall be binding on both Parties. In the event
either Party fails to select an appraiser within fifteen (15) days of the
selection of an appraiser by the other Party, the appraiser selected by the
other Party shall perform the appraisal which shall be binding on both Parties;
(c) Purchase at book value all improvements, additions,
or leasehold improvements that have been made by Business Manager at any Office
and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement;
(d) Assume all contracts and leases and the Practice's
pro rata share of all debts and payables that are obligations of Business
Manager and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement or the properties leased
or subleased by Business Manager;
-43-
<PAGE> 44
(e) Purchase from Business Manager at book value all of
the equipment leased to the Practice, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its obligations
under this Business Management Agreement, and all other assets, including
inventory and supplies, tangibles and intangibles, set forth on the books of
Business Manager as adjusted through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to reflect
operations of the Office, depreciation, amortization, and other adjustments of
assets shown on the books of Business Manager; and
(f) Cause to be executed by Shareholders of the
Practice such personal guaranties and any security agreements reasonably
required by Business Manager in connection with the purchase described in this
Section 6.4. For purposes of this Section 6.4(f), the term "Shareholders"
shall mean any individual who is a Shareholder of the Practice on the date that
notice is given of the termination of this Business Management Agreement and
any additional individual who is a Shareholder of the Practice on the effective
date of this Business Management Agreement. However, such obligations of
personal guaranties by Shareholders shall expire effective five (5) years from
the date hereof.
All current Shareholders of the Practice shall on or before the effective date
of this Business Management Agreement, and all individuals who become
Shareholders of the Practice after the effective date of commencement of this
Business Management Agreement shall upon becoming a Shareholder of the
Practice, execute and deliver to Business Manager an undertaking to comply with
this Section 6.4(f) which shall be in the form of Exhibit 6.4(f).
Notwithstanding the above, the Practice and the Shareholders shall not permit
without Business Manager Consent, during any three (3) year period during which
this Agreement is in effect and only after five (5) years from the commencement
hereof, the transfer of over fifty percent (50%) of the ownership interests of
the Practice to any existing or new Shareholders of the Practice or
combinations of existing or new Shareholders of the Practice, except in cases
of death, disability or retirement of such transferring Shareholders or
transfers to replacement Shareholders described in Section 4.1 in accordance
with the provisions set forth in Section 4.1.
6.5 Purchase Option. Upon termination of this Business Management
Agreement by the Practice pursuant to Section 6.2(a), the Practice shall be
released from the restrictive covenants in Section 4.8 and shall have the
option but not the obligation to do all or none of the following:
(a) Pay to Business Manager the difference between the
consideration received in the Acquisition Transaction minus the book value of
the net tangible assets (for purposes of such repurchase obligations such
difference shall be amortized over a forty (40) year period), deferred charges,
and all other amounts on the books of the Business Manager relating to the
Business Management Agreement, as such amounts shall be established pursuant to
the Acquisition Transaction and including amounts, if any, for the covenants
described in Section 4.8 above, as adjusted through the last day of the month
most recently ended prior to the date
-44-
<PAGE> 45
of such termination in accordance with GAAP to reflect amortization or
depreciation of the intangible assets, deferred charges, or covenants;
(b) Purchase from Business Manager any real estate
owned by Business Manager and used as an Office at the greater of the appraised
fair market value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by
Business Manager and the Practice, each selecting a duly qualified appraiser,
who in turn will agree on a third appraiser. This agreed-upon third appraiser
shall perform the appraisal which shall be binding on both Parties. In the
event either Party fails to select an appraiser within fifteen (15) days of the
selection of an appraiser by the other Party, the appraiser selected by the
other Party shall perform the appraisal which shall be binding on both Parties;
(c) Purchase at book value all improvements, additions,
or leasehold improvements that have been made by Business Manager at any Office
and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement;
(d) Assume all contracts and leases and the Practice's
pro rata share of all debts and payables that are obligations of Business
Manager and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement or the properties leased
or subleased by Business Manager; and
(e) Purchase from Business Manager at book value all of
the equipment leased to the Practice, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its obligations
under this Business Management Agreement, and all other tangible assets,
including inventory and supplies, set forth on the books of the Business
Manager as adjusted through the last day of the month most recently ended prior
to the date of such termination in accordance with GAAP to reflect operations
of the Office, depreciation, amortization, and other adjustments of assets
shown on the books of the Business Manager.
The Practice shall provide notice to Business Manager of its intent to
exercise the option above described at the same time that the Practice provides
notice to Business Manager of the Practice's election to terminate this
Business Management Agreement for cause.
6.6 Closing of Purchase. If the Practice purchases the assets
pursuant to Section 6.4 or 6.5, the Practice shall pay cash for the purchased
assets; provided, however, that the Practice may also use Business Manager's
common stock as consideration for the purchased assets, which stock shall be
valued for purposes of this Agreement as follows: (a) in the event of a Section
6.4 termination, the shares shall be valued at the lower of the value on the
date the shares were received by the Shareholder (as agreed to by the parties),
and the value on the date of the closing of this purchase, or (b) in the event
of a Section 6.5 termination, the shares shall be
-45-
<PAGE> 46
valued at the higher of the value of such shares on the dates set forth in
6.6(a) above. The amount of the purchase price shall be reduced by the amount
of debt and liabilities of Business Manager, if any, assumed by the Practice
and by any unpaid portion of any promissory notes payable by Business Manager
to any Shareholder of the Practice, which shall be offset against the purchase
price. The Practice and all Shareholders of the Practice shall execute such
documents as may be required to assume the liabilities set forth in Section
6.4(d) or Section 6.5(c) and to remove Business Manager from any liability with
respect to such repurchased asset and with respect to any property leased or
subleased by Business Manager. The closing date for the purchase shall be
determined by the Parties, but shall in no event occur later than the
expiration date of this Business Management Agreement if this Agreement expires
in accordance with Section 6.1, or sixty (60) days from the date of the notice
of termination for cause. The termination of this Business Management
Agreement shall become effective upon the closing of the sale of the assets if
the assets are purchased, and all Parties shall be released from any
restrictive covenants provided for in Section 3.17 or Section 4.8 on the
closing date. If the Practice chooses not to purchase the assets pursuant to
Section 6.5, the termination shall be effective as of the notice date given by
the Practice under Section 6.2(b), at which time the parties shall be released
from the restrictive covenants in Section 3.17 and Section 4.8. From and after
any termination, each Party shall provide the other Party with reasonable
access of the books and records then owned by it to permit such requesting
Party to satisfy reporting and contractual obligations that may be required of
it.
6.7 Limitation of Liability. In no event shall Business Manager
be liable to the Practice for any indirect, special or consequential damages or
lost profits, arising out of or related to this Agreement or the performance or
breach thereof, even if Business Manager has been advised of the possibility
thereof.
7. INDEMNIFICATION; THIRD PARTY CLAIMS.
7.1 Indemnification by the Practice. The Practice shall indemnify
and hold harmless Business Manager and Business Manager's shareholders,
directors, officers, agents and employees, from and against all claims,
demands, liabilities, losses, damages, costs and expenses, including reasonable
attorneys' fees, resulting in any manner, directly or indirectly, from the
negligent or intentional acts or omissions of the Practice or its members,
Shareholders, directors, officers, employees, agents or independent
contractors, including but not limited to any such claims, demands,
liabilities, losses, damages, costs and expenses which accrued or arose prior
to the date of execution of this Business Management Agreement.
7.2 Indemnification by Business Manager. Business Manager shall
indemnify and hold harmless the Practice, and the Practice's members,
Shareholders, directors, officers, agents and employees, from and against any
and all claims, demands, liabilities, losses, damages, costs and expenses,
including reasonable attorneys' fees, resulting in any manner, directly or
indirectly, from the negligent or intentional acts or omissions of Business
Manager or its shareholders, directors, officers, employees, agents or
independent contractors.
-46-
<PAGE> 47
7.3 Notice of Claim for Indemnification. No claims for
indemnification under this Agreement relating to claims solely between the
Parties shall be valid unless notice of such claim is delivered to the Practice
(in the case of a claim by Business Manager) or Business Manager (in the case
of a claim by the Practice) within one (1) year after the Party making such
claim first obtained knowledge of the facts upon which such claim is based.
Any such notice shall set forth in reasonable detail, to the extent known by
the Party giving such notice, the facts on which such claim is based and the
resulting estimated amount of damages.
7.4 Matters Involving Third Parties.
(a) If the Practice or Business Manager receives notice
or acquires knowledge of any matter which may give rise to a claim by another
person and which may then result in a claim for indemnification under this
Agreement, then: (i) if such notice or knowledge is received or acquired by
the Practice, the Practice shall promptly notify Business Manager; and (ii) if
such notice or knowledge is received or acquired by Business Manager, the
Business Manager shall promptly notify the Practice; except that no delay in
giving such notice shall diminish any obligation under this Agreement to
provide indemnification unless (and then solely to the extent) the Party from
whom such indemnification is sought is prejudiced.
(b) Any Party from whom such indemnification (the
"Indemnifying Party") is sought shall have the right to defend the Party
seeking such indemnification (the "Indemnified Party") against such claim by
another person (the "Third Party Claim") with counsel of the Indemnifying
Party's choice reasonably satisfactory to the Indemnified Party so long as: (i)
within fifteen (15) days after the Indemnified Party has given notice of the
Third Party Claim to the Indemnifying Party, the Indemnifying Party notifies
the Indemnified Party that the Indemnifying Party will indemnify the
Indemnified Party from and against all adverse consequences the Indemnified
Party may suffer caused by, resulting from, arising out of or relating to such
Third Party Claim; (ii) the Indemnifying Party provides the Indemnified Party
with evidence reasonably satisfactory to the Indemnified Party that the
Indemnifying Party has the financial resources necessary to defend against the
Third Party Claim and fulfill its indemnification obligations; (iii) the Third
Party Claim seeks money damages; (iv) settlement of, or an adverse judgment
with respect to, the Third Party Claim (other than a medical malpractice claim)
is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice adverse to the continuing business
interests of the Indemnified Party; and (v) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 7.4(b): (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim; (ii) the Indemnified
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior consent of
the Indemnifying Party; and (iii) the Indemnifying Party shall not consent to
the entry of any judgment or enter into any
-47-
<PAGE> 48
settlement with respect to the Third Party Claim without the prior consent of
the Indemnified Party.
(d) If any of the conditions specified in Section
7.4(b) is or becomes unsatisfied, however; (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it may deem advisable (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (ii) the Indemnifying Party shall
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' and
accountants' fees and expenses); and (iii) the Indemnifying Party shall remain
responsible for any adverse consequences the Indemnified Party may suffer
caused by, resulting from, arising out of or relating to such Third Party Claim
to the fullest extent provided in this Agreement.
7.5 Settlement. Except as permitted by Section 7.4, a Party shall
not compromise or settle any claim for which the other Party is obligated to
indemnify it without the written consent of such Party.
7.6 Cooperation. The Indemnified Party shall make available all
information and assistance that the Indemnifying Party may reasonably request
in conjunction with assessing, defending and settling said claim.
8. MISCELLANEOUS.
8.1 Administrative Services Only. Nothing in this Business
Management Agreement is intended or shall be construed to allow Business
Manager to exercise control, authority or direction over the manner or method
by which the Practice and its Professionals perform Professional Eye Care
Services or other professional health care services. The rendition of all
Professional Eye Care Services, including, but not limited to, the prescription
or administration of medicine and drugs, shall be the sole responsibility of
the Practice and its Professionals, and Business Manager shall not interfere in
any manner or to any extent therewith. Nothing contained in this Business
Management Agreement shall be construed to permit Business Manager to engage in
the practice of ophthalmology or optometry, it being the sole intention of the
Parties hereto that the services to be rendered to the Practice by Business
Manager are solely for the purpose of providing nonmedical management and
administrative services to the Practice so as to enable the Practice to devote
its full time and energies to the professional conduct of its professional eye
care practice and provision of Professional Eye Care Services to its patients
and not to administration or practice management.
8.2 Status of Independent Contractor. It is expressly
acknowledged that the Parties hereto are "independent contractors," and nothing
in this Business Management Agreement is intended and nothing shall be
construed to create an employer/employee, partnership, or joint venture
relationship, or to allow either to exercise control or direction over the
manner or
-48-
<PAGE> 49
method by which the other performs the services that are the subject matter of
this Business Management Agreement; provided always that the services to be
provided hereunder shall be furnished in a manner consistent with the standards
governing such services and the provisions of this Business Management
Agreement. Each Party understands and agrees that (i) the other will not be
treated as an employee for federal tax purposes, (ii) neither will withhold on
behalf of the other any sums for income tax, unemployment insurance, social
security, or any other withholding pursuant to any law or requirement of any
governmental body or make available any of the benefits afforded to its
employees, (iii) all of such payments, withholdings, and benefits, if any, are
the sole responsibility of the Party incurring the liability, and (iv) each
will indemnify and hold the other harmless from any and all loss or liability
arising with respect to such payments, withholdings, and benefits, if any.
8.3 Notices. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be deemed effectively given
when in writing and personally delivered or mailed by prepaid certified or
registered mail, return receipt requested, addressed as follows:
The Practice: ExcelCare, P.C.
5632 East Fifth Street
Tucson, Arizona 85711
Attention: Jeffrey I. Katz, M.D.
Business Manager: Eye Institute of Southern Arizona, P.C.
5632 East Fifth Street
Tucson, Arizona 85711
Attention: Jeffrey I. Katz, M.D.
with a copy to: Shumaker, Loop & Kendrick, LLP
101 East Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
Attention: Darrell C. Smith, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate.
8.4 Governing Law. This Business Management Agreement shall in
all respects be governed, interpreted and construed in accordance with the laws
of the State without giving effect to principles of comity or conflicts of laws
thereof.
-49-
<PAGE> 50
8.5 Jurisdiction and Venue. Business Manager and the Practice
hereby consent to the personal jurisdiction and venue of the state and federal
courts in the judicial circuit where the Practice has its principal corporate
office, and do hereby waive all questions of personal jurisdiction and venue,
including, without limitation, the claim or defense that such courts constitute
an inconvenient forum.
8.6 Assignment. Except as may be herein specifically provided to
the contrary, this Business Management Agreement shall inure to the benefit of
and be binding upon the Parties hereto and their respective legal
representatives, successors, and assigns; provided, however, that the Practice
may not assign this Business Management Agreement without the prior written
consent of Business Manager, which consent may be withheld. The sale,
transfer, pledge, or assignment of any of the ownership interests held by any
Shareholder of the Practice, the sale of any material portion of its assets by
the Practice, or the issuance by the Practice of voting ownership interests to
any other person (except to replacement Shareholders as described in Section
4.1), or any combination of such transactions within a period of five (5)
years, such that the existing Shareholders in the Practice fail to maintain a
majority of the voting interests in the Practice shall be deemed an attempted
assignment by the Practice, and shall be null and void unless consented to in
writing by Business Manager prior to any such transfer or issuance. Any breach
of this provision, whether or not void or voidable, shall constitute a material
breach of the Business Management Agreement, and in the event of such breach,
Business Manager may terminate this Business Management Agreement upon
twenty-four (24) hours' notice to the Practice and shall have all rights
available at law or in equity. Except as otherwise provided in this Agreement,
the Parties agree that until an initial public offering of Business Manager's
common stock occurs, Business Manager may only assign or transfer its rights
and obligations under this Business Management Agreement with the prior written
consent of the Practice. Except as otherwise provided in this Agreement, after
an initial public offering of Business Manager's common stock occurs, Business
Manager may assign or transfer its rights and obligations under this Business
Management Agreement only in the following situations: (a) pursuant to a merger
of Business Manager into another entity or the sale of substantially all of the
assets of Business Manager to a health care company; (b) pursuant to the sale
of all of the health care contracts of Business Manager within a multistate
region in which the Practice is located with the Practice's consent, which
shall not be unreasonably withheld and which may not be withheld where the
proposed assignment or transfer is to a healthcare practice management company
with similar or greater financial standing, expertise and service capabilities
to that of Business Manager; (c) pursuant to a transfer or assignment of this
Agreement to one of Business Manager's subsidiaries or parent organizations; or
(d) pursuant to any transfer or assignment to or by any financial lender of the
Business Manager, and this Agreement is subordinate to the rights of such
lender. After such assignment and transfer, the Practice agrees to look solely
to such assignee or transferee for performance of this Business Management
Agreement. In addition, Business Manager or the assignee or transferee shall
have the right to (i) collaterally assign its interest in this Business
Management Agreement and its right to collect Management Fees hereunder to any
financial institution or other third party without the consent of the Practice,
and (ii) subject to the foregoing provisions, assign its rights
-50-
<PAGE> 51
and obligations hereunder to any third party without the consent of the
Practice. In the event that Business Manager assigns its rights and
obligations hereunder to one or more of its subsidiaries, Business Manager
shall unconditionally guaranty the obligations of such subsidiary or
subsidiaries. The Practice and executing Shareholders agree to execute in the
future any and all documentation reasonably required to subordinate their
rights pursuant to this Section 8.6 to that of a lender.
8.7 Arbitration. The Parties shall use good faith negotiation to
resolve any controversy, dispute or disagreement arising out of or relating to
this Business Management Agreement or the breach of this Business Management
Agreement. Except as otherwise provided herein and except as it relates to
Sections 3.14, 3.17, 4.7 and 4.8 of this Business Management Agreement and
except for matters which are to be determined by the Local Advisory Council
and/or the National Appeals Council as contemplated in this Business Management
Agreement, any matter not resolved by negotiation shall be submitted to
mediation conducted in accordance with the Arizona Mediation Rules. If the
mediation process fails to resolve the dispute, the matter shall be submitted
to binding and confidential arbitration in accordance with the National Health
Lawyers Association Alternative Dispute Resolution Rules of Procedure for
Arbitration and with one individual knowledgeable in the health care business
serving as the arbitrator. Each Party will, upon the written request of the
other Party, promptly provide the other with copies of documents relevant to
the issues raised by any claim or counterclaim. Other discovery may be ordered
by the arbitrator to the extent the arbitrator deems additional discovery
relevant and appropriate, and any dispute regarding discovery shall be
determined by the arbitrator, which determination shall be conclusive.
8.8 Waiver of Breach. The waiver by either Party of a breach or
violation of any provision of this Business Management Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
8.9 Enforcement. In the event either Party resorts to legal
action to enforce or interpret any provision of this Business Management
Agreement, the prevailing Party shall be entitled to recover the costs and
expenses of such action so incurred, including, without limitation, reasonable
attorneys' fees.
8.10 Gender and Number. Whenever the context of this Business
Management Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.
8.11 Additional Assurances. Except as may be herein specifically
provided to the contrary, the provisions of this Business Management Agreement
shall be self-operative and shall not require further agreement by the Parties;
provided, however, at the request of either Party, the other Party shall
execute such additional instruments and take such additional acts as are
reasonable and as the requesting Party may deem necessary to effectuate this
Business Management Agreement.
-51-
<PAGE> 52
8.12 Consents, Approvals, and Exercise of Discretion. Whenever
this Business Management Agreement requires any consent or approval to be given
by either Party, or either Party must or may exercise discretion, the Parties
agree that such consent or approval shall not be unreasonably withheld or
delayed, and that such discretion shall be reasonably exercised.
8.13 Force Majeure. Neither Party shall be liable or deemed to be
in default for any delay or failure in performance under this Business
Management Agreement or other interruption of service deemed to result,
directly or indirectly, from acts of God, civil or military authority, acts of
public enemy, war accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either Party's
employees, or any other similar cause beyond the reasonable control of either
Party unless such delay or failure in performance is expressly addressed
elsewhere in this Business Management Agreement. Notwithstanding the same, the
Parties hereto agree to continue this Agreement to the best degree they can so
long as reasonably possible and the Practice shall not be excused from its
obligations under Sections 4.2, 6.4 and 6.6 pursuant to this Section 8.13.
8.14 Severability. The Parties hereto have negotiated and prepared
the terms of this Business Management Agreement in good faith with the intent
that each and every one of the terms, covenants and conditions herein be
binding upon and inure to the benefit of the respective Parties. Accordingly,
if any one or more of the terms, provisions, promises, covenants or conditions
of this Business Management Agreement or the application thereof to any person
or circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be reformed, construed and enforced
as if such unenforceable provision had not been contained herein, and each and
all of the remaining terms, provisions, promises, covenants and conditions of
this Business Management Agreement or their application to other persons or
circumstances shall not be affected thereby and shall be valid and enforceable
to the fullest extent permitted by law. To the extent this Business Management
Agreement is in violation of applicable law, then the Parties agree to
negotiate in good faith to amend the Business Management Agreement, to the
extent possible consistent with its purposes, to conform to law. If the
Parties are unable to amend the Business Management Agreement in a manner which
conforms with applicable law, then either Party may submit the matter to
arbitration pursuant to Section 8.7 for the purpose of reaching an alternative
arrangement that is equitable under the circumstances.
8.15 Press Releases and Public Announcements. Except as otherwise
required by law or by applicable rules of any securities exchange or
association of securities dealers, neither the Practice nor the Business
Manager shall issue any press release, make any public announcement or
otherwise disclose any information for the purpose of publication by any print,
broadcast or other public media, relating to the transactions contemplated by
this Agreement, without the prior approval of the other Party.
-52-
<PAGE> 53
8.16 Divisions and Headings. The divisions of this Business
Management Agreement into articles, sections, and subsections and the use of
captions and headings in connection therewith are solely for convenience and
shall not affect in any way the meaning or interpretation of this Business
Management Agreement.
8.17 Amendments and Execution. This Business Management Agreement
and any amendments hereto shall be in writing and executed in multiple copies
on behalf of the Practice by its President, and on behalf of Business Manager
by its President. Each multiple copy shall be deemed an original, but all
multiple copies together shall constitute one and the same instrument.
8.18 Licenses, Permits and Certificates. Business Manager and the
Practice shall each obtain and maintain in effect, at all times during the term
of this Business Management Agreement, all licenses, permits and certificates
required by law which are applicable to the performance of their respective
obligations pursuant to this Business Management Agreement.
8.19 No Third Party Beneficiaries. Except as otherwise provided
herein, this Business Management Agreement shall not confer any rights or
remedies upon any person other than Business Manager and the Practice and their
respective successors and permitted assigns.
8.20 Compliance with Applicable Laws. Business Manager and the
Practice shall comply with all applicable federal, state and local laws,
regulations, rules and restrictions in the conduct of their obligations under
this Business Management Agreement.
8.21 Language Construction. The Practice and Business Manager
acknowledge that each Party hereto and its counsel have reviewed and revised
this Business Management Agreement and agree that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting Party shall not be employed in the interpretation of this Business
Management Agreement.
8.22 Entire Business Management Agreement. With respect to the
subject matter of this Business Management Agreement, this Business Management
Agreement supersedes all previous contracts and constitutes the entire
agreement between the Parties. Neither Party shall be entitled to benefits
other than those specified herein. No prior oral statements or contemporaneous
negotiations or understandings or prior written material not specifically
incorporated herein shall be of any force and effect, and no changes in or
additions to this Business Management Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment(s) to
become effective on the date stipulated in such amendment(s). The Parties
specifically acknowledge that, in entering into and executing this Business
Management Agreement, the Parties rely solely upon the representations and
agreements contained in this Business Management Agreement and no others.
-53-
<PAGE> 54
8.23 DISCLAIMER OF WARRANTY. BUSINESS MANAGER MAKES NO WARRANTY,
EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE OFFICE OR ANY EQUIPMENT PROVIDED
BY BUSINESS MANAGER PURSUANT TO THIS BUSINESS MANAGEMENT AGREEMENT, AND ALL
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
EXPRESSLY DISCLAIMED.
8.24 Control of Board of Directors. While there is no assurance
that an initial public offering of Business Manager's common stock shall occur,
should Business Manager fail to complete the same on or before April 1, 1998,
the Board of Directors shall be controlled and the Business Manager managed by
individuals designated by the founding health care practices acquired in
December of 1996. If such initial public offering does not occur on or before
April 1, 1998, each of such founding health care practices shall be entitled to
vote that number of shares of Business Manager then held by such founding
practices and the number of shares of Business Manager then held by the equity
owners of such founding practices to elect a new board of directors of Business
Manager; provided, however, that after April 1, 1998 and until February 28,
2000, Theodore N. Gillette and his majority owned health care practice (and
their respective successors and assigns) shall not be entitled to vote their
respective shares of common stock of Business Manager in any election of
directors during such period.
8.25 Agreement for Future Good Faith Negotiation. The Parties
hereto agree that should either the chosen underwriters to a future initial
public offering or Business Manager's accounting firm make recommendations
regarding changes to this Business Management Agreement at a later date and
prior to the offering which either such underwriters or accountants reasonably
believe are necessary based upon customs in the industry to prevent any
material adverse valuation issue or to obtain favorable accounting treatment
for Business Manager, the Parties shall negotiate in good faith to modify any
terms which could have such a negative effect or which could result in such
favorable accounting treatment. In such event, the revisions shall be deemed
to be retroactive to the effective date of this Business Management Agreement.
8.26 Agreement to Transfer Stock and Stock Pledge.
Contemporaneously with the execution of this Agreement and to ensure the
continued viability and production of a Practice owned by one (1) Shareholder
(if applicable) the Parties hereto have executed and delivered that certain
Agreement to Transfer Stock and Stock Pledge pursuant to which the Business
Manager and the Shareholder of the Practice have agreed to pledge all of the
shares of common stock of the Practice to the Business Manager and have agreed
that upon the death or disability of such Shareholder, the Practice shall be
entitled to designate a replacement Professional to acquire all such shares of
common stock of the Practice in return for payment of a fair value for such
stock. Additionally, any current or future Shareholder of a Practice that
becomes a sole Shareholder shall execute such agreement at the time the
Shareholder gains such status.
-54-
<PAGE> 55
8.27 Authority. Business Manager and the Practice hereby warrant
and represent to each other that they have the requisite corporate authority to
execute and deliver this Business Management Agreement in their respective
name.
8.28 Waiver of Jury Trial. Any right to trial by jury with respect
to any claim or proceeding relating to or arising out of this Business
Management Agreement is waived by the Parties.
8.29 Indemnification of Advisory Council Members. The parties
hereto (and their successors) agree to indemnify and hold harmless all future
members of any Advisory Council established pursuant to the terms hereof from
any and all liability, claims, damages, costs and attorneys fees resulting from
their decisions and actions as a member of such Advisory Council, so long as
the decision or action is made in good faith.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-55-
<PAGE> 56
IN WITNESS WHEREOF, the Practice and Business Manager have caused this
Business Management Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
WITNESSES: "PRACTICE"
EXCELCARE, P.C.
/s/ By: /s/ Jeffrey I. Katz
- -------------------------------- --------------------------------
Name: Jeffrey I. Katz, M.D.
Title: President
- --------------------------------
"BUSINESS MANAGER"
EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
/s/
- -------------------------------- By: /s/ Jeffrey I. Katz
--------------------------------
Name: Jeffrey I. Katz, M.D.
Title: President
- --------------------------------
STATE OF ARIZONA )
COUNTY OF )
----------------------
The foregoing Business Management Agreement was executed before me this
___ day of December, 1996, by Jeffrey I. Katz, M.D., the President of EYE
INSTITUTE OF SOUTHERN ARIZONA, P.C., an Arizona professional corporation, who
is personally known to me or who has produced as identification and who did
take an oath.
NOTARY PUBLIC:
Sign:
-------------------------
Print:
------------------------
My Commission Expires:
-56-
<PAGE> 57
STATE OF FLORIDA )
COUNTY OF ______________________)
The foregoing Business Management Agreement was executed before me this
___ day of December, 1996, by _______________________, as President of
ExcelCare, P.C., an Arizona professional corporation, who is personally known
to me or who has produced as identification and who did take an oath.
NOTARY PUBLIC:
Sign:_________________________
Print:________________________
My Commission Expires:
-57-
<PAGE> 58
Exhibit 1.3
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Fees Excluded from Adjusted Gross Revenue
1. None.
<PAGE> 59
Exhibit 1.8
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Description of Business Manager Expenses
As of the Closing Date, Business Manager Expenses shall specifically
include:
1. expenses relating to services provided to Business Manager and the
Practice under current service agreements by Bruce Maller and BSM Consulting,
to the extent such expenses do not exceed the Practices' share (pro-rata
amongst all practices managed by the Business Manager, at any given moment,
e.g., 32 practices = 1/32nd of such expense) of the services currently
contracted for between Maller, BSM Consulting and Business Manager at an
anticipated annual cost of $480,000;
2. costs related to the current regional corporate structure, current
corporate overhead, strategic planning, and managed care administration;
3. expenses related to travel at the request of Business Manager except
as otherwise permitted in 1.18(h);
4. costs of stock option programs or grants to Physician and staff;
5. expenses related to services provided to Business Manager and the
Practice by Medical Director Richard Lindstrom, M.D. as part of the current
Medical Director Service Agreement; and
6. corporate overhead, except as defined in Section 1.18(k).
<PAGE> 60
Exhibit 1.18
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Office Expenses
[Table depicting breakdown of Office Expenses,
Practice Expenses and Shareholder Expenses omitted.]
<PAGE> 61
Exhibit 1.25
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Practice Territory
[Map(s) depicting twenty-mile radius
from each office location omitted.]
<PAGE> 62
Exhibit 1.31
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Leasehold Obligations in Excess of Fair Market Value
1. None.
<PAGE> 63
Exhibit 2.10
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Market Area
1. The State of Arizona.
<PAGE> 64
Exhibit 3.7
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Unsettled Issues Regarding Personnel
1. None.
<PAGE> 65
Exhibit 3.17
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Entities and Relationships Excluded from Non-Competition
Covenant from Business Manager
1. None.
<PAGE> 66
Exhibit 4.1A
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Form of Founding Shareholder Employment Agreement
PHYSICIAN EMPLOYMENT AGREEMENT
(FOUNDING SHAREHOLDER)
This Physician Employment Agreement (this "Employment Agreement")
dated as of ____________, 19__, is by and between ExcelCare, P.C., an Arizona
professional corporation (the "Practice"), and ___________________, M.D., an
individual (the "Ophthalmologist").
R E C I T A L S
A. The Practice is a professional corporation organized under the
laws of the State of Arizona (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. The Practice and Vision 21, Inc., a Florida corporation
("Vision 21") have acquired substantially all of the business assets of the
Ophthalmologist's wholly-owned professional corporation, pursuant to that
certain Agreement and Plan of Reorganization (the "Acquisition Agreement") of
even date herewith.
C. The Practice and Vision 21 have entered into a Business
Management Agreement (the "Business Management Agreement") of even date
herewith, whereby Vision 21 has agreed to provide various management services
to the Practice and the Practice has agreed to have its professional employees
execute employment agreements in a form substantially the same as this
Employment Agreement, and it is intended that except as otherwise limited
herein, Vision 21 be a third- party beneficiary of the restrictive covenants
contained in this Employment Agreement.
D. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
E. The Ophthalmologist is licensed to practice medicine in the
State and desires to be employed by the Practice upon the terms and subject to
the conditions set forth in this Employment Agreement.
F. The Ophthalmologist possesses special knowledge relating to
the business and assets acquired pursuant to the Acquisition Agreement and has
developed valuable, long-term relationships with patients to be cared for by
the Practice which make him valuable to the Practice and which will contribute
to the Practice's future success.
G. In consideration for and in connection with the Acquisition
Agreement and such employment arrangement, the parties hereto desire to enter
into a covenant not to compete and a non-disclosure covenant.
<PAGE> 67
NOW, THEREFORE, in consideration of the premises, the mutual promises,
covenants and conditions herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby agree as follows:
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist is
employed pursuant to the terms of this Employment Agreement to practice
medicine on behalf of the Practice. The Ophthalmologist shall devote
substantially all of his time, best efforts and attention to the practice of
medicine on behalf of the Practice and shall provide patient care of the
highest quality. In addition to the foregoing duties, the Ophthalmologist
shall undertake additional duties as directed by the Practice. During the term
hereof and any renewal, the Ophthalmologist shall not, without the written
consent of the Practice and Vision 21, (1) render professional services to or
for any person, firm, corporation or other organization for compensation; or
(2) engage in any activity that competes with the interest of the Practice or
Vision 21 whether Ophthalmologist is acting by himself or as an officer,
director, shareholder, employee, partner or fiduciary. Any consent granted to
the Ophthalmologist shall be revocable by the Practice or Vision 21 at any time
upon thirty (30) days' notice, and the Ophthalmologist agrees to cease and
desist upon receipt of such notice. Notwithstanding the above, the Practice
recognizes that the Ophthalmologist shall have the right to engage in those
matters expressly described on Schedule 2.01 attached hereto so long as such
permitted activities do not result in materially reduced services to the
Practice as compared to the Ophthalmologist's previous services to his practice
and so long as the same does not materially impact the Ophthalmologist's
ability to perform hereunder or materially impact the Ophthalmologist's
anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Medicine may from time to time establish standards and
requirements with regard to the practice of medicine by physicians licensed to
practice medicine. All restrictions contained herein with respect to the
duties and obligations of the Ophthalmologist shall be subject to said
standards and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice.
Exhibit 4.1A - Page 2
<PAGE> 68
The Ophthalmologist recognizes that patients treated by him may subsequently be
assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The ophthalmologist of record for each patient treated
by Ophthalmologist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Ophthalmologist
by the Practice pursuant to this Employment Agreement shall be for five (5)
years (the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date").
5. Place of Employment. Ophthalmologist's principal place of
work shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all
the terms and conditions of this Employment Agreement and as compensation for
all services to be rendered by Ophthalmologist under this Employment Agreement,
the Practice shall pay to or provide Ophthalmologist with the compensation set
forth in Schedule 6 attached to this Agreement.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review
and evaluate the performance of Ophthalmologist under this Employment Agreement
with Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Ophthalmologist the Notice of
Termination (as hereinafter defined) and (ii) pay Ophthalmologist his annual
base salary through the Date of Termination (as hereinafter defined) at the
rate in effect at the time
Exhibit 4.1A - Page 3
<PAGE> 69
the Notice of Termination is given plus any bonus or incentive compensation
which have been earned or have become payable pursuant to the terms of any
compensation or benefit plan or have vested as of the Date of Termination, but
which have not yet been paid.
11. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 11 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
11.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any provision
of this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
insubordination, conduct reflecting moral turpitude, conduct diminishing the
goodwill or reputation of the Practice, conduct disloyal to the Practice,
material violation of any representation, warranty or covenant of this
Agreement; conviction of any felony, or suspension or revocation of
Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
11.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination which shall not be less than
thirty (30) days from the date such Notice of Termination is given unless the
Notice of Termination is provided pursuant to Sections 11.01(iii), (iv) or (v),
in which case the Date of Termination shall be the date that Notice of
Termination is received by the Ophthalmologist.
11.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
12. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel incurred by the prevailing party in any and all proceedings arising out
of this Employment Agreement, including trial, appellate and bankruptcy
proceedings.
Exhibit 4.1A - Page 4
<PAGE> 70
13. Notices. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party in writing to the other (provided
that all notices to the Practice shall be directed to the attention of the
Practice with a copy to the Secretary of the Practice). All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
14. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Ophthalmologist, in such amounts and in such
form or forms as the Practice may determine. Ophthalmologist shall, at the
request of the Practice, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Practice has applied for such insurance.
Ophthalmologist hereby represents that to his knowledge there are no facts or
circumstances that would preclude the Practice from obtaining life insurance on
Ophthalmologist.
15. Proprietary Information and Inventions. Ophthalmologist
understands and acknowledges that:
15.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
(and by virtue of the Business Management Agreement entered into by the
Practice and Vision 21, Ophthalmologist's employment creates a relationship of
confidence and trust between the Ophthalmologist and Vision 21) with respect to
certain information applicable to the business of the Practice and Vision 21,
which may be made known to Ophthalmologist by the Practice or Vision 21 or
learned by Ophthalmologist during the Employment Period.
15.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or has otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered, or
developed by or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or otherwise becomes part of the public domain through no fault of
Ophthalmologist, (iii) information which Ophthalmologist can demonstrate was in
Ophthalmologist's possession at the time of disclosure and was not acquired by
Ophthalmologist directly or indirectly from the Practice or Vision 21 on a
confidential basis, (iv) information which becomes available to Ophthalmologist
on a non-confidential basis from a
Exhibit 4.1A - Page 5
<PAGE> 71
source other than the Practice or Vision 21 and which source, to the best of
Ophthalmologist's knowledge, did not acquire the information on a confidential
basis or (v) information required to be disclosed by any federal or state law,
rule or regulation or by any applicable judgment, order or decree or any court
or governmental body or agency having jurisdiction in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's
employment by the Practice and after its termination or expiration,
Ophthalmologist shall keep in strictest confidence and trust all Proprietary
Information, and Ophthalmologist shall not use or disclose any Proprietary
Information without the written consent of the Practice and Vision 21, except
as may be necessary in the ordinary course of performing Ophthalmologist's
duties as an employee of the Practice. This Section 15 shall survive the
termination or expiration of this Employment Agreement.
16. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Ophthalmologist shall, at the request of the
Practice, promptly surrender to the Practice any patient files, records, or
x-rays, as well as any Proprietary Information or document, memorandum, record,
patient record, letter or other paper in his possession or under his control
relating to the operation, business or affairs of the Practice or Vision 21.
17. Prior Employment Agreements; Successor Employment Agreements.
Ophthalmologist represents and warrants that Ophthalmologist's performance of
all the terms of this Employment Agreement and as an employee of the Practice
does not, and will not, breach any agreement to keep in confidence proprietary
information acquired by Ophthalmologist in confidence or in trust prior to
Ophthalmologist's employment by the Practice. Ophthalmologist has not entered
into, and shall not enter into, any agreement, either written or oral, which is
in conflict with this Employment Agreement or which would be violated by
Ophthalmologist's entering into, or carrying out his obligations under, this
Employment Agreement. Immediately following the expiration of the term of this
Employment Agreement, Ophthalmologist shall, if he intends to continue his
relationship with the Practice, execute a new Employment Agreement with the
Practice in substantially the form of Exhibit 4.1C of the Business Management
Agreement.
18. Restrictive Covenant. Ophthalmologist acknowledges and
recognizes (i) that Ophthalmologist shall come into possession of Proprietary
Information and (ii) the highly competitive nature of the respective businesses
of the Practice and Vision 21 and, accordingly, agrees that in consideration of
the premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of two (2) years
following the date of expiration or termination of this Employment Agreement,
directly or indirectly (i) except as otherwise permitted by the terms of this
Employment Agreement, practice medicine or engage in the business of managing
Exhibit 4.1A - Page 6
<PAGE> 72
ophthalmology or optometry practices or related eye care medical facilities,
within the area described in Schedule 18, whether such engagement shall be as
an employer, officer, director, owner, employee, consultant, stockholder,
partner or other participant. Ophthalmologist further agrees that during the
period of Ophthalmologist's employment by Practice, and for a period of two (2)
years following the termination or expiration of this Employment Agreement,
Ophthalmologist will not, directly or indirectly, (i) solicit any employee or
consultant of Vision 21 or the Practice for the purposes of hiring or retaining
such employee or consultant, (ii) utilize the services of any entity engaged in
the business of managing ophthalmology or optometry practices or related eye
care or medical facilities other than Vision 21, or (iii) contact any present
or prospective client of Vision 21 to solicit such person or entity to enter
into a management contract with any organization other than Vision 21. If
Ophthalmologist violates this Section, Ophthalmologist shall pay to Vision 21
the one half (1/2) of the amount of the consideration received by
Ophthalmologist in connection with the Acquisition Agreement (including one
half (1/2) of the Ophthalmologist's pro rata share (based on his equity
ownership in the Practice) of any consideration received by the Practice in
connection with the Acquisition Agreement), as agreed upon liquidated damages.
The Ophthalmologist acknowledges that such sum is reasonable in light of the
resulting loss of intangible asset value associated with the Ophthalmologist's
breach of this restrictive covenant. The Ophthalmologist further acknowledges
and agrees that such liquidated damages sum shall be in addition to any
liquidated damages which may be owed by Ophthalmologist to the Practice in
connection with a breach by Ophthalmologist of Section 4 hereof. If the
Ophthalmologist fails to make payment of liquidated damages as contemplated by
this Section 18 within thirty (30) days of Ophthalmologist's receiving notice
from the Practice or Vision 21 of the violation of this Section, Vision 21,
shall, in addition to all other rights and remedies available at law or equity,
be entitled to (i) cancel the number of shares of Vision 21 common stock held
by the Ophthalmologist or, with respect to shares of Vision 21 common stock
entitled to be received by the Ophthalmologist pursuant to the Acquisition
Agreement, terminate its obligation to deliver such number of shares of Vision
21 common stock, valued as set forth in Section 6.6(a) of the Business
Management Agreement representing all or a portion of such liquidated damages
sum, or (ii) set off all or any of such liquidated damages sum against amounts
payable under any promissory note held by the Ophthalmologist, or do both of
the foregoing, but in no event shall Vision 21 be entitled to offset amounts in
excess of the liquidated damages sum pursuant to this Section 18.
Ophthalmologist further agrees that (i) such liquidated damages shall be in
addition to the remedies available to the Practice or Vision 21 as set forth in
Section 19 below, (ii) Vision 21 is a third-party beneficiary of this Section
18, (iii) this Section 18 is intended for the benefit of Vision 21, (iv) this
Section 18 may be enforced by the Practice's and Vision 21's successors and/or
assigns, and (v) the enforcement of this Section 18 will not violate public
policy. This Section 18 shall survive the termination or expiration of this
Employment Agreement. Notwithstanding the foregoing, Vision 21 shall not have
any right to enforce any provisions of this Employment Agreement if the
Business Management Agreement terminates pursuant to Section 6.2(a) of the
Business Management Agreement.
19. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a
temporary injunction, a temporary restraining order or other permanent
injunction merely prohibiting Ophthalmologist from engaging in the practice of
medicine or engaging in the management of any medical practice during the
prohibited period within the prohibited area would not be an adequate remedy
upon breach or threatened breach of this Employment Agreement, and consequently
agrees, upon any such breach or threatened breach, to the granting of
injunctive relief prohibiting Ophthalmologist from engaging in any activities
prohibited by this Employment Agreement. No remedy herein conferred is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given
hereunder now or hereinafter existing at law or in equity or by statute or
otherwise. It is expressly understood and agreed by Ophthalmologist that
although the parties consider the restrictions contained in
Exhibit 4.1A - Page 7
<PAGE> 73
this Employment Agreement to be reasonable, if a court determines that the time
or territory or any other restriction contained in this Employment Agreement is
an unenforceable restriction on the activities of Ophthalmologist, such
provision in this Employment Agreement shall not be rendered void but shall be
deemed to be amended to apply as to such maximum time and territory and to such
extent as such court may judicially determine or indicate to be reasonable.
This Section 19 shall survive the termination or expiration of this Employment
Agreement.
20. Successive Employment Notice. Within five (5) business days
after the Termination Date, Ophthalmologist shall provide notice to the
Practice of Ophthalmologist's next intended employment. If such employment is
not known by Ophthalmologist at such date, Ophthalmologist shall notify the
Practice immediately upon determination of such information. Ophthalmologist
shall continue to provide the Practice with notice of Ophthalmologist's place
and nature of employment and any change in place or nature of employment during
the period ending three (3) years after the expiration or termination of this
Employment Agreement. Failure of Ophthalmologist to provide the Practice with
such information in an accurate and timely fashion shall be deemed to be a
breach of this Employment Agreement and shall entitle the Practice to all
remedies provided for in this Employment Agreement as a result of such breach.
21. Business Management Agreement. Ophthalmologist agrees not to
commit any act or engage in any omission that would cause the Practice to
breach the Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Ophthalmologist
and such officer as may be specifically designated by the Board of Directors of
the Practice and by such officer as may be specifically designated by the Board
of Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Ophthalmologist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Ophthalmologist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Ophthalmologist,
the provisions of such
Exhibit 4.1A - Page 8
<PAGE> 74
clause shall not be rendered void but shall be deemed amended to apply as to
maximum time and territory and to such other extent as such court may
judicially determine or indicate to be reasonable.
26. Third-Party Beneficiary. Vision 21 is a third-party
beneficiary of Sections 4, 15, 18, 19 and 25 of this Employment Agreement and
the restrictive covenants contained in this Employment Agreement are intended
for the benefit of Vision 21. Except as otherwise provided herein, this
Employment Agreement shall not confer any rights or remedies upon any person
other than the Practice, Ophthalmologist and Vision 21 and their respective
successors and permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State in which the Practice conducts
its business.
29. Counterparts. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
EXCELCARE, P.C.
By_______________________________________
Jeffrey I. Katz, M.D., its President
"OPHTHALMOLOGIST"
_________________________________________
__________________, M.D.
Exhibit 4.1A - Page 9
<PAGE> 75
Exhibit 4.1B
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
List of Practice Shareholders
1. Jeffrey I. Katz, M.D.
2. Barry Kusman, M.D.
<PAGE> 76
Exhibit 4.1C
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Form of Physician Employment Agreement (Shareholder - Key Professional)
PHYSICIAN EMPLOYMENT AGREEMENT
(SHAREHOLDER - KEY PROFESSIONAL)
This Physician Employment Agreement (this "Employment Agreement")
dated as of ____________, 19__, is by and between ExcelCare, P.C., an Arizona
professional corporation (the "Practice"), and ______________________________,
an individual (the "Ophthalmologist").
R E C I T A L S
A. The Practice is a professional corporation organized under the
laws of the State of Arizona (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. The Practice and Vision 21, Inc., a Florida corporation
("Vision 21") have entered into a Business Management Agreement (the "Business
Management Agreement") dated as of December 1, 1996, whereby Vision 21 has
agreed to provide various management services to the Practice and the Practice
has agreed to have its shareholder and key professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision
21 be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
C. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
D. The Ophthalmologist is licensed to practice medicine in the
State and desires to be employed by the Practice upon the terms and subject to
the conditions set forth in this Employment Agreement.
E. The Ophthalmologist possesses special knowledge relating to
the business and assets of the Practice and Vision 21 and has developed
valuable, long-term relationships with patients to be cared for by the Practice
which make him valuable to the Practice and which will contribute to the
Practice's and Vision 21's future success.
NOW, THEREFORE, in consideration of the premises, the mutual promises,
covenants and conditions herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby agree as follows:
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
<PAGE> 77
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist is
employed pursuant to the terms of this Employment Agreement to practice
medicine on behalf of the Practice. The Ophthalmologist shall devote
substantially all of his time, best efforts and attention to the practice of
medicine on behalf of the Practice and shall provide patient care of the
highest quality. In addition to the foregoing duties, the Ophthalmologist
shall undertake additional duties as directed by the Practice. During the term
hereof and any renewal, the Ophthalmologist shall not, without the written
consent of the Practice and Vision 21, (1) render professional services to or
for any person, firm, corporation or other organization for compensation; or
(2) engage in any activity that competes with the interest of the Practice or
Vision 21 whether Ophthalmologist is acting by himself or as an officer,
director, shareholder, employee, partner or fiduciary. Any consent granted to
the Ophthalmologist shall be revocable by the Practice or Vision 21 at any time
upon thirty (30) days' notice, and the Ophthalmologist agrees to cease and
desist upon receipt of such notice. Notwithstanding the above, the Practice
recognizes that the Ophthalmologist shall have the right to engage in those
matters expressly described on Schedule 2.01 attached hereto so long as such
permitted activities do not result in materially reduced services to the
Practice as compared to the Ophthalmologist's previous services to his practice
and so long as the same does not materially impact the Ophthalmologist's
ability to perform hereunder or materially impact the Ophthalmologist's
anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Medicine may from time to time establish standards and
requirements with regard to the practice of medicine by physicians licensed to
practice medicine. All restrictions contained herein with respect to the
duties and obligations of the Ophthalmologist shall be subject to said
standards and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice. The Ophthalmologist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
<PAGE> 78
3.06 The ophthalmologist of record for each patient treated
by Ophthalmologist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Ophthalmologist
by the Practice pursuant to this Employment Agreement shall be for three (3)
years (the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date"). The term of this Agreement shall renew automatically at
the end of each term of this Agreement for an additional three (3) year term
unless either party hereto provides notice to the other at least ninety (90)
days prior to the expiration of any term.
5. Place of Employment. Ophthalmologist's principal place of
work shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all
the terms and conditions of this Employment Agreement and as compensation for
all services to be rendered by Ophthalmologist under this Employment Agreement,
the Practice shall pay to or provide Ophthalmologist with the compensation set
forth in Schedule 6 attached to this Agreement.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review
and evaluate the performance of Ophthalmologist under this Employment Agreement
with Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Ophthalmologist the Notice of
Termination (as hereinafter defined) and (ii) pay Ophthalmologist his annual
base salary through the Date of Termination (as hereinafter defined) at the
rate in effect at the time the Notice of Termination is given plus any bonus or
incentive compensation which have been earned or have become payable pursuant
to the terms of any compensation or benefit plan or have vested as of the Date
of Termination, but which have not yet been paid.
11. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 11 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
Exhibit 4.1C - Page 3
<PAGE> 79
11.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any provision
of this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
insubordination, conduct reflecting moral turpitude, conduct diminishing the
goodwill or reputation of the Practice, conduct disloyal to the Practice,
material violation of any representation, warranty or covenant of this
Agreement; conviction of any felony, or suspension or revocation of
Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
11.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination which shall not be less than
thirty (30) days from the date such Notice of Termination is given unless the
Notice of Termination is provided pursuant to Sections 11.01(iii), (iv) or (v),
in which case the Date of Termination shall be the date that Notice of
Termination is received by the Ophthalmologist.
11.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
12. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel incurred by the prevailing party in any and all proceedings arising out
of this Employment Agreement, including trial, appellate and bankruptcy
proceedings.
13. Notices. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party in writing to the other (provided
that all notices to the Practice shall be directed to the attention of the
Practice with a copy to the Secretary of the Practice). All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
Exhibit 4.1C - Page 4
<PAGE> 80
14. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Ophthalmologist, in such amounts and in such
form or forms as the Practice may determine. Ophthalmologist shall, at the
request of the Practice, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Practice has applied for such insurance.
Ophthalmologist hereby represents that to his knowledge there are no facts or
circumstances that would preclude the Practice from obtaining life insurance on
Ophthalmologist.
15. Proprietary Information and Inventions. Ophthalmologist
understands and acknowledges that:
15.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
(and by virtue of the Business Management Agreement entered into by the
Practice and Vision 21, Ophthalmologist's employment creates a relationship of
confidence and trust between the Ophthalmologist and Vision 21) with respect to
certain information applicable to the business of the Practice and Vision 21,
which may be made known to Ophthalmologist by the Practice or Vision 21 or
learned by Ophthalmologist during the Employment Period.
15.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or has otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered, or
developed by or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or otherwise becomes part of the public domain through no fault of
Ophthalmologist, (iii) information which Ophthalmologist can demonstrate was in
Ophthalmologist's possession at the time of disclosure and was not acquired by
Ophthalmologist directly or indirectly from the Practice or Vision 21 on a
confidential basis, (iv) information which becomes available to Ophthalmologist
on a non-confidential basis from a source other than the Practice or Vision 21
and which source, to the best of Ophthalmologist's knowledge, did not acquire
the information on a confidential basis or (v) information required to be
disclosed by any federal or state law, rule or regulation or by any applicable
judgment, order or decree or any court or governmental body or agency having
jurisdiction in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's
employment by the Practice and after its termination or expiration,
Ophthalmologist shall keep in strictest confidence and trust all Proprietary
Information, and Ophthalmologist shall not use or disclose any Proprietary
Information without the written consent of the Practice and Vision 21, except
as may be necessary in the
Exhibit 4.1C - Page 5
<PAGE> 81
ordinary course of performing Ophthalmologist's duties as an employee of the
Practice. This Section 15 shall survive the termination or expiration of this
Employment Agreement.
16. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Ophthalmologist shall, at the request of the
Practice, promptly surrender to the Practice any patient files, records, or
x-rays, as well as any Proprietary Information or document, memorandum, record,
patient record, letter or other paper in his possession or under his control
relating to the operation, business or affairs of the Practice or Vision 21.
17. Prior Employment Agreements; Successor Employment Agreements.
Ophthalmologist represents and warrants that Ophthalmologist's performance of
all the terms of this Employment Agreement and as an employee of the Practice
does not, and will not, breach any agreement to keep in confidence proprietary
information acquired by Ophthalmologist in confidence or in trust prior to
Ophthalmologist's employment by the Practice. Ophthalmologist has not entered
into, and shall not enter into, any agreement, either written or oral, which is
in conflict with this Employment Agreement or which would be violated by
Ophthalmologist's entering into, or carrying out his obligations under, this
Employment Agreement. Following the expiration of the term of this Employment
Agreement, Ophthalmologist shall, if he intends to continue his relationship
with the Practice, execute a new Employment Agreement with the Practice in
substantially the form of Exhibit 4.1C of the Business Management Agreement.
18. Restrictive Covenant. Ophthalmologist acknowledges and
recognizes (i) that Ophthalmologist shall come into possession of Proprietary
Information and (ii) the highly competitive nature of the respective businesses
of the Practice and Vision 21 and, accordingly, agrees that in consideration of
the premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of one (1) year
following the date of expiration or termination of this Employment Agreement,
directly or indirectly (i) except as otherwise permitted by the terms of this
Employment Agreement, practice medicine or engage in the business of managing
ophthalmology or optometry practices or related eye care medical facilities
within the area described in Schedule 18, whether such engagement shall be as
an employer, officer, director, owner, employee, consultant, stockholder,
partner or other participant. Ophthalmologist further agrees that during the
period of Ophthalmologist's employment by Practice, and for a period of three
(3) years following the termination or expiration of this Employment Agreement,
Ophthalmologist will not, directly or indirectly, (i) solicit any employee or
consultant of Vision 21 or the Practice for the purposes of hiring or retaining
such employee or consultant, (ii) utilize the services of any entity engaged in
the business of managing ophthalmology or optometry practices or related eye
care or medical facilities other than Vision 21, or (iii) contact any present
or prospective client of Vision 21 to solicit such person or entity to enter
into a management contract with any organization other than Vision 21. If
Ophthalmologist violates this Section, Ophthalmologist shall pay to Vision 21
the sum of Three Hundred Thousand Dollars ($300,000) as agreed upon liquidated
damages. The Ophthalmologist acknowledges that such sum is reasonable in light
of the resulting loss of intangible asset value associated with the
Ophthalmologist's breach of this restrictive covenant. Ophthalmologist further
agrees that (i) such liquidated damages shall be in addition to the remedies
available to the Practice and Vision 21 as set forth in Section 19 below, (ii)
Vision 21 is a third-party beneficiary of this Section 18, (iii) this Section
18 is intended for the benefit of Vision 21, (iv) this Section 18 may be
enforced by the Practice's and Vision 21's successors and/or assigns, and (v)
the enforcement of this Section 18 will not violate public policy. This
Section 18 shall survive the
Exhibit 4.1C - Page 6
<PAGE> 82
termination or expiration of this Employment Agreement. Notwithstanding the
foregoing, Vision 21 shall not have any right to enforce any provisions of this
Employment Agreement if the Business Management Agreement terminates pursuant
to Section 6.2(a) of the Business Management Agreement.
19. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a
temporary injunction, a temporary restraining order or other permanent
injunction merely prohibiting Ophthalmologist from engaging in the practice of
medicine or engaging in the management of any medical practice during the
prohibited period within the prohibited area would not be an adequate remedy
upon breach or threatened breach of this Employment Agreement, and consequently
agrees, upon any such breach or threatened breach, to the granting of
injunctive relief prohibiting Ophthalmologist from engaging in any activities
prohibited by this Employment Agreement. No remedy herein conferred is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given
hereunder now or hereinafter existing at law or in equity or by statute or
otherwise. It is expressly understood and agreed by Ophthalmologist that
although the parties consider the restrictions contained in this Employment
Agreement to be reasonable, if a court determines that the time or territory or
any other restriction contained in this Employment Agreement is an
unenforceable restriction on the activities of Ophthalmologist, such provision
in this Employment Agreement shall not be rendered void but shall be deemed to
be amended to apply as to such maximum time and territory and to such extent as
such court may judicially determine or indicate to be reasonable. This Section
19 shall survive the termination or expiration of this Employment Agreement.
20. Business Management Agreement. Ophthalmologist agrees not to
commit any act or engage in any omission that would cause the Practice to
breach the Business Management Agreement with Vision 21.
21. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Ophthalmologist
and such officer as may be specifically designated by the Board of Directors of
the Practice and by such officer as may be specifically designated by the Board
of Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Ophthalmologist or Vision 21.
22. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
23. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
Exhibit 4.1C - Page 7
<PAGE> 83
24. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Ophthalmologist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Ophthalmologist,
the provisions of such clause shall not be rendered void but shall be deemed
amended to apply as to maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
25. Third-Party Beneficiary. Vision 21 is a third-party
beneficiary of Sections 4, 15, 18, 19 and 25 of this Employment Agreement and
the restrictive covenants contained in this Employment Agreement are intended
for the benefit of Vision 21. Except as otherwise provided herein, this
Employment Agreement shall not confer any rights or remedies upon any person
other than the Practice, Ophthalmologist and Vision 21 and their respective
successors and permitted assigns.
26. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
27. Governing Law. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State in which the Practice conducts
its business.
28. Counterparts. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
EXCELCARE, P.C.
By___________________________________________
Jeffrey I. Katz, M.D., its President
"OPHTHALMOLOGIST"
_____________________________________________
, Ophthalmologist
Exhibit 4.1C - Page 8
<PAGE> 84
Exhibit 4.2A
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Form of Physician Employment Agreement (Non-Shareholder)
PHYSICIAN EMPLOYMENT AGREEMENT
(NON-SHAREHOLDER)
This Physician Employment Agreement (this "Employment Agreement")
dated as of ____________, 19__, is by and between ExcelCare, P.C., an Arizona
professional corporation (the "Practice"), and ______________________________,
an individual (the "Ophthalmologist").
R E C I T A L S:
A. The Practice is a professional corporation organized under the
laws of the State of Arizona (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
C. The Ophthalmologist is licensed to practice medicine in the
State and desires to be employed by the Practice upon the terms and subject to
the conditions set forth in this Employment Agreement.
D. The Practice and Vision 21, Inc. ("Vision 21") have entered
into a Business Management Agreement (the "Business Management Agreement")
whereby Vision 21 has agreed to have its professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision
21 be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist is
employed pursuant to the terms of this Employment Agreement to practice
medicine on behalf of the Practice. The Ophthalmologist shall devote
substantially all of his time, best efforts and attention to the practice of
medicine on behalf of the Practice and shall provide quality patient care. In
addition to the foregoing duties, the Ophthalmologist shall undertake
additional duties as directed by the Practice. During the term hereof and any
renewal, the Ophthalmologist shall not, without the written consent of the
Practice and Vision 21, (1) render professional services to or for any person,
firm, corporation or other organization for compensation;
<PAGE> 85
or (2) engage in any activity that competes with the interest of the Practice
or Vision 21 whether Ophthalmologist is acting by himself or as an officer,
director, shareholder, employee, partner or fiduciary. Any consent granted to
the Ophthalmologist shall be revocable by the Practice or Vision 21 at any time
upon thirty (30) days' notice, and the Ophthalmologist agrees to cease and
desist upon receipt of such notice. Notwithstanding the above, the Practice
recognizes that the Ophthalmologist shall have the right to engage in those
matters expressly described on Schedule 2.01 attached hereto so long as such
permitted activities do not result in materially reduced services to the
Practice as compared to the Ophthalmologist's previous services to his practice
and so long as the same does not materially impact the Ophthalmologist's
ability to perform hereunder or materially impact the Ophthalmologist's
anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Medicine may from time to time establish standards and
requirements with regard to the practice of medicine by physicians licensed to
practice medicine. All restrictions contained herein with respect to the
duties and obligations of the Ophthalmologist shall be subject to said
standards and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice. The Ophthalmologist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The ophthalmologist of record for each patient treated
by Ophthalmologist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Ophthalmologist by
the Practice pursuant to this Employment Agreement shall be for two (2) years
(the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date") unless otherwise terminated earlier under the provisions
of this Employment Agreement. The term of this Agreement shall renew
automatically at the
Exhibit 4.2A - Page 2
<PAGE> 86
end of each term of this Agreement for an additional two (2) year term unless
either party hereto provides notice to the other at least ninety (90) days
prior to the expiration of the term.
5. Place of Employment. Ophthalmologist's principal place of work
shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Ophthalmologist under this Employment Agreement, the
Practice shall pay to or provide Ophthalmologist with the compensation set
forth in Schedule 6 attached to this Agreement.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review and
evaluate the performance of Ophthalmologist under this Employment Agreement
with Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Ophthalmologist the Notice of
Termination (as hereinafter defined) and (ii) pay Ophthalmologist his annual
base salary through the Date of Termination (as hereinafter defined) at the
rate in effect at the time the Notice of Termination is given plus any bonus or
incentive compensation which have been earned or have become payable pursuant
to the terms of any compensation or benefit plan or have vested as of the Date
of Termination, but which have not yet been paid.
11. Termination without Cause by the Practice or with Cause by
the Ophthalmologist. This Employment Agreement may be terminated by the
Practice without cause or by the Ophthalmologist with cause and in the event
that the Practice terminates the Ophthalmologist without cause, the Practice
shall give written notice to the Ophthalmologist at least ninety (90) days
prior to the Date of Termination.
12. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 12 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
12.01 Cause. A termination with "Cause" by the Practice shall mean a
termination of this Employment Agreement for any of the following reasons:
Exhibit 4.2A - Page 3
<PAGE> 87
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any provision
of this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
absenteeism, theft, dishonesty, insubordination, conduct reflecting moral
turpitude, conduct diminishing the goodwill or reputation of the Practice;
conduct disloyal to the Practice, violation of any representation, warranty or
covenant of this Agreement; conviction of any felony, or suspension or
revocation of Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
12.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination.
12.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
13. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel) incurred by the prevailing party in any and all proceedings as a
result of a contest or dispute arising out of this Employment Agreement
including trial, appellate and bankruptcy proceedings.
14. Notices. For the purposes of this Employment Agreement, notices
and all other communications provided for in the Employment Agreement shall be
in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party in writing to the other (provided
that all notices to the Practice shall be directed to the attention of the
Practice with a copy to the Secretary of the Practice. All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
15. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Ophthalmologist, in such amounts and in such
form or forms as the Practice may determine. Ophthalmologist shall, at the
request of the Practice, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Practice has applied
Exhibit 4.2A - Page 4
<PAGE> 88
for such insurance. Ophthalmologist hereby represents that to his knowledge
there are no facts or circumstances that would preclude the Practice from
obtaining life insurance on Ophthalmologist.
16. Proprietary Information and Inventions. Ophthalmologist
understands and acknowledges that:
16.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
with respect to certain information applicable to the business of the Practice,
and Vision 21 which may be made known to Ophthalmologist by the Practice or
Vision 21 or learned by Ophthalmologist during the Employment Period.
16.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered or
developed by, or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or otherwise becomes part of the public domain through no fault of
Ophthalmologist, (iii) information which Ophthalmologist can demonstrate was in
Ophthalmologist's possession at the time of disclosure and was not acquired by
Ophthalmologist directly or indirectly from the Practice or Vision 21 on a
confidential basis, (iv) information which becomes available to Ophthalmologist
on a non-confidential basis from a source other than the Practice or Vision 21
and which source, to the best of Ophthalmologist's knowledge, did not acquire
the information on a confidential basis or (v) information required to be
disclosed by any federal or state law, rule or regulation or by any applicable
judgment, order or decree or any court or governmental body or agency having
jurisdiction in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's
employment by the Practice and after its termination or expiration,
Ophthalmologist shall keep in strictest confidence and trust all Proprietary
Information, and Ophthalmologist shall not use or disclose any Proprietary
Information without the written consent of the Practice and Vision 21, except
as may be necessary in the ordinary course of performing Ophthalmologist's
duties as an employee of the Practice. This Section 16 shall survive the
termination or expiration of this Employment Agreement.
17. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Ophthalmologist shall, at the request of the
Practice, promptly surrender to the Practice any patient files, records, or
x-rays, as well as any Proprietary Information or document, memorandum, record,
patient record, letter or other paper in his possession or under his control
relating to the operation, business or affairs of the Practice or Vision 21.
Exhibit 4.2A - Page 5
<PAGE> 89
18. Prior Employment Agreements. Ophthalmologist represents and
warrants that Ophthalmologist's performance of all the terms of this Employment
Agreement and as an employee of the Practice does not, and will not, breach any
agreement to keep in confidence proprietary information acquired by
Ophthalmologist in confidence or in trust prior to Ophthalmologist's employment
by the Practice. Ophthalmologist has not entered into, and shall not enter
into, any agreement, either written or oral, which is in conflict with this
Employment Agreement or which would be violated by Ophthalmologist's entering
into, or carrying out his obligations under, this Employment Agreement.
19. Restrictive Covenant. Ophthalmologist acknowledges and
recognizes (i) that Ophthalmologist shall come into possession of Proprietary
Information and (ii) the highly competitive nature of the respective businesses
of the Practice and Vision 21 and, accordingly, agrees that in consideration of
the premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of one (1) year
following the date of expiration or termination of this Employment Agreement
(unless terminated without cause by the Practice), directly or indirectly (i)
except as otherwise permitted by the terms of this Employment Agreement,
practice medicine or engage in the business of managing ophthalmology or
optometry practices or related eye care medical facilities within the area
described in Schedule 19, whether such engagement shall be as an employer,
officer, director, owner, employee, consultant, stockholder, partner or other
participant. Ophthalmologist further agrees that during the period of
Ophthalmologist's employment by Practice, and for a period of one (1) year
following the termination or expiration of this Employment Agreement,
Ophthalmologist will not, directly or indirectly, (i) solicit any employee or
consultant of Vision 21 for the purposes of hiring or retaining such employee
or consultant, (ii) utilize the services of any entity engaged in the business
of managing ophthalmology or optometry practices or related eye care or medical
facilities other than Vision 21, or (iii) contact any present or prospective
client of Vision 21 to solicit such person or entity to enter into a management
contract with any organization other than Vision 21. Ophthalmologist further
agrees that (i) Vision 21 is a third-party beneficiary of this Section 19, (ii)
this Section 19 is intended for the benefit of Vision 21, (iii) this Section 19
may be enforced by Practice's and Vision 21's successors and/or assigns, and
(iv) the enforcement of this Section 19 will not violate public policy. This
Section 19 shall survive the termination or expiration of this Employment
Agreement. Notwithstanding the foregoing, Vision 21 shall not have any right
to enforce any provisions of this Employment Agreement if the Business
Management Agreement terminates pursuant to Section 6.2(a) of the Business
Management Agreement.
20. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to, equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a
temporary injunction, a temporary restraining order or other permanent
injunction merely prohibiting Ophthalmologist from engaging in the practice of
medicine or engaging in the management of any medical practice during the
prohibited period within the prohibited area would not be an adequate remedy
upon breach or threatened breach of this Employment Agreement, and consequently
agrees upon any such breach or threatened breach to the granting of injunctive
relief prohibiting Ophthalmologist from engaging in any activities prohibited
by this Employment Agreement. No remedy herein conferred is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to any other remedy given hereunder now or
hereinafter existing at law or in equity or by statute or otherwise. It is
expressly understood and agreed by Ophthalmologist that although the parties
consider the restrictions contained in this Employment Agreement to be
reasonable, if a court determines that the time or territory or any other
Exhibit 4.2A - Page 6
<PAGE> 90
restriction contained in this Employment Agreement is an unenforceable
restriction on the activities of Ophthalmologist, as such provision in this
Employment Agreement shall not be rendered void but shall be deemed to be
amended as to apply to such maximum time and territory and to such extent as
such court may judicially determine or indicate to be reasonable. This Section
20 shall survive the termination or expiration of this Employment Agreement.
21. Business Management Agreement. Ophthalmologist agrees not to
commit any act or engage in any omission that would cause the Practice to
breach the Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Ophthalmologist
and such officer as may be specifically designated by the Board of Directors of
the Practice and by such officer as may be specifically designated by the Board
of Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Ophthalmologist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Ophthalmologist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Ophthalmologist,
the provisions of such clause shall not be rendered void but shall be deemed
amended to apply as to maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
26. Third Party Beneficiary. Vision 21 is a third-party beneficiary
of Sections 4, 16, 17, 19, 20 and 25 of this Employment Agreement and the
restrictive covenants contained in this Employment Agreement are intended for
the benefit of Vision 21. Except as otherwise provided herein, this Employment
Agreement shall not confer any rights or remedies upon any person other than
the Practice, Ophthalmologist and Vision 21 and their respective successors and
permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed and
enforced pursuant to the laws of the State in which the Practice conducts its
business.
Exhibit 4.2A - Page 7
<PAGE> 91
29. Counterparts. This Employment Agreement may be executed in more
than one (1) counterpart and each counterpart shall be considered an original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
EXCELCARE, P.C.
By_______________________________________
Jeffrey I. Katz, M.D., its President
"OPHTHALMOLOGIST"
_________________________________________
, Ophthalmologist
Exhibit 4.2A - Page 8
<PAGE> 92
Exhibit 4.2B
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Form of Optometrist Employment Agreement
OPTOMETRIST EMPLOYMENT AGREEMENT
(NON-SHAREHOLDER)
This Optometrist Employment Agreement (this "Employment Agreement")
dated as of _________, 199_, is by and between ExcelCare, P.C., an Arizona
professional corporation (the "Practice"), and ______________, an individual
(the "Optometrist").
R E C I T A L S:
A. The Practice is a professional association organized under the
laws of the State of Arizona (the "State") and is authorized to practice
optometry in the State through licensed individuals.
B. The Practice desires to employ Optometrist upon the terms and
subject to the terms and conditions set forth in this Employment Agreement.
C. The Optometrist is licensed to practice optometry in the State
and desires to be employed by the Practice upon the terms and subject to the
conditions set forth in this Employment Agreement.
D. The Practice and Vision 21, Inc. ("Vision 21") have entered
into a Business Management Agreement (the "Business Management Agreement")
whereby Vision 21 has agreed to have its professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision
21 be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. Employment. The Practice hereby employs Optometrist, and
Optometrist hereby accepts employment with the Practice, all upon the terms and
subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Optometry. The Optometrist is
employed pursuant to the terms of this Employment Agreement to practice
optometry on behalf of the Practice. The Optometrist shall devote
substantially all of his time, best efforts and attention to the practice of
optometry on behalf of the Practice and shall provide quality patient care. In
addition to the foregoing duties, the Optometrist shall undertake additional
duties as directed by the Practice. During the term hereof and any renewal,
the Optometrist shall not, without the written consent of the Practice and
Vision 21, (1) render professional services to or for any person, firm,
corporation or other organization for compensation; or (2) engage in any
activity that competes with the interest of the Practice or Vision 21 whether
Optometrist is acting by
<PAGE> 93
himself or as an officer, director, shareholder, employee, partner or
fiduciary. Any consent granted to the Optometrist shall be revocable by the
Practice or Vision 21 at any time upon thirty (30) days' notice, and the
Optometrist agrees to cease and desist upon receipt of such notice.
Notwithstanding the above, the Practice recognizes that the Optometrist shall
have the right to engage in those matters expressly described on Schedule 2.01
attached hereto so long as such permitted activities do not result in
materially reduced services to the Practice as compared to the Optometrist's
previous services to his practice and so long as the same does not materially
impact the Optometrist's ability to perform hereunder or materially impact the
Optometrist's anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Optometry may from time to time establish standards and
requirements with regard to the practice of optometry by optometrists licensed
to practice optometry. All restrictions contained herein with respect to the
duties and obligations of the Optometrist shall be subject to said standards
and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Optometrist recognizes that the Practice shall
have complete authority with regard to the acceptance for treatment of or the
refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Optometrist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Optometrist agrees to treat such patients as are assigned to him by the
Practice. The Optometrist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Optometrist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Optometrist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Optometrist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The optometrist of record for each patient treated by
Optometrist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Optometrist by the
Practice pursuant to this Employment Agreement shall be for two (2) years (the
"Employment Period") commencing on the date of this Agreement (the
"Commencement Date") unless otherwise terminated earlier under the provisions
of this Employment Agreement. The term of this Agreement shall renew
automatically at the end of each term of this Agreement for an additional two
(2) year term unless either party hereto provides notice to the other at least
ninety (90) days prior to the expiration of the term.
Exhibit 4.2B - Page 2
<PAGE> 94
5. Place of Employment. Optometrist's principal place of work shall
be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Optometrist under this Employment Agreement, the
Practice shall pay to or provide Optometrist with the compensation set forth in
Schedule 6 attached to this Agreement.
7. Adherence to Standards. Optometrist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review and
evaluate the performance of Optometrist under this Employment Agreement with
Optometrist.
9. Expenses. The Practice may reimburse Optometrist for reasonable,
ordinary and necessary expenses incurred by him in connection with his
employment hereunder that have been approved in advance by the Practice;
provided, however, Optometrist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Optometrist the Notice of Termination
(as hereinafter defined) and (ii) pay Optometrist his annual base salary
through the Date of Termination (as hereinafter defined) at the rate in effect
at the time the Notice of Termination is given plus any bonus or incentive
compensation which have been earned or have become payable pursuant to the
terms of any compensation or benefit plan or have vested as of the Date of
Termination, but which have not yet been paid.
11. Termination without Cause by the Practice or with Cause by
the Optometrist. This Employment Agreement may be terminated by the Practice
without cause or by the Optometrist with cause and in the event that the
Practice terminates the Optometrist without cause, the Practice shall give
written notice to the Optometrist at least ninety (90) days prior to the Date
of Termination.
12. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 12 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
12.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
(i) Optometrist's failure to promptly and adequately
perform the duties assigned by Practice after being notified by the Practice of
the specific act(s) constituting such failure and being given a period of
thirty (30) days after notification by the Practice to correct such failure;
Exhibit 4.2B - Page 3
<PAGE> 95
(ii) upon Optometrist's breach of any provision of
this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
absenteeism, theft, dishonesty, insubordination, conduct reflecting moral
turpitude, conduct diminishing the goodwill or reputation of the Practice;
conduct disloyal to the Practice, violation of any representation, warranty or
covenant of this Agreement; conviction of any felony, or suspension or
revocation of Optometrist's license to practice optometry;
(iv) upon Optometrist's death; or
(v) upon Optometrist's disability if the
disability renders Optometrist unable to practice optometry on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
12.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination.
12.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
13. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel) incurred by the prevailing party in any and all proceedings as a
result of a contest or dispute arising out of this Employment Agreement
including trial, appellate and bankruptcy proceedings.
14. Notices. For the purposes of this Employment Agreement, notices
and all other communications provided for in the Employment Agreement shall be
in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party in writing to the other (provided
that all notices to the Practice shall be directed to the attention of the
Practice with a copy to the Secretary of the Practice. All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
15. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Optometrist, in such amounts and in such
form or forms as the Practice may determine. Optometrist shall, at the request
of the Practice, submit to such medical examinations, supply such information,
and execute such documents as may be required by the insurance company or
companies to whom the Practice has applied for such insurance. Optometrist
hereby represents that to his knowledge there are no facts or circumstances
that would preclude the Practice from obtaining life insurance on Optometrist.
16. Proprietary Information and Inventions. Optometrist understands
and acknowledges that:
Exhibit 4.2B - Page 4
<PAGE> 96
16.01 Trust. Optometrist's employment creates a relationship
of confidence and trust between Optometrist and the Practice with respect to
certain information applicable to the business of the Practice, and Vision 21
which may be made known to Optometrist by the Practice or Vision 21 or learned
by Optometrist during the Employment Period.
16.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered or
developed by, or made known to Optometrist during the period of or arising out
of employment by the Practice) or in which property rights have been or may be
assigned or otherwise conveyed to the Practice or Vision 21, which information
has commercial value in the respective businesses in which the Practice and
Vision 21 are engaged and is treated by the Practice and Vision 21 as
confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or otherwise becomes part of the public domain through no fault of Optometrist,
(iii) information which Optometrist can demonstrate was in Optometrist's
possession at the time of disclosure and was not acquired by Optometrist
directly or indirectly from the Practice or Vision 21 on a confidential basis,
(iv) information which becomes available to Optometrist on a non-confidential
basis from a source other than the Practice or Vision 21 and which source, to
the best of Optometrist's knowledge, did not acquire the information on a
confidential basis or (v) information required to be disclosed by any federal
or state law, rule or regulation or by any applicable judgment, order or decree
or any court or governmental body or agency having jurisdiction in the
premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Optometrist assigns to the
Practice and Vision 21 any rights Optometrist may have or acquire in such
Proprietary Information. At all times, both during Optometrist's employment by
the Practice and after its termination or expiration, Optometrist shall keep in
strictest confidence and trust all Proprietary Information, and Optometrist
shall not use or disclose any Proprietary Information without the written
consent of the Practice and Vision 21, except as may be necessary in the
ordinary course of performing Optometrist's duties as an employee of the
Practice. This Section 16 shall survive the termination or expiration of this
Employment Agreement.
17. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Optometrist shall, at the request of the Practice,
promptly surrender to the Practice any patient files, records, or x-rays, as
well as any Proprietary Information or document, memorandum, record, patient
record, letter or other paper in his possession or under his control relating
to the operation, business or affairs of the Practice or Vision 21.
18. Prior Employment Agreements. Optometrist represents and
warrants that Optometrist's performance of all the terms of this Employment
Agreement and as an employee of the Practice does not, and will not, breach any
agreement to keep in confidence proprietary information acquired by Optometrist
in confidence or in trust prior to Optometrist's employment by the Practice.
Optometrist has not entered into, and shall not enter into, any agreement,
either written or oral, which is in conflict with this
Exhibit 4.2B - Page 5
<PAGE> 97
Employment Agreement or which would be violated by Optometrist's entering into,
or carrying out his obligations under, this Employment Agreement.
19. Restrictive Covenant. Optometrist acknowledges and recognizes
(i) that Optometrist shall come into possession of Proprietary Information and
(ii) the highly competitive nature of the respective businesses of the Practice
and Vision 21 and, accordingly, agrees that in consideration of the premises
contained herein Optometrist will not, during the period of Optometrist's
employment by the Practice and for a period of one (1) year following the date
of expiration or termination of this Employment Agreement (unless terminated
without cause by the Practice), directly or indirectly (i) practice optometry
or engage in the business of managing optometry practices or related eye care
optometric facilities within the area described in Schedule 19, whether such
engagement shall be as an employer, officer, director, owner, employee,
consultant, stockholder, partner or other participant. Optometrist further
agrees that during the period of Optometrist's employment by Practice, and for
a period of one (1) year following the termination or expiration of this
Employment Agreement, Optometrist will not, directly or indirectly, (i) solicit
any employee or consultant of Vision 21 for the purposes of hiring or retaining
such employee or consultant, (ii) utilize the services of any entity engaged in
the business of managing optometry practices or related eye care or optometric
facilities, or (iii) contact any present or prospective client of Vision 21 to
solicit such person or entity to enter into a management contract with any
organization other than Vision 21. Optometrist further agrees that (i) Vision
21 is a third-party beneficiary of this Section 19, (ii) this Section 19 is
intended for the benefit of Vision 21, (iii) this Section 19 may be enforced by
Practice's and Vision 21's successors and/or assigns, and (iv) the enforcement
of this Section 19 will not violate public policy. This Section 19 shall
survive the termination or expiration of this Employment Agreement.
Notwithstanding the foregoing, Vision 21 shall not have any right to enforce
any provisions of this Employment Agreement if the Business Management
Agreement terminates pursuant to Section 6.2(a) of the Business Management
Agreement.
20. Remedies. Optometrist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Optometrist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to, equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Optometrist acknowledges that the granting of a temporary
injunction, a temporary restraining order or other permanent injunction merely
prohibiting Optometrist from engaging in the practice of optometry or engaging
in the management of any optometric practice during the prohibited period
within the prohibited area would not be an adequate remedy upon breach or
threatened breach of this Employment Agreement, and consequently agrees upon
any such breach or threatened breach to the granting of injunctive relief
prohibiting Optometrist from engaging in any activities prohibited by this
Employment Agreement. No remedy herein conferred is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and
shall be in addition to any other remedy given hereunder now or hereinafter
existing at law or in equity or by statute or otherwise. It is expressly
understood and agreed by Optometrist that although the parties consider the
restrictions contained in this Employment Agreement to be reasonable, if a
court determines that the time or territory or any other restriction contained
in this Employment Agreement is an unenforceable restriction on the activities
of Optometrist, as such provision in this Employment Agreement shall not be
rendered void but shall be deemed to be amended as to apply to such maximum
time and territory and to such extent as such court may judicially determine or
indicate to be reasonable. This Section 20 shall survive the termination or
expiration of this Employment Agreement.
Exhibit 4.2B - Page 6
<PAGE> 98
21. Business Management Agreement. Optometrist agrees not to commit
any act or engage in any omission that would cause the Practice to breach the
Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Optometrist and
such officer as may be specifically designated by the Board of Directors of the
Practice and by such officer as may be specifically designated by the Board of
Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Optometrist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Optometrist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Optometrist, the
provisions of such clause shall not be rendered void but shall be deemed
amended to apply as to maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
26. Third Party Beneficiary. Vision 21 is a third-party beneficiary
of Sections 4, 16, 17, 19, 20 and 25 of this Employment Agreement and the
restrictive covenants contained in this Employment Agreement are intended for
the benefit of Vision 21. Except as otherwise provided herein, this Employment
Agreement shall not confer any rights or remedies upon any person other than
the Practice, ophthalmologist and Vision 21 and their respective successors and
permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed and
enforced pursuant to the laws of the State in which the Practice conducts its
business.
29. Counterparts. This Employment Agreement may be executed in more
than one (1) counterpart and each counterpart shall be considered an original.
Exhibit 4.2B - Page 7
<PAGE> 99
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Optometrist as of the date first above written.
"PRACTICE"
EXCELCARE, P.C.
By_____________________________________
Jeffrey Katz, M.D., its President
"OPTOMETRIST"
_______________________________________
__________________, Optometrist
Exhibit 4.2B - Page 8
<PAGE> 100
Exhibit 4.2C
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
List of Non-Shareholder Professionals
in Non-Standard Employment Contracts
1. None.
Exhibit 4.2B - Page 9
<PAGE> 101
Exhibit 4.17
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
SHAREHOLDERS' UNDERTAKING TO MAINTAIN PRACTICE'S
CORPORATE EXISTENCE AND ENFORCEMENT OF COVENANTS
NOT TO COMPETE
As an inducement to the Business Manager to enter into this Business
Management Agreement with the Practice or as required in the Business
Management Agreement, each of the undersigned person(s), having an ownership
interest in the Practice, irrevocably and unconditionally covenants and agrees
to maintain in good standing the corporate existence of the Practice under the
laws of the State and to cause the Practice to use its best efforts to enforce
employment agreements (including those covenants not to compete requirements
described in Sections 4.1 and 4.2) against any individuals violating such
employment agreements (and covenants not to compete). The undersigned persons
further unconditionally covenant and agree to indemnify and hold harmless
Business Manager from and against any and all claims requirements, demands,
liabilities, losses, damages, costs and expenses, including reasonable
attorneys' fees, resulting in any manner from the failure of the Practice to
remain in good standing under the laws of the State or the failure of the
Practice to use its best efforts to enforce those employment agreements and
covenants not to compete described in Section 4.1 and 4.2 of such Business
Management Agreement, a copy of which has been delivered to the undersigned for
his review. The undersigned acknowledges that he or she has received adequate
consideration for the execution hereof. After a period of five (5) years from
December 1, 1996, this Undertaking may be assumed by a successor Shareholder or
Shareholders, in accordance with the terms and conditions set forth in Section
4.1 of the Business Management Agreement, whereupon the undersigned shall be
released to the extent of such assumption, provided that any such successor
Shareholder executes a form similar to this.
IN WITNESS WHEREOF, the undersigned(s) have executed this
Shareholders' Undertaking as of the day and year written opposite such
shareholder's name.
Date:________________________ __________________________
Jeffrey I. Katz, M.D.
Date:_______________________ __________________________
Barry Kusman, M.D.
Exhibit 4.2B - Page 10
<PAGE> 102
Exhibit 5.1
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
Management Fee Percentage
1. The Management Fee percentage shall be thirty-five percent
(35%).
Exhibit 4.2B - Page 11
<PAGE> 103
Exhibit 6.4(f)
to Business Management Agreement among ExcelCare, P.C. (the
"Practice"), and Eye Institute of Southern Arizona, P.C.
("Business Manager")
SHAREHOLDERS' UNDERTAKING TO CARRY OUT
PRACTICE'S PURCHASE OBLIGATION
As an inducement to the Business Manager to enter into this Business
Management Agreement with the Practice or as required in Business Management
Agreement, each of the undersigned person(s), having an ownership interest in
the Practice, irrevocably and unconditionally covenants and agrees subject to
the limitations contained in the Business Management Agreement to (i) cause the
Practice to carry out the purchase obligation described in Section 6.4(f) of
the Business Management Agreement, (ii) personally execute and deliver the
personal guarantees and security agreements referred to in Section 6.4(f) of
such Business Management Agreement, a copy of which has been delivered to the
undersigned for his review, and (iii) execute the documents described in
Section 6.6. The undersigned acknowledges that he or she has received adequate
consideration for the execution hereof.
IN WITNESS WHEREOF, the undersigned(s) have executed this
Shareholders' Undertaking as of the day and year written opposite such
shareholder's name.
Date:_____________________ ______________________________
Jeffrey I. Katz, M.D.
Date:____________________ ______________________________
Barry Kusman, M.D.
Exhibit 4.2B - Page 12
<PAGE> 1
EXHIBIT 10.26
THIS SUBORDINATED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK WHICH SHALL BE
DELIVERED IN ACCORDANCE WITH THE TERMS OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAW. NO SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS
NOTE OR ANY SUCH SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL,
SATISFACTORY TO MAKER, IS OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE
OR TRANSFER IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
SUBORDINATED PROMISSORY NOTE
$460,416.00 December 1, 1996
455,196 Shares of Common Stock
of Vision 21, Inc.
FOR VALUE RECEIVED, VISION 21, INC., a Florida corporation ("Maker"),
hereby promises to pay Lindstrom, Samuelson & Hardten Ophthalmology Associates,
P.A., a Minnesota professional association ("Payee") (i) the principal amount
of Four Hundred Sixty Thousand Four Hundred Sixteen Dollars ($460,416),
together with interest thereon at a per annum rate equal to eight percent (8%),
and (ii) Four Hundred Fifty Five Thousand One Hundred Ninety Six (455,196)
shares of Maker's common stock (the "Shares"). Interest shall be computed on
the basis of the actual number of days elapsed in a year of 360 days from and
including the date hereof through March 1, 1998.
Subject to the stock payment rights described herein, principal and
interest on this Note shall be payable in full, in one installment, in arrears,
on that date which is the earlier of (i) fifteen business days after the
closing date of an initial public offering of shares of common stock of Maker
and (ii) March 1, 1998 (the "Cash Payment Due Date"). If this Note or any
installment of principal or interest hereon becomes due and payable on
Saturday, Sunday or other day on which commercial banks are authorized or
permitted to close under the laws of the State of Florida, the maturity of this
Note or such installment shall be extended to the next succeeding business day.
All payments under this Note and deliveries of shares of Maker's common stock
described below shall be delivered to the office of Payee located at 710 East
24th Street, Minneapolis, Minnesota 55404.
Maker shall (i) on January 31, 1997, deliver to Payee the Shares; and
(ii) on or before the Cash Payment Due Date, pay the outstanding principal
balance under this Note of Four
<PAGE> 2
Hundred Sixty Thousand Four Hundred Sixteen Dollars ($460,416), together with
accrued interest, by cashier's check or money order.
At the time of delivery of the shares referenced above, Maker shall
deliver to Payee a certificate evidencing the number of fully paid and
nonassessable shares issuable upon payment. The certificate evidencing the
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE
CORPORATION THAT SUCH TRANSACTION WILL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS."
Payee by its acceptance hereof acknowledges that it is aware that
neither this Note nor the Shares issuable to Payee in connection with this Note
have been registered under the Securities Act of 1933, as amended.
This Note is being delivered to Payee by Maker pursuant to that
certain Asset Purchase Agreement dated as of December 1, 1996 between Payee and
Maker (the "Purchase Agreement") and is subject to the terms and provisions
thereof. The principal amount of this Note shall be automatically and
permanently reduced by set-off in amounts determined under and in accordance
with the terms of the Purchase Agreement.
This Note is not transferable or assignable by Payee. If this Note is
collected by law or through an attorney at law, or under advice therefrom, the
Maker agrees to pay all costs of collection, including reasonable attorneys'
fees. Reasonable attorneys' fees are defined to include, but not be limited
to, all fees incurred in all matters of collection and enforcement, trial
proceedings and appeals, as well as appearances in and connected with any
bankruptcy proceedings or creditors' reorganization or similar proceedings and
any post judgment collection efforts.
Any failure to exercise any right, remedy or recourse hereunder shall
not be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written document executed by the Payee and then only
to the extent specifically recited therein. A waiver or release with reference
to any one event shall not be construed as continuing, as a bar
-2-
<PAGE> 3
to, or as a waiver or release of any subsequent right, remedy or recourse as to
a subsequent event.
In no event shall the amount of interest due or payments in the nature
of interest payable hereunder exceed the maximum rate of interest allowed by
applicable law, as amended from time to time, and in the event any such payment
is paid by the Maker or received by the Payee, then such excess sum shall be
credited as a payment of principal, unless the Maker shall notify the Payee, in
writing, that the Maker elects to have such excess sum returned to Maker
forthwith.
The Maker waives protest, demand, notice of protest, dishonor,
presentment for payment or acceptance.
The rights of Payee to receive payment on this Note is subject and
subordinate to the prior payment of the principal and interest on all senior
secured indebtedness of Maker, whether now outstanding or subsequently
incurred, and any deferrals, renewals or extensions of such indebtedness or any
debentures, bonds or notes evidencing such indebtedness (the "Senior
Indebtedness"). Upon any receivership, insolvency, assignment for the benefit
of creditors, bankruptcy, reorganization, sale of all or substantially all of
the assets, dissolution, liquidation, or any other marshalling of assets and
liabilities of Maker, or in the event this Note is declared due and payable
upon the occurrence of a default under this Note, then no amount shall be paid
by Maker with respect to principal and interest hereon unless and until the
principal of, and interest on, all Senior Indebtedness then outstanding is paid
in full. The indebtedness of Maker under this Note shall have an equal
priority with all other indebtedness relating to Maker's acquisition of, or
merger into, founding health care practices occurring on or prior to December
31, 1996.
This Note has been executed and delivered in__________, Hawaii and
shall be governed by and construed in accordance with the laws of the State of
Florida applicable to debts and obligations incurred and to be paid solely in
such jurisdiction. This Note may not be modified or amended and no provision
hereof may be waived except by a written instrument executed by the parties to
be bound thereby.
VISION 21, INC.
By: /s/ Theodore N. Gillette
----------------------------------
Theodore N. Gillette, President
-3-
<PAGE> 4
STATE OF HAWAII )
)SS
______ OF ________ )
I, _________________, a Notary Public in and for the __________ and
State aforesaid, DO HEREBY CERTIFY that Theodore N. Gillette, personally known
to me to be the same person whose name is, as President of Vision 21, Inc.,
executed and delivered the foregoing instrument in the City of ______________,
State of Hawaii before me this day in person and acknowledged to me that he or
she, being thereunto duly authorized, signed and delivered said instrument as
the free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal on January ___, 1997.
______________________________
Notary Public
My Commission Expires:
________________________
-4-
<PAGE> 1
EXHIBIT 10.27
BUSINESS MANAGEMENT AGREEMENT
(PROFESSIONAL)
This Business Management Agreement is made and entered into effective
as of December 1, 1996, by and between Vision 21, Inc., a Florida corporation
("Business Manager"), and Lindstrom, Samuelson & Hardten Ophthalmology
Associates, P.A., a professional association, organized and existing under the
laws of the State of Minnesota (the "Practice").
R E C I T A L S
A. The Practice is a professional association duly organized and
validly existing under the laws of the State of Minnesota (the "State") which
is engaged in the provision of Professional Eye Care Services (as defined
below) to the general public in the State through individual Professionals (as
defined below) who are licensed to practice medicine or optometry in the State
and who are employed or otherwise retained by the Practice.
B. Business Manager is a corporation duly organized under the
laws of the state of Florida and qualified to do business under the laws of the
State.
C. The Practice desires to devote substantially all of its
energies, expertise and time on the delivery of Professional Eye Care Services
to patients.
D. The Practice desires to engage Business Manager to provide
facilities, equipment and such management, administrative and business services
as are necessary and appropriate for the day-to-day administration of the non-
medical and non-optometric aspects of the Practice's professional eye care
practice, and Business Manager desires to provide such, upon the terms and
conditions hereinafter set forth, for the purpose of enhancing the
cost-efficiency and quality of services rendered by the Practice to its
patients.
NOW, THEREFORE, for and in consideration of the mutual agreements,
terms, covenants and conditions contained herein and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties agree as follows:
1. DEFINITIONS. For the purposes of this Business Management
Agreement, the following terms shall have the following meanings ascribed
thereto, unless otherwise clearly required by the context in which such term is
used:
1.1. Account. The term "Account" shall mean the bank account
described in Sections 3.9 and 3.10(a) and (c).
<PAGE> 2
1.2. Acquisition Transaction. The term "Acquisition Transaction"
shall mean the completed Asset Purchase Agreement entered into by and between
the Business Manager and the Practice.
1.3. Adjusted Gross Revenue. The term "Adjusted Gross Revenue"
shall mean all revenues, for Professional Eye Care Services and any other
revenues, calculated on an accrual basis under GAAP, generated by or on behalf
of the Practice and its Professionals and Capitation Revenues during the term
of this Business Management Agreement, including, without limitation, all
technical fees from ancillary services, all proceeds from key person life
insurance policies purchased by Business Manager in accordance with Section
3.15, all amounts paid by third parties for contractual liabilities, including
payments under non-shareholder Professionals' non-competition agreements, and
all medical director, consultant, teaching and expert witness fees except for
those fees set forth in Exhibit 1.3 (unless the time and efforts of the
individuals responsible for such excluded revenues are materially greater than
the historical time or efforts expended in obtaining such revenues or if such
excluded revenues historically flowed through the Practice), minus any
allowances for bad debts, uncollectible accounts, Medicare, Medicaid and other
payor contractual adjustments, discounts, workers' compensation adjustments,
reasonable professional courtesies, and other reductions in collectible revenue
that result from activities that do not result in collectible charges.
1.4. Agreement or Business Management Agreement. The term
"Agreement" or "Business Management Agreement" shall mean this instrument as
originally executed and delivered, or, if amended or supplemented, as so
amended or supplemented.
1.5. Budget. The term "Budget" shall mean an operating budget and
capital expenditure budget for each fiscal year as prepared in accordance with
Section 3.11(a).
1.6. Business Manager. The term "Business Manager" shall have the
meaning set forth in the Recitals hereto.
1.7. Business Manager Consent. The term "Business Manager Consent"
shall mean the consent granted by Business Manager's representatives (or either
representative) to the Practice Advisory Council created pursuant to Article II
herein, which consent shall not be unreasonably withheld or delayed and shall
be binding on the Business Manager.
1.8. Business Manager Expense. The term "Business Manager Expense"
shall mean an expense or cost incurred by the Business Manager, for which the
Business Manager is financially liable and is not entitled to reimbursement
from the Practice. Business Manager Expense shall specifically include: (a)
any amortization of intangible assets resulting from the Acquisition
Transaction, (b) any income or franchise taxes of the Business Manager, (c) any
expense or cost relating to any underwritten initial public offering of
Business Manager's common stock pursuant to which a registration statement is
filed under the Securities Act of 1933 (except for underwriter's commissions,
charges or discounts related to the sale of stock by
-2-
<PAGE> 3
any Shareholder of the Practice which shall be borne individually by them), (d)
expenses and costs relating to the acquisition of any other health care
companies unless all or a specific portion of such expenses and costs are
approved as an Office Expense by the Practice Advisory Council, or unless the
Practice participates in the acquisition through the Practice's acquisition of
medical assets of the acquired health care company, and (e) any other expense
or cost that are not reasonable and customary reimbursements based upon a usual
national practice management company's arrangement with a practice. Business
Manager Expenses (as of the date hereof) are more specifically identified in
Exhibit 1.8. In the case of any inconsistency between specifics in Exhibit 1.8
and the general descriptions in (a) through (d) above, Exhibit 1.8 shall govern
(as of the date hereof).
1.9. Capitation Revenues. The term "Capitation Revenues" shall
mean all collections from managed care organizations or third-party payors
where such payment is made periodically on a per member basis for the partial
or total needs of a subscribing patient, less amounts that are payable to other
providers of health care items and services to capitation patients. Capitation
Revenues shall include any co-payments and incentive bonuses received as a
result of a capitation plan.
1.10. Clinical Personnel. The term "Clinical Personnel" shall mean
those individuals who are (to the extent permitted by law) employed by or
otherwise under contract or associated with Business Manager as nurse
anesthetists, physician assistants, technicians, nurse practitioners or similar
positions, or any position that generates a professional charge except for
Professionals. In the event that such individuals are not permitted by the
laws of the State to be employed by or otherwise under contract with Business
Manager, such individuals shall instead be employed by or under contract with
the Practice, and all expenses associated with the employment of or contracting
with such individuals shall be Practice Expenses.
1.11. Confidential Information. The term "Confidential Information"
shall mean any information of Business Manager or the Practice, as appropriate
(whether written or oral), including all business management or economic
studies, patient lists, proprietary forms, proprietary business or management
methods, marketing data, fee schedules, or trade secrets of the Business
Manager or of the Practice, as applicable, whether or not such Confidential
Information is disclosed or otherwise made available to one Party by the other
Party pursuant to this Business Management Agreement. Confidential Information
shall also include the terms and provisions of this Business Management
Agreement and any transaction or document executed by the Parties pursuant to
this Business Management Agreement. Confidential Information does not include
any information that the receiving party can establish (a) is or becomes
generally available to and known by the public or medical community (other than
as a result of an unpermitted disclosure directly or indirectly by the
receiving party or its affiliates, advisors, or Representatives); (b) is or
becomes available to the receiving party on a nonconfidential basis from a
source other than the furnishing party or its affiliates, advisors or
Representatives, provided that such source is not and was not bound by a
confidentiality agreement with or other obligation of secrecy to the furnishing
party of which the receiving
-3-
<PAGE> 4
party has knowledge; or (c) has already been or is hereafter independently
acquired or developed by the receiving party without violating any
confidentiality agreement with or other obligation of secrecy to the furnishing
party.
1.12. GAAP. The term "GAAP" shall mean generally accepted
accounting principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity or other
practices and procedures as may be approved by a significant segment of the
accounting profession, which are applicable to the circumstances as of the date
of the determination. All financial reporting which is required pursuant to
this Agreement to be made in conformity with GAAP shall also be prepared in a
manner acceptable to the Securities and Exchange Commission for reports made
pursuant to the Securities and Exchange Commission's rules and regulations.
1.13. Local Advisory Council. The term "Local Advisory Council"
shall have the meaning set forth in Section 2.10 of this Agreement.
1.14. Management Fee. The term "Management Fee" shall mean the
Business Manager's compensation established as described in Article V hereof.
1.15. Management Services. The term "Management Services" shall
mean the business, administrative, and management services to be provided for
the Practice, including, without limitation, the provision of equipment,
inventory and supplies (including the use of all assets owned by Business
Manager which are located at the Office on the effective date hereof), support
services, personnel (including Clinical Personnel but excluding Professionals),
office space, management, administration, financial record keeping and
reporting, and other business office services, all as reasonably necessary for
the conduct of the Practice's business.
1.16. National Appeals Council. The term "National Appeals Council"
shall have the meaning set forth in Section 2.11 hereto.
1.17. Office. The term "Office" shall mean any office space,
clinic, or facility, including satellite facilities, that Business Manager
shall own or lease or otherwise procure for the use of the Practice.
1.18. Office Expense. The term "Office Expense" shall mean all
operating and non-operating expenses incurred by the Business Manager in the
provision of Management Services to the Practice and shall include all
operating and non-operating expenses incurred by the Practice relating to the
items set forth in this Section. The Business Manager shall be reimbursed by
the Practice for any Office Expense incurred by the Business Manager in the
provision of services to the Practice, upon request by the Business Manager.
Office Expense shall not include any Business Manager Expense, Practice Expense
or Shareholder Expense or
-4-
<PAGE> 5
any state, local or federal income or franchise tax. Without limitation,
Office Expense shall include the following expenses, as such expenses are more
specifically described in Exhibit 1.18:
(a) the salaries, benefits, payroll taxes, and other
direct costs of all employees of Business Manager (including Clinical
Personnel) primarily working at the Office and the salaries, benefits, payroll
taxes, and other direct costs of the non-Professional and non-clinical
employees of the Practice, but not the salaries, benefits, payroll taxes or
other direct costs of the Professionals;
(b) the direct cost of any employee or consultant that
provides services at or in connection with the Office for improved clinic
performance, such as management, billing and collections, business office
consultation, and accounting and legal services, but only when such services
are coordinated by Business Manager and/or included in the Budget;
(c) reasonable recruitment costs and out-of-pocket
expenses of Business Manager or the Practice associated with the recruitment of
additional Professionals, other employees of the Practice and Business
Manager's employees primarily located at the Office;
(d) personal property and intangible property taxes
assessed against Business Manager's assets used in connection with the
operation of the Office;
(e) comprehensive and general liability insurance
covering the Office and employees of the Practice and Business Manager at the
Office;
(f) the expense of using, leasing, purchasing or
otherwise procuring and maintaining the Office and related equipment, including
depreciation in the case of furniture, fixtures and equipment (not to exceed,
for any existing item, the amount of current depreciation for such existing
item) owned by Business Manager and used at the Office, except for those
equipment expenses described in Section 3.2(d), which shall be a Shareholder
Expense.
(g) the cost of capital (whether as actual interest on
indebtedness incurred on behalf of the Practice, as reasonable imputed interest
on capital advanced by Business Manager, which shall be equal to the average
cost of borrowing by Business Manager as reflected on its most recent published
financial statements, or in the absence of either of the foregoing, eight
percent (8%)), to finance or refinance obligations of the Practice, purchase
additional (new or used) medical or non-medical equipment to be used in
connection with the Office, or to finance new ventures of the Practice; in any
such case only as such cost of capital is set forth in the Budget or otherwise
approved in advance by the Practice Advisory Council;
(h) the reasonable travel expenses associated with
attending meetings, conferences, or seminars to benefit the Practice so long as
such expenses are related to individuals located at the Office and the
Practice's pro rata share for individuals who are consultants of or employed by
Business Manager who provide material services to the Practice;
-5-
<PAGE> 6
(i) the cost of non-medical office supplies, inventory
and utilities;
(j) billing and collection costs and expenses;
(k) the Practice's pro-rata share of reasonable
corporate overhead charges or other reasonable expenses (including computer and
data processing costs) which are incurred by Business Manager or any parent or
affiliate of Business Manager in connection with regional expenses or corporate
headquarters expenses which: (i) relate to the provisions of benefits or
services by Business Manager on behalf of the Practice as reflected in the
Budget, or (ii) are a substitute at the same or less cost as the existing level
of expenses historically incurred by the Practice or set forth in the Budget;
(l) all other expenses which are set forth in the
Budget and which directly or indirectly benefit the Practice incurred by
Business Manager in carrying out its obligations under this Business Management
Agreement;
(m) reasonable costs and expenses (to the extent not
covered by insurance) of lawsuits or claims against the Business Manager, the
Practice or its Professional(s) related to their performance of duties at the
Office or their interest in the leasehold or other assets used in connection
with the Office, provided that if the Business Manager, the Practice or its
Professional(s) does not prevail in the lawsuit or claim or settles the matter
with a material payment by the party (the party at "fault"), such costs and
expenses shall be deemed a Business Manager Expense in the event of Business
Manager's fault, and a Shareholder Expense in the event of fault by the
Practice or Professional, whereupon the Practice and such Professional(s) shall
be jointly responsible for the immediate reimbursement of the sums advanced
(which may at the option of Business Manager be offset by Business Manager
against sums otherwise due the Practice under Section 3.10(b)); provided
further that Business Manager shall not advance such costs and expenses from
the account if the Practice Advisory Council concludes that (i) it is unlikely
that the Account will be reimbursed if the party involved will not prevail in
the lawsuit or claim, or (ii) it is reasonable to believe that obtaining a
reimbursement of the advanced sums will be difficult to achieve; and the
Parties acknowledge that nothing in this Section shall create any liability on
the part of a Professional who would otherwise be shielded from personal
liability by the corporate or limited liability structure of the Practice;
(n) key person life insurance premiums related to
policies which the Parties agree to acquire on the life of the Practice's
Professionals, whereupon any proceeds shall be paid to the Account as Adjusted
Gross Revenues, unless the Parties agree to a specific split of the proceeds.
Should only the Practice choose to obtain key person life insurance, the
Practice shall pay all premiums as a Shareholder Expense and shall receive all
proceeds. Further, if only the Business Manager chooses to obtain such
insurance, Business Manager shall pay all premiums as a Business Manager
Expense and shall receive all proceeds. The Practice shall cause its
Professionals to submit to a medical examination necessary to obtain such
insurance.
-6-
<PAGE> 7
In the event that any of the above described individuals described in
Section 1.18(b) devote a substantial amount of time to serving one or more
health care practices other than the Practice, which is not prohibited
hereunder, or the above described equipment or Office are utilized to a
substantial degree by one or more health care practices other than the
Practice, the Office Expenses shall be allocated between the Practice and such
other health care practices to reflect each practice's pro-rata share of any
expenses or costs relating to such individuals, equipment or Office (including
the recruitment costs of such individuals and the comprehensive and general
liability insurance expenses with respect to such individuals). Expenses
contemplated in this paragraph which potentially and primarily relate to
Sections 1.18(b), (c), (d), (e), (f), (g), (h), (k) and (l) shall be in the
Budget or approved by the Practice Advisory Council, and where reasonably
determinable, are intended to be reasonable and customary based upon similar
relationships generally existing between national practice management companies
and practices they manage. The Practice's pro-rata portion of expenses related
to individuals who are consultants of or employed by Business Manager and who
provide services benefiting more than one practice shall be based upon the
actual time expended by the individuals in performing such services as compared
to the time spent by such individuals with other practices managed by the
Business Manager, or, if not reasonably calculable, as determined by Business
Manager, based upon the estimated proportionate revenue size of the Practice as
compared to the aggregate revenue size as estimated in all of the Budgets of
all other practices managed by the Business Manager which are benefiting from
such individual's services. Likewise, equipment and other benefits provided by
the Business Manager to several Practices shall be split pro-rata based upon
the use or benefit derived by each Practice, but if not calculable, shall be
based upon the estimated proportionate revenue size as set forth in the
preceding sentence. Notwithstanding anything to the contrary herein, unless an
expense is expressly designated as a Business Manager Expense, a Practice
Expense or a Shareholder Expense in this Business Management Agreement or any
exhibit thereto, all expenses incurred by Business Manager in providing
services pursuant to this Business Management Agreement shall be considered an
Office Expense.
1.19. Ophthalmologist. The term "Ophthalmologist" shall mean each
individually licensed physician who is employed or otherwise retained by or
associated with the Practice, each of whom shall meet at all times the
qualifications described in Section 4.2 and Section 4.3, including, without
limitation, any Shareholder of the Practice who is a licensed physician.
1.20. Optometrist. The term "Optometrist" shall mean each
individually licensed Optometrist, if any, who is employed or otherwise
retained by or associated with the Practice, each of whom shall meet at all
times the qualifications described in Section 4.2 and Section 4.3.
1.21. Parties. The term "Parties" shall mean the Practice and
Business Manager.
1.22. Practice. The term "Practice" shall have the meaning set
forth in the Recitals.
-7-
<PAGE> 8
1.23. Practice Advisory Council. The term "Practice Advisory
Council" shall have the meaning set forth in Section 2.6 of this Agreement.
1.24. Practice Consent. The term "Practice Consent" shall mean the
consent granted by the Practice's representatives (or either representative) to
the Practice Advisory Council created pursuant to Article II herein, which
consent shall not be unreasonably withheld or delayed and shall be binding on
the Practice.
1.25. Practice Expenses. The term "Practice Expenses" shall mean
(a) all reasonable non-shareholder Professionals' salaries, benefits, payroll
taxes and other direct costs related to their services at the Office (including
reasonable and customary professional dues, subscriptions, continuing education
expenses, severance payments, (b) the cost of medical supplies (including, but
not limited to, optical supplies, drugs, pharmaceuticals, products, substances,
items or medical devices), (c) reasonable and customary professional liability
insurance expenses of Professionals, (d) travel costs for continuing education
and necessary business travel for non-shareholder Professionals, and (e) costs
of goods sold in any optical business of the Practice. Notwithstanding the
foregoing, the term Practice Expenses shall specifically exclude (i) business
travel requested by Business Manager, which shall be an Office Expense, (ii)
any and all compensation or expenses attributable to Shareholders, which shall
be a Shareholder Expense (except reasonable and customary expenses for
malpractice insurance which shall be a Practice Expense), (iii) "tail"
insurance coverage for Shareholders, which shall be a Shareholder Expense, or
(iv) such other items agreed to in advance in writing by the Parties hereto.
During this Agreement, for so long as a current Shareholder of the Practice is
an employee of, or contractor to, or Shareholder of the Practice, such
Shareholder shall be deemed to be a Shareholder for the purposes of this
definition. Such expenses are to be approved annually in the Budget. Practice
Expenses are more specifically described in attached Exhibit "1.18."
1.26. Practice Territory. The term "Practice Territory" shall mean
the geographic area described in Exhibit 1.26, representing the geographic
boundaries in which the Practice renders Professional Eye Care Services.
1.27. Professional. The term "Professional" shall mean any
Ophthalmologist or Optometrist.
1.28. Professional Eye Care Services. The term "Professional Eye
Care Services" shall mean professional health care items and services,
including, but not limited to, the practice of ophthalmology, and the practice
of optometry, and all related professional health care services provided by the
Practice through the Practice's Ophthalmologists, Optometrists, if any, and
other professional health care providers that are retained by or professionally
affiliated with the Practice. The term shall also include any and all business
whatsoever in connection with any current or future ambulatory surgery centers
or optical businesses owned or operated, or to be owned or operated in the
future, in whole or in part, by the Practice or any of its Professionals during
the terms of this Agreement.
-8-
<PAGE> 9
1.29. Representatives. The term "Representatives" shall mean a
Party's officers, directors, managers, employees, or other agents.
1.30. Shareholder. The term "Shareholder" shall mean any current or
future shareholder of the Practice.
1.31. Shareholder Expense. The term "Shareholder Expense" shall be
limited to the following expenses, as such expenses are more specifically
described in Exhibit 1.18: (a) Shareholders' salaries, benefits, payroll
taxes, and other direct costs (including professional dues, subscriptions,
continuing education expenses, severance payments, entertainment, and travel
costs for continuing education or other business travel but excluding business
travel requested by Business Manager, which shall be an Office Expense, and
excluding any other expense of a Shareholder approved as an Office Expense in
advance by the Parties); (b) those portions of leasehold obligations of the
Business Manager which are deemed in excess of fair market value as set forth
in Exhibit 1.18; (c) to the extent not covered by insurance and subject to the
advance provisions contained herein, the defense costs of any litigation
brought against the Practice or the Professionals by any third party and any
liability judgment assessed against the Practice or the Professionals; (d)
certain equipment expenses described in Section 3.2(d); (e) interest on any
funds advanced to the Practice by Business Manager to the extent that Business
Manager is a net lender in accordance with the terms of this Agreement; (f)
"tail" coverage malpractice insurance expenses for the Shareholders and any
malpractice insurance expenses of any Professional which are in excess of those
which are customary and reasonable; (g) any income taxes or franchise tax of
the Practice; and (h) consulting, accounting, or legal fees which relate solely
to the Shareholders. The Practice shall reimburse the Business Manager for any
Shareholder Expense incurred by the Business Manager. Unless an expense is
expressly designated as a Business Expense, an Office Expense or a Practice
Expense in this Business Management Agreement or in any exhibit hereto, all
expenses incurred by the Practice shall be considered a Shareholder Expense.
Notwithstanding the above, the Practice may require certain Professionals to
pay certain expenses incurred for them specifically. Nothing in this Section
shall create personal liability on the part of the Practice's Shareholders.
1.32. State. The term "State" shall have the meaning set forth in
the Recitals.
1.33. Term. The term "Term" shall mean the initial and any renewal
periods of duration of this Business Management Agreement as described in
Section 6.1.
2. APPOINTMENT OF BUSINESS MANAGER AND ESTABLISHMENT OF
PRACTICE ADVISORY COUNCIL, LOCAL ADVISORY COUNCIL AND
NATIONAL APPEALS COUNCIL.
2.1 Appointment. The Practice hereby appoints Business Manager as
its sole and exclusive agent for the management and administration of the
business functions and business
-9-
<PAGE> 10
affairs of the Practice and; Business Manager hereby accepts such appointment,
subject at all times to the provisions of this Business Management Agreement.
2.2 Authority. Consistent with the provisions of this Business
Management Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services for the Practice. The
Practice shall give Business Manager thirty (30) days' prior notice of the
Practice's intent to execute any agreement creating a binding legal obligation
on the Practice. The Parties acknowledge and agree that the Practice, through
its Professionals, shall be responsible for and shall have complete authority,
responsibility, supervision, and control over the provision of all Professional
Eye Care Services and other professional health care services performed for
patients, and that all diagnoses, treatments, procedures, and other
professional health care services shall be provided and performed exclusively
by or under the supervision of Professionals as such Professionals, in their
sole discretion, deem appropriate. Business Manager shall have and exercise
absolutely no control, influence, authority or supervision over the provision
of Professional Eye Care Services.
2.3 Patient Referrals. Business Manager and the Practice agree
that the benefits to the Practice hereunder do not require, are not payment
for, and are not in any way contingent upon the referral, admission, or any
other arrangement for the provision of any item or service offered by Business
Manager to patients of the Practice in any facility, laboratory, center, or
health care operation controlled, managed, or operated by Business Manager.
2.4 Internal Decisions of the Practice. Matters involving the
Practice's allocation of professional income among its Shareholders and the
Professional employees of the Practice, tax planning, and investment planning
shall remain the responsibility of the Practice and the Shareholders of the
Practice.
2.5 Practice of Ophthalmology and Optometry. The Parties
acknowledge that Business Manager is not authorized or qualified to engage in
any activity that may be construed or deemed to constitute the practice of
ophthalmology or optometry. To the extent any act or service herein required
by Business Manager should be construed by a court of competent jurisdiction or
by the State Board of Medicine or the State Board of Optometry to constitute
the practice of ophthalmology or optometry, the requirement to perform that act
or service by Business Manager shall be deemed waived and unenforceable.
2.6 Formation and Operation of the Practice Advisory Council. The
Parties hereby establish a Practice Advisory Council which shall be responsible
for advising Business Manager and the Practice with respect to developing and
implementing management and administrative policies for the overall operation
of the Practice's facilities and for providing dispute resolution on certain
matters. The Practice Advisory Council shall consist of four (4) members.
Business Manager shall designate, in its sole discretion, two (2) members of
the Practice Advisory Council or may have one (1) member with two (2) votes.
The Practice shall designate, in its sole discretion, two (2) members of the
Practice Advisory Council or may have one (1) member
-10-
<PAGE> 11
with two (2) votes. The Practice Advisory Council members selected by the
Practice shall be full-time Professional employees of the Practice. Each
Party's representatives to the Practice Advisory Council shall have the
authority to make decisions on behalf of the respective Party. Except as may
otherwise be provided, the act of a majority of the members of the Practice
Advisory Council shall be the act of the Practice Advisory Council. The
decisions, resolutions, actions, or recommendations of the Practice Advisory
Council shall be implemented by Business Manager or the Practice, as
appropriate.
2.7 Duties and Responsibilities of the Practice Advisory Council.
The Practice Advisory Council shall review, evaluate, make recommendations, and
where specifically authorized herein and permitted by law, make decisions with
respect to the following matters:
(a) Facility Improvements and Expansion. Any
renovation and expansion plans and capital equipment expenditures with respect
to the Practice's facilities (including with respect to any ambulatory surgical
center or optical business) shall be reviewed by the Practice Advisory Council
which shall make recommendations to Business Manager with respect to proposed
changes therein. Such renovation and expansion plans and capital equipment
expenditures shall be based upon economic feasibility, ophthalmology and
optometry support, productivity and then current market conditions.
(b) Marketing and Public Relations. The Practice
Advisory Council shall review and make recommendations to the Practice with
respect to all marketing and public relations services and programs promoting
the Practice's Professional Eye Care Services.
(c) Patient Fees; Collection Policies. As a part of
the annual operating budget, the Practice Advisory Council shall review and
make recommendations to the Practice concerning the fee schedule and collection
policies for all Professional Eye Care Services and ancillary services rendered
by the Practice.
(d) Ancillary Services. The Practice Advisory Council
must approve any new non-professional ancillary services to be rendered by the
Practice including ambulatory surgical center and optical business, and
concerning the pricing, continuation of, access to, and quality of such
services.
(e) Provider and Payor Relationships. The Practice
Advisory Council shall review and make recommendations to Business Manager and
the Practice regarding the establishment or maintenance of relationships
between the Practice and institutional health care providers and third-party
payors, and shall review and approve all agreements with institutional health
care providers and third-party payors which contain terms which are materially
different from those terms set forth in guidelines established by the Local
Advisory Council. The Practice Advisory Council shall also make
recommendations to Business Manager and the Practice concerning discounted fee
schedules, including capitated fee arrangements of which the Practice shall be
a party, and shall review and approve all such capitated fee arrangements.
-11-
<PAGE> 12
(f) Strategic Planning. The Practice Advisory Council
may make recommendations to Business Manager concerning development of
long-term strategic planning objectives for the Practice.
(g) Capital Expenditures. The Practice Advisory
Council shall make recommendations to Business Manager and the Practice
concerning the priority of major capital expenditures and shall review and
approve any commitment to make any capital expenditures for non-medical
equipment relating to the Office involving amounts in excess of $15,000
individually, or $50,000 in the aggregate, in any one fiscal year, which
amounts may be increased from time-to-time by the Local Advisory Council.
(h) Hiring of Professionals. The Practice Advisory
Council shall recommend to the Practice the number and type of Professionals
required for the efficient operation of the Practice's facilities.
(i) Fee Dispute Resolution. At the request of Business
Manager or the Practice, the Practice Advisory Council shall make
recommendations to Business Manager with respect to any dispute concerning a
set-off or reduction in Management Fees.
(j) Grievance Referrals. The Practice Advisory Council
shall consider and make recommendations to Business Manager and the Practice
regarding grievances pertaining to matters not specifically addressed in this
Business Management Agreement as referred to it by Business Manager or the
Practice's Board of Directors.
(k) Termination of Business Manager's Personnel. The
Practice Advisory Council shall review and approve any decision by the Business
Manager to terminate any of Business Manager's personnel primarily located at
the Office who occupy office manager or higher level positions.
(l) Approval of New Office. The Practice Advisory
Council shall approve any move of the current Office location or the expansion
to an additional Office location. Additionally, the Practice Advisory Council
shall approve the establishment of any ambulatory surgical center or optical
business of the Practice and the move or expansion of any such business.
(m) Approval of Budget. The Practice Advisory Council
shall have the power to adopt, approve and amend the Budget and to approve
various expenses as set forth herein, which shall be subject to change upon
submission of any dispute thereon to Ernst & Young LLP (or its successor or
replacement) and appeal to the National Appeals Council as provided in Section
3.11(a).
Except in those specific instances set forth above in which the Practice
Advisory Council has been granted the authority to make decisions binding upon
the Business Manager and the
-12-
<PAGE> 13
Practice, it is acknowledged and agreed that recommendations of the Practice
Advisory Council are intended for the advice and guidance of Business Manager
and the Practice and that the Practice Advisory Council does not have the power
to bind Business Manager or the Practice. Where discretion with respect to any
matter is vested in Business Manager or the Practice under the terms of this
Agreement, Business Manager or the Practice, as the case may be, shall have
ultimate responsibility for the exercise of such discretion, notwithstanding
any recommendations of the Practice Advisory Council. Business Manager and the
Practice shall, however, take such recommendations of the Practice Advisory
Council into account in good faith in the exercise of such discretion.
2.8 Professional Health Care Decisions. Despite the above listing
of activities and areas of interest, all decisions required by applicable law
to be made solely by health care professionals will be made solely by the
appropriate Professionals, but non-Professional members of the Practice
Advisory Council may participate in the discussion process. The Professional
representatives of the Practice on the Practice Advisory Council shall have
exclusive authority to review and resolve issues related to:
(a) Types and levels of Professional Eye Care Services
to be provided; (provided, however, that the Practice Advisory Council shall
have the authority set forth in Section 2.7(d) with respect to new ambulatory
surgical centers and new optical business);
(b) Recruitment of Professionals to the Practice,
including the specific qualifications and specialties of recruited
Professionals;
(c) Any medical or optometric related functions;
(d) Fee schedules; and
(e) Any other decisions required by applicable law to
be made solely by Professionals and not by non-Professionals.
2.9 Meetings of the Practice Advisory Council. The Practice
Advisory Council shall meet on a regular basis as mutually agreed by the
Parties. A special meeting of the Practice Advisory Council may be called by
either Business Manager or the Practice upon two (2) weeks' notice, except in
the event of an emergency, in which case a special meeting may be called by
either Business Manager or the Practice upon three (3) business days' notice.
Meetings may be held telephonically or by any other means agreeable to the
Parties.
2.10 Formation and Operation of Local Advisory Council. Business
Manager shall, within six (6) months of the effective date of this Business
Management Agreement establish a Local Advisory Council composed of delegates
from health care practices for which Business Manager is then providing
management services similar to those services contemplated in this Business
Management Agreement. All of such health care practices shall be located
within the
-13-
<PAGE> 14
market area described on Exhibit 2.10, as such market area may be expanded from
time-to-time by the Local Advisory Council. For six (6) years from the date
hereof, the Practice shall be entitled to appoint one delegate to the Local
Advisory Council, of which the initial delegate shall serve an initial two (2)
year term. Thereafter, for the two (2) subsequent two (2) year terms, the
Practice may appoint the same or a different delegate to the Local Advisory
Council. After the six (6) year period, the Practice shall have the right to
vote, along with other Practices managed in the market by the Business Manager,
for the delegates to the Local Advisory Council in accordance with the by-laws,
as modified from time to time as described below. Business Manager shall be
entitled to appoint two delegates to the Local Advisory Council who may be
replaced from time-to-time at the Business Manager's discretion, and who
together shall have a voting power equal to the combined voting power of all
delegates appointed by the health care practices. If any market contains only
one health care practice, such practice shall appoint one (1) individual to the
Local Advisory Council who shall have two (2) votes. Any matter to be
determined by the Local Advisory Council must receive the affirmative vote of a
majority of the votes cast of the delegates appointed to the Local Advisory
Council. The Local Advisory Council shall make recommendations to Business
Manager and such health care practices as to regional policy and strategy
issues within the market area and as to the following:
(a) The establishment of private pay fee schedules
where permitted by law;
(b) The establishment of guidelines for agreements with
institutional health care providers and third-party payors; and
(c) Any agreement with an institutional health care
provider or third-party payor which materially differs from guidelines
established by the Local Advisory Council.
The Local Advisory Council may, from time-to-time, select commercial
carriers for professional, casualty and comprehensive general liability
coverage for health care practices in the market area and such selection shall
be binding upon such health care practices.
The Local Advisory Council shall consider and determine any issue upon
which the Practice Advisory Council is deadlocked (except for the determination
of the Budget). In determining such disputes, the Local Advisory Council shall
make findings of fact relating to evidence presented by the Parties to the
dispute. Decisions by the Local Advisory Council may be appealed by any party
adversely affected to the National Appeals Council, which shall have the option
of hearing the appeal. The Local Advisory Council's rules of operation and
procedure shall be governed by by-laws to be adopted by the delegates, and such
by-laws may be amended or restated from time-to-time. Such by-laws shall be
reasonable and in accord with the terms and spirit of this Agreement. The
Practice and Business Manager covenant and agree to abide by the Local Advisory
Council's by-laws, as such by-laws may be amended from time-to-time.
-14-
<PAGE> 15
2.11 Formation and Operation of the National Appeals Council.
Business Manager shall within six (6) months of the effective date of this
Business Management Agreement establish a National Appeals Council composed of
one (1) delegate appointed by each of the initial Local Advisory Councils to be
established by Business Manager, and two (2) delegates appointed by the
Business Manager. The initial delegates of the Local Advisory Councils shall
serve an initial two (2) year term, and thereafter, if the local advisory
council qualifies under the then current by-laws of the National Appeals
Council with respect to the eligibility of Local Advisory Councils to appoint
delegates to the National Appeals Council, the local advisory council may
appoint the same or a different delegate to the National Appeals Council.
Business Manager's delegates to the National Appeals Council shall together
have a voting power equal to the combined voting power of all delegates
appointed by the Local Advisory Councils. Any matter to be determined by the
National Appeals Council must receive the affirmative vote of a majority of the
votes cast of the delegates appointed to the National Appeals Council. The
National Appeals Council shall serve as a forum of appeal of any determinations
of the Local Advisory Councils over which it chooses to have jurisdiction. In
resolving such appeals it determines to hear, the National Appeals Council
shall review findings of fact made by the applicable local advisory council and
shall only reverse a decision of the local advisory council if the local
advisory council's decision was based upon manifest error. The National
Appeals Council shall also determine disputes which it chooses to have
jurisdiction over and which cannot be decided because of a deadlock among the
delegates of any Local Advisory Council. In the event of a deadlock among the
delegates of the National Appeals Council, the dispute may be submitted by
either party to the dispute to arbitration in accordance with Section 8.7 of
this Agreement. In all other instances, the determination of a dispute by the
National Appeals Council shall be final. The National Appeals Council's rules
of operation and procedure shall be governed by by-laws to be adopted by the
Local Advisory Councils' and Business Manager's delegates, and such by-laws may
be amended or restated from time-to-time. Such by-laws shall be reasonable and
reflect the terms and spirit of this Agreement. The National Appeals Council's
decisions shall be binding upon the parties. The Practice and Business Manager
covenant and agree to abide by the National Appeal Council's by-laws, as such
by-laws may be amended from time-to-time.
3. OBLIGATIONS AND RESPONSIBILITIES OF BUSINESS MANAGER.
3.1 Management Services. Business Manager shall provide all
Management Services as are necessary and appropriate for the day-to-day
administration of the business aspects of the Practice's operations, pursuant
to the terms of this Business Management Agreement. Business Manager shall
operate in a reasonable and customary manner with due consideration to the
Practice's past business practices and shall operate in accordance with all
applicable laws, rules and regulations which are necessary and material to the
Business Manager's performance of the Management Services. Business Manager
will provide in good faith and with due diligence its services consistent with
management services generally provided in operations of a medical practice
similar in size, type and operations in the State of the Practice. All costs
and expenses
-15-
<PAGE> 16
related to Business Manager's duties contained in this Section 3 shall be
Office Expenses unless limited or excluded as an Office Expense pursuant to the
terms of this Agreement.
3.2 Office and Equipment.
(a) Business Manager shall lease, sublease, acquire or
otherwise procure one or more Offices that are deemed by the Parties to be
reasonably necessary and appropriate, and the expenses associated with such
lease, sublease, acquisition, or procurement shall be Office Expenses. Any
Office procured by Business Manager for the use by the Practice shall be
procured at commercially reasonable rates. Any relocation from the Practice's
present Office location or expansion of the Practice's Office into an
additional Office shall be done only after Business Manager has received
Practice Consent, which shall not be unreasonably withheld.
(b) In the event the Practice is the lessee of an
Office under a lease with an unrelated and nonaffiliated lessor, Business
Manager may require the Practice to assign such lease to Business Manager upon
receipt of consent from the lessor. The Practice shall use its best efforts to
assist in obtaining the lessor's consent to the assignment. Any expenses
incurred in the assignment shall be Office Expenses.
(c) Business Manager shall provide all non-health care
equipment, fixtures, office supplies, furniture and furnishings as are
reasonable and approved in the Budget for the operation of the Office and the
provision of Professional Eye Care Services. If the Practice wishes to choose
additional equipment, which the Business Manager determines not to acquire or
lease, the Practice may acquire or lease such equipment, and the expense
related thereto shall be deemed a Shareholder Expense.
(d) Business Manager shall provide, finance, or cause
to be provided or financed health care related equipment as reasonably required
by the Practice. The Practice shall have final authority in all health care
equipment selections; provided, however, that if the Practice chooses to
acquire health care equipment which is not in the Budget and which Business
Manager reasonably chooses not to acquire, expenses related thereto shall be
treated as a Shareholder Expense and such equipment shall be owned by the
Practice; provided further that following such acquisition or lease by the
Practice, if the Practice Advisory Council determines that after a period of
six months of use such equipment is reasonably certain to result in material
profit to Business Manager (taking into account the cost or expense and
anticipated revenues associated with such equipment), then Business Manager
shall acquire such equipment from the Practice by either (at Business Manager's
option), paying cash or by assuming the liability associated with such
equipment, or if such equipment is then being leased by the Practice, by
assuming such lease. In the event of such an acquisition by Business Manager,
it shall reimburse the Practice for previous expenses applied thereto.. Except
for equipment which Business Manager elects not to acquire or lease which are
acquired or leased by the Practice pursuant to Section 3.2(c) or (d), all
health care and non-health care equipment, other than Professional-owned
automobiles, acquired for the use of the Practice shall be owned by Business
Manager
-16-
<PAGE> 17
and the depreciation and related capital charge shall be an Office Expense.
Business Manager may make recommendations to the Practice on the relationship
between its health care equipment decisions and the overall administrative and
financial operations of the practice.
(e) Business Manager shall be responsible for the
repair and maintenance of the Office, consistent with Business Manager's
responsibilities under the terms of any lease or other use arrangement, and for
the prompt repair, maintenance, and replacement of all equipment other than
such repairs, maintenance and replacement necessitated by the gross negligence
or willful misconduct of the Practice, its Professionals or other personnel
employed by the Practice, the repair or replacement of which shall be a
Shareholder Expense and not an Office Expense. Replacement equipment shall be
acquired where Business Manager in good faith determines that such replacement
is necessary or where the Budget has made allowances for such replacement.
(f) Any portion of the foregoing lease payments in
excess of fair market value (as set forth in Exhibit 1.31) relating to leases
of equipment or an Office shall be treated as a Shareholder Expense.
3.3 Health Care Supplies. Business Manager shall order, procure,
purchase and provide on behalf of and as agent for the Practice all reasonable
health care supplies unless otherwise prohibited by federal and/or state law.
Furthermore, Business Manager shall ensure that the Office is at all times
adequately stocked with the health care supplies that are necessary and
appropriate for the operation of the Practice and required for the provision of
Professional Eye Care Services. The ultimate oversight, supervision and
ownership for all health care supplies is and shall remain the sole
responsibility of the Practice and all costs and expenses relating to such
supplies shall be a Practice Expense. As used in this provision, the term
"health care supplies" shall mean all drugs, pharmaceuticals, optical supplies,
products, substances, items or devices the whose purchase, possession,
maintenance, administration, prescription or security of which requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or state law.
3.4 Support Services. Business Manager shall provide or arrange
for all printing, stationery, forms, postage, duplication or photocopying
services, and other support services as are reasonably necessary and
appropriate for the operation of the Office and the provision of Professional
Eye Care Services therein.
3.5 Quality Assurance, Risk Management, and Utilization Review.
Business Manager shall assist the Practice in the Practice's establishment and
implementation of procedures to ensure the consistency, quality,
appropriateness, and medical necessity of Professional Eye Care Services
provided by the Practice, and shall provide administrative support for the
Practice's overall quality assurance, risk management, and utilization review
programs. Business Manager
-17-
<PAGE> 18
shall perform these tasks in a manner to ensure the confidentiality and
non-discoverability of these program actions to the fullest extent allowable
under state and federal law.
3.6 Licenses and Permits. Business Manager shall, on behalf of
and in the name of the Practice, coordinate all development and planning
processes, and apply for and use reasonable efforts to obtain and maintain all
federal, state and local licenses and regulatory permits required for or in
connection with the operation of the Practice and the equipment (existing and
future) located at the Office, other than those relating to the practice of
ophthalmology or optometry or the administration of drugs by Professionals
retained by or associated with the Practice. The expenses and costs associated
with obtaining and maintaining permits with respect to the Office and licenses
for professional practice by the non-shareholder Professionals shall be deemed
an Office Expense.
3.7 Personnel. Except as specifically provided in Section 4.2 of
this Business Management Agreement, Business Manager shall employ or otherwise
retain and shall be responsible for selecting, hiring, training, supervising,
and terminating, all management, administrative, clerical, secretarial,
bookkeeping, accounting, payroll, billing and collection and other personnel
(including Clinical Personnel but excluding Professionals) as Business Manager
deems reasonably necessary and appropriate for Business Manager's performance
of its duties and obligations under this Business Management Agreement.
Consistent with reasonably prudent personnel management policies, Business
Manager shall seek and consider the advice, input, and requests of the Practice
in regard to personnel matters. Business Manager shall have sole
responsibility for determining the salaries and providing fringe benefits, and
for withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable law
or governmental requirement. Business Manager does not currently intend to
change the existing composition or employment terms of any of Business
Manager's personnel which have employment arrangements with the Practice on the
effective date of this Agreement (unless there are unsettled issues regarding
such arrangements as described in Exhibit 3.7). Business Manager reserves the
right, however, to change the number, composition or employment terms of such
personnel in the future at Business Manager's discretion; provided, however,
that the termination of any of Business Manager's personnel who are Clinical
Personnel or occupy office manager or higher level positions, and are primarily
located at the Office must receive the approval of the Practice Advisory
Council. Business Manager and the Practice recognize and acknowledge that
Business Manager and personnel retained by Business Manager may from
time-to-time perform services for persons other than the Practice. This
Business Management Agreement shall not be construed to prevent or prohibit
Business Manager from performing such services for others or restrict Business
Manager from using its personnel to provide services to others. Business
Manager hereby disclaims any liability relating to the effect of its employees
on the qualification of the Practice's retirement plans under the Internal
Revenue Code, and all liabilities for such classification shall be solely the
responsibility of the Practice.
-18-
<PAGE> 19
3.8 Contract Negotiations. Business Manager shall evaluate,
assist in negotiations and administer on behalf of the Practice contracts that
do not relate to the provision of Professional Eye Care Services as set forth
in this Agreement and/or as approved in the Budget. To the extent permitted by
law, Business Manager shall evaluate, assist in negotiations, administer and
execute on the Practice's behalf, all contractual arrangements with third
parties as are reasonably necessary and appropriate for the Practice's
provision of Professional Eye Care Services, including, without limitation,
negotiated price agreements with third-party payors, alternative delivery
systems, or other purchasers of group health care services. However, the
Practice shall have the final authority with regard to the entry into all of
such contractual arrangements relating to the provision of Professional Eye
Care Services.
3.9 Billing and Collection. As an agent on behalf of and for the
account of the Practice, Business Manager shall establish and maintain credit
and billing and collection services, policies and procedures, and shall use
reasonable efforts to timely bill and collect all Professional and other fees
for all billable Professional Eye Care Services provided by the Practice, or
Professionals employed or otherwise retained by the Practice. The Practice
Advisory Council shall make recommendations to and consult with Business
Manager and the Practice regarding the fees for Professional Eye Care Services
provided by the Practice. In connection with the billing and collection
services to be provided hereunder, and throughout the Term (and thereafter as
provided in Section 6.3), the Practice hereby grants to Business Manager an
exclusive special power of attorney and appoints Business Manager as the
Practice's exclusive true and lawful agent and attorney-in-fact (which shall be
deemed revoked in the event of termination for cause by the Practice), and
Business Manager hereby accepts such special power of attorney and appointment,
for the following purposes:
(a) To bill the Practice's patients, in the Practice's
name using the Practice's tax identification number and on the Practice's
behalf, for all billable Professional Eye Care Services provided by the
Practice to patients.
(b) To bill, in the Practice's name using the
Practice's tax identification number and on the Practice's behalf, all claims
for reimbursement or indemnification from health maintenance organizations,
self-insured employers, insurance companies, Medicare, Medicaid, and all other
third-party payors or fiscal intermediaries for all covered billable
Professional Eye Care Services provided by the Practice to patients.
(c) To collect and receive, in the Practice's name and
on the Practice's behalf, all accounts receivable generated by such billings
and claims for reimbursement, to administer such accounts including, but not
limited to, extending the time of payment of any such accounts; suing,
assigning or selling at a discount such accounts to collection agencies; or
taking other measures to require the payment of any such accounts; provided,
however, that the Practice shall review and approve (which approval shall not
be unreasonably withheld) any decision by Business Manager to undertake
extraordinary collection measures, such as filing lawsuits, discharging or
releasing obligors, or assigning or selling accounts at a discount to
-19-
<PAGE> 20
collection agencies. Business Manager shall act in a professional manner and
in compliance with all federal and State fair debt collection practices laws in
rendering billing and collection services.
(d) To deposit all amounts collected into the Account
which shall be a cash collateral account held in the name of Business Manager
and shall be opened at a financial institution chosen by Business Manager. All
amounts received or collected are hereby pledged to the Business Manager and
shall be held or deposited in the Account to secure the performance of the
Practice's obligations under this Agreement. The Account shall be held under
Business Manager's tax identification number. The Practice covenants to
transfer and deliver to the Account all funds received by the Practice from
patients or third-party payors for Professional Eye Care Services. Upon
receipt by Business Manager of any funds from patients or third-party payors or
from the Practice pursuant hereto for Professional Eye Care Services, Business
Manager shall immediately deposit the same into the Account. Business Manager
shall administer, be responsible for, and be obligated to pay for all Office
Expenses; provided, however, that Business Manager shall only be liable for
Office Expenses to the extent of funds in the Account plus any amounts borrowed
by Business Manager in accordance with Section 5.4. Business Manager shall
disburse such deposited funds to creditors and other persons on behalf of the
Practice, maintaining records of such receipt and disbursement of funds.
Business Manager may borrow amounts from the Account in excess of amounts due
Business Manager pursuant to this Agreement and to the full extent of funds in
the Account. Such borrowed amounts shall bear interest to the Account in the
amount of six percent (6%) per annum, and any of such borrowed amounts
outstanding shall be repaid by Business Manager to the Account when needed to
cover all expenses and obligations under this Agreement and shall be repaid
within thirty (30) days of the termination of this Agreement.
(e) To take possession of, endorse in the name of the
Practice, and deposit into the Account any notes, checks, money orders,
insurance payments, and any other instruments received in payment of accounts
receivable for Professional Eye Care Services.
(f) To sign checks on behalf of the Practice, and to
make withdrawals from the Account for payments specified in this Business
Management Agreement. Upon request of Business Manager, the Practice shall
execute and deliver to the financial institution wherein the Account is
maintained, such additional documents or instruments as may be necessary to
evidence or effect the special power of attorney granted to Business Manager by
the Practice pursuant to this Section 3.9. The special power of attorney
granted herein shall be coupled with an interest and shall be irrevocable
except with Business Manager's written consent. The irrevocable power of
attorney shall expire when this Business Management Agreement has been
terminated, all accounts receivable payable to Business Manager pursuant to
this Business Management Agreement have been collected and all Management Fees
due to Business Manager have been paid. If Business Manager assigns this
Business Management Agreement in accordance with its terms, the Practice shall
execute a power of attorney in favor of the assignee in a form acceptable to
Business Manager.
-20-
<PAGE> 21
3.10 Maintenance of Account. During the term of this Business
Management Agreement, all Adjusted Gross Revenues collected resulting from the
rendering of Professional Eye Care Services by the Practice shall be deposited
directly into the Account in which Business Manager shall have the sole signing
capacity.
(a) Payments from the Account. Each month Business
Manager shall pay from funds that are in the Account all sums due and payable
as an Office Expense and Practice Expenses. Additionally, on or before the
15th day of the following month, (i) Business Manager shall pay from funds that
are in the Account to the Practice Adjusted Gross Revenue less accrued Office
Expense, accrued Practice Expense (excluding optical supplies), accrued
Management Fee, and (at the discretion of Business Manager) all sums advanced
by the Business Manager, and (ii) the accrued Management Fee for the previous
month shall be paid.
(b) Payments to the Practice's Account. To the extent
funds are available, the Business Manager shall be responsible for remitting
from the Account to an account to be owned by and held in the Practice's name,
separate from the Account, the amounts which the Practice is entitled to
receive under Section 3.10(a). Within sixty (60) days of the end of each of
the first three (3) fiscal quarters in each fiscal year and within one hundred
twenty (120) days of the end of each fiscal year, a settlement process shall be
undertaken pursuant to which adjustments, if necessary, shall be made in the
total payments to the Practice based upon the financial statements prepared in
accordance with Section 3.11(b). Any additional payment due to the Practice
will be made within thirty (30) days of the completion of the settlement
process. Any reduction in payments to the Practice as the result of such
settlement process shall be made by reducing future payments to the Practice,
commencing with the month following completion of the settlement process, until
such adjustments are made in full.
Business Manager and the Practice shall each have signing capacity to
withdraw funds from the Practice's account; provided however that Business
Manager shall only be entitled to withdraw funds relating to such account in
connection with the payment of Practice Expenses and Shareholders' salaries,
benefits and payroll taxes. Subject to the foregoing, the Practice hereby
grants to Business Manager a special power of attorney and appoints Business
Manager as the Practice's true and lawful agent and attorney-in-fact, and
Business Manager hereby accepts such special power of attorney and appointment,
to sign checks on behalf of the Practice for payments of the Practice Expenses
and Shareholders' salaries, benefits and payroll taxes in accordance with this
Business Management Agreement. Upon request of Business Manager, the Practice
shall execute and deliver to the financial institution wherein the Practice's
account is maintained, such additional documents or instruments as may be
necessary to evidence or effect the special power of attorney granted to
Business Manager by the Practice pursuant to this Section 3.10(b). The special
power of attorney granted herein shall be coupled with an interest and shall be
irrevocable except with Business Manager's written consent. The irrevocable
power of attorney shall expire when this Business Management Agreement has been
terminated. If Business Manager assigns this Business Management Agreement in
accordance with its terms, the Practice shall execute a power of attorney in
favor of the assignee in a form acceptable to
-21-
<PAGE> 22
Business Manager. Business Manager shall not make any withdrawal from the
Practice's account unless expressly authorized in this Agreement.
A Practice payroll account shall be established on behalf of the
practice for payroll to non-shareholder Professionals of the Practice. Funds
for this account shall be received as Practice Expenses. Business Manager and
the Practice shall each have signing capacity to access the account for
payroll.
(c) Insufficient Funds in Account. During the Term of
this Agreement, Business Manager shall advance sufficient funds to cover all
expenses and obligations only if, and to the extent that, the amount of such
advances, plus accrued interest thereon, does not exceed the reasonably
collectable value of the Practice's accounts receivable as determined by
Business Manager in its reasonable discretion plus any amounts borrowed by
Business Manager pursuant to Section 5.4. Business Manager may, however, elect
from time to time to advance additional funds to the Practice at its
discretion. Any of such advances shall be deemed loans to the Practice to be
repaid by the Practice along with interest at six percent (6%) per annum. Any
of such advanced amounts which have not been paid to Business Manager pursuant
to Section 3.10(a)(i) on the date of termination of this Agreement shall become
due and payable on the date of such termination.
3.11 Fiscal Matters.
(a) Annual Budget. Annually and at least thirty (30)
days prior to the commencement of each fiscal year of the Practice, the
Practice Advisory Council shall prepare and deliver to the Practice a proposed
budget, setting forth an estimate of the Practice's revenues and expenses for
the upcoming fiscal year (including, without limitation, the Management Fee
associated with the Management Services provided by Business Manager hereunder
and the salaries and benefits of all non-shareholder Professionals employed by
the Practice). The Budget may be amended by the Practice Advisory Council from
time-to-time during any applicable fiscal year to reflect changing
circumstances affecting the Practice. Disputes concerning the Budget will, at
the request of either Party hereto, be submitted to the accounting firm of
Ernst & Young LLP, any successor thereof, or such other big six accounting firm
agreed to by the Parties, which shall determine an appropriate resolution of
the dispute. Such determination shall be binding upon the Practice and the
Business Manager, subject to either Party's right to petition the National
Appeals Council to consider the determination of Ernst & Young LLP (or its
successor or replacement), which petition may be granted at the discretion of
the National Appeals Council. In all situations described in this Agreement in
which Ernst & Young LLP or its successor or replacement is to act as an
arbitrator of any matter relating to this Agreement, Ernst & Young LLP (or its
successor or replacement) shall act as an impartial and independent arbitrator.
The Parties hereby waive and release and agree to indemnify and hold harmless
Ernst & Young LLP (and its successor or replacement) from and for any and all
claims, demands, liabilities, losses, damages, costs and expenses relating to
its determinations made in good faith pursuant to this Agreement and agree to
execute any documents reasonably requested by Ernst
-22-
<PAGE> 23
& Young LLP (or its successor or replacement) to effectuate the same. Any
final decision of Ernst & Young LLP or its successor or replacement, or the
National Appeals Council concerning the Budget shall be retroactive to the
first day of the Budget period in question. Notwithstanding the above, should
Business Manager be in material default hereunder, the Practice shall have the
exclusive right to establish the Budget. Additionally, notwithstanding the
above, no change in an adopted Budget shall be contrary to the terms and spirit
of this Agreement nor shall it have any effect on the Management Fee expressly
agreed to herein, unless approved in advance in writing by the Parties hereto.
(b) Accounting and Financial Records. Business Manager
shall establish and administer accounting procedures, controls, and systems for
the development, preparation, and safekeeping of administrative or financial
records and books of account relating to the business and financial affairs of
the Practice and the provision of Professional Eye Care Services, all of which
shall be prepared and maintained in accordance with GAAP. Business Manager
shall prepare and deliver to the Practice (i) within sixty (60) days of the end
of each of the first three (3) fiscal quarters in each fiscal year, and (ii)
within one hundred twenty (120) days of the end of each fiscal year, a balance
sheet and a profit and loss statement reflecting the financial status of the
Practice in regard to the provision of Professional Eye Care Services as of the
end of such period, all of which shall be prepared in accordance with GAAP
consistently applied. In addition, Business Manager shall prepare or assist in
the preparation of any other financial statements or records as the Practice
may reasonably request.
(c) Sales and Use Taxes. Business Manager and the
Practice acknowledge and agree that to the extent that any of the services to
be provided by Business Manager hereunder may be subject to any state sales and
use taxes, Business Manager may have a legal obligation to collect such taxes
from the Practice and to remit the same to the appropriate tax collection
authorities. The Practice agrees to have applicable state sales and use taxes
attributable to the services to be provided by Business Manager hereunder
treated as an Office Expense.
3.12 Reports and Records.
(a) Health Care Records. To the extent permitted by
applicable law, Business Manager shall establish, monitor, and maintain
procedures and policies for the timely creation, preparation, filing and
retrieval of all health care records generated by the Practice in connection
with the Practice's provision of Professional Eye Care Services; and, subject
to applicable law, shall ensure that health care records are promptly available
to Professionals and any other appropriate persons. All such health care
records shall be retained and maintained by the Practice, and the Business
Manager as agent for the Practice, in accordance with all applicable State and
federal laws relating to the confidentiality and retention thereof. All health
care records shall be and remain the property of the Practice. The Practice
shall at all times during the term of this Agreement grant Business Manager
unrestricted access to such health
-23-
<PAGE> 24
care records and shall in the course of the Practice's business obtain the
written consent of the Practice's patients to Business Manager's access to, and
review and use of such records.
(b) Other Reports and Records. Business Manager shall
timely create, prepare, and file such additional reports and records as are
reasonably necessary and appropriate for the Practice's provision of
Professional Eye Care Services, and shall be prepared to analyze and interpret
such reports and records upon the request of the Practice.
3.13 Recruitment of the Practice's Professionals. Upon the
Practice's request, Business Manager shall perform all administrative services
reasonably necessary and appropriate to recruit potential Professionals to
become employees of the Practice. Business Manager shall provide the Practice
with model agreements to document the Practice's employment, retention or other
service arrangements with such individuals. It will be and remain the sole and
complete responsibility of the Practice to interview, select, contract with,
supervise, control and terminate all Professionals performing Professional Eye
Care Services or other professional services.
3.14 Confidential and Proprietary Information.
(a) Business Manager agrees and acknowledges that all
materials provided by the Practice to the Business Manager constitute
Confidential Information disclosed in confidence and with the understanding
that it constitutes valuable business information developed by the Practice at
great expenditures of time, effort, and money. Business Manager further agrees
that it shall not, directly or indirectly, disclose any Confidential
Information of the Practice to other persons without the Practice's express
written authorization, such Confidential Information shall not be used in any
way directly or indirectly detrimental to the Practice, and Business Manager
will keep such Confidential Information confidential and will ensure that its
affiliates and advisors who have access to such Confidential Information comply
with these nondisclosure obligations; provided, however, that Business Manager
may disclose Confidential Information to those of its Representatives who need
to know Confidential Information for the purposes of this Business Management
Agreement, it being understood and agreed to by Business Manager that such
Representatives will be informed of the confidential nature of the Confidential
Information, will agree to be bound by this Section, and will be directed by
Business Manager not to disclose to any other person any Confidential
Information. Business Manager agrees to be responsible for any breach of this
Section by its affiliates, advisors, or Representatives. If Business Manager
is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoenas, civil investigative demands, or similar
processes) to disclose or produce any Confidential Information furnished in the
course of its dealings with the Practice or its affiliates, advisors, or
Representatives, Business Manager will (i) provide the Practice with prompt
notice thereof and copies, if possible, and, if not, a description, of the
Confidential Information requested or required to be produced so that the
Practice may seek an appropriate protective order or waive compliance with the
provisions of this Section and (ii) consult with the Practice as to the
advisability of the Practice's taking of legally available steps to resist or
narrow such request. Business Manager further agrees that,
-24-
<PAGE> 25
if in the absence of a protective order or the receipt of a waiver hereunder
Business Manager is nonetheless, in the written opinion of its legal counsel,
compelled to disclose or produce Confidential Information concerning the
Practice to any tribunal legally authorized to request and entitled to receive
such Confidential Information or to stand liable for contempt or suffer other
censure or penalty, Business Manager may disclose or produce such Confidential
Information to such tribunal without liability hereunder; provided, however,
that Business Manager shall give the Practice written notice of the
Confidential Information to be so disclosed or produced as far in advance of
its disclosure or production as is practicable and shall use its best efforts
to obtain, to the greatest extent possible, an order or other reliable
assurance that confidential treatment will be accorded to such Confidential
Information so required to be disclosed or produced. Upon expiration or
termination of this Business Management Agreement by either Party for any
reason whatsoever, Business Manager shall immediately return and shall cause
its Representatives, affiliates, and independent contractors to immediately
return to the Practice all Confidential Information, and Business Manager shall
not, and will cause its Representatives, affiliates, and independent
contractors not to, thereafter use, appropriate or reproduce such Confidential
Information. Business Manager further expressly acknowledges and agrees that
any such use, appropriation, or reproduction of any such Confidential
Information by any of the foregoing after the expiration or termination of this
Agreement will result in irreparable injury to the Practice, that the remedy at
law for the foregoing would be inadequate, and that in the event of any such
use, appropriation, or reproduction of any such Confidential Information after
the termination or expiration of this Agreement, the Practice, in addition to
any other remedies or damages available to it, shall be entitled to injunctive
or other equitable relief without the necessity of posting a bond, cash, or
otherwise, and without the necessity of proving actual damages. Such rights to
relief shall not preclude the Practice from other remedies which may be
available to it hereunder.
(b) Notwithstanding clause (a) above, Business Manager
may share, subject to the restrictions of this Section, with other professional
corporations, associations, ophthalmology and optometry practices, or health
care delivery entities the practice statistics of the Practice, including
utilizing review data, quality assurance data, cost data, outcomes data, or
other practice data. In addition, Business Manager may disclose all
practice-related information necessary or desirable in connection with any
public or private offering of any debt or equity security. No such data will
disclose or divulge patient identifying information or, to the extent possible,
Professional identifying information.
3.15 Business Manager's Insurance. Throughout the Term, Business
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof, appropriate
workers' compensation coverage for Business Manager's employed personnel
provided pursuant to this Business Management Agreement, and professional,
casualty and comprehensive general liability insurance covering Business
Manager, Business Manager's personnel, and all of Business Manager's equipment
in such amounts, on such basis and upon such terms and conditions as Business
Manager deems appropriate. Such insurance policies shall be issued by a
carrier or carriers having a current rating of not less than
-25-
<PAGE> 26
"A" as rated by A.M. Best Company, unless the Practice agrees in writing to the
purchase of a policy or policies from a carrier having a lesser rating than
"A". Business Manager shall cause the Practice to be named as an additional
insured on Business Manager's casualty and comprehensive general liability
policy. Business Manager hereby releases the Practice from any and all
liability for losses or damages caused by any act or neglect of the Practice
occurring after the effective date hereof to the extent that such losses or
damages are covered by insurance; provided, however, that such release shall
not apply to any loss or damage caused by the willful, wanton, or premeditated
negligence of the Practice. Business Manager shall obtain from any insurance
company issuing the foregoing policies its consent to the release from
liability contained in this Section. Upon the request of the Practice,
Business Manager shall provide the Practice with a certificate evidencing such
insurance coverage. Business Manager may also obtain key man life insurance
policies on the life of any Shareholder as is consistent with 1.18(n).
3.16 No Warranty. The Practice acknowledges that Business Manager
has not made and will not make any express or implied warranties or
representations that the Management Services provided by Business Manager will
result in any particular amount or level of ophthalmology or optometry practice
or income to the Practice. Specifically, Business Manager has not represented
that its Management Services will result in higher revenues, lower expenses,
greater profits or growth in the number of patients treated by the Practice's
Professionals.
3.17 Non-Competition Covenant from Business Manager. The Business
Manager hereby recognizes and acknowledges that the Practice shall incur
substantial costs in modifying its business activities to carry out this
Business Management Agreement and that in the process of Business Manager's
providing services under this Business Management Agreement, the Business
Manager will be privy to financial and Confidential Information, to which the
Business Manager would not otherwise be exposed. Business Manager agrees and
acknowledges that the non-competition covenants described hereunder are
necessary for the protection of the Practice, and that the Practice would not
have entered into this Business Management Agreement without such covenants.
Business Manager represents, warrants and covenants that during the Term of
this Business Management Agreement and for a period of two (2) years from the
date this Business Management Agreement is terminated, other than if terminated
by Business Manager for cause, neither Business Manager nor any person or
entity affiliated directly or indirectly with Business Manager will, anywhere
within five (5) miles of any Office existing on the effective date of this
Business Management Agreement, enter into a direct or indirect relationship
similar to the relationship between the Practice and Business Manager, or
acquire the nonmedical assets of, any professional practice group or engage in
any other eye care business currently engaged in by the Business Manager
without approval of the Practice. The Local Advisory Council shall consult
with Business Manager with respect to any acquisition of or merger with a
health care practice outside such five (5) mile area and within the region
described in Exhibit 2.10. Notwithstanding anything to the contrary in this
Section, Business Manager (a) may establish and maintain relationships with the
entities described on Exhibit 3.17, (b) may enter into managed care agreements
with (i) other practices on the one hand, and national or regional payor
-26-
<PAGE> 27
entities on the other hand, if the Practice, upon being offered the opportunity
to enter into such managed care agreements, elects not to enter into such
managed care agreements, (ii) other health care practices within the above-
described five (5) mile area if and to the extent that the Practice is unable
to provide the specific services, reasonable access to, or minimum standards as
required by, a managed care payor for all of the patients to be covered by a
managed care agreement, and (iii) other health care practices where Business
Manager reasonably believes additional providers are required to obtain a
contract; provided, however, that the exceptions to Business Manager's covenant
not to compete contained in this subsection (b) shall not permit Business
Manager to enter into business management agreements with such other health
care practices. If the Business Manager breaches any obligation set forth in
this Section, in addition to any other remedies available under this Business
Management Agreement, at law or in equity, the Practice shall be entitled to
enforce this Business Management Agreement by injunctive relief and by specific
performance of the Business Management Agreement, such relief to be without the
necessity of posting a bond, cash or otherwise. Additionally, nothing in this
Section 3.17 shall limit the Practice's right to recover any other damages to
which it is entitled as a result of the Business Manager's breach. The time
period for which the non-competition covenants are effective shall be extended
day for day for the time period the Business Manager is in violation of the
non-competition covenants. If any provision of the covenants is held by a
court of competent jurisdiction to be unenforceable due to an excessive time
period, geographic area, or restricted activity, the covenants shall be
reformed to comply with such time period, geographic area, or restricted
activity that would be held enforceable. Following termination of this
Agreement pursuant to Section 6.2(b) hereof, Business Manager shall be released
from any and all of the restrictions imposed in this Section 3.17.
3.18 Marketing and Public Relations. In accordance with applicable
laws, regulations and ethical standards, Business Manager shall use its best
efforts to provide such marketing, support, advertising and public relations
services as are appropriate to promote and market the Practice's Professional
Eye Care Services. Such services shall be subject to review by the Local
Advisory Council. At the option of Business Manager and to the extent
permitted by law, the Business Manager's corporate name may be included on any
or all signage, letterhead, advertisements, announcements and the like relating
to Professional Eye Care Services provided by the Practice. Marketing support
services include training the Practice's personnel concerning marketing
techniques, providing written materials that may be used in marketing, and
providing technical assistance to the Practice's personnel engaged in direct
marketing efforts such as administrative support and assistance in contract
negotiation and implementation. Business Manager shall not perform direct
marketing to potential sources of business, but shall provide assistance to the
Practice's personnel who perform any such direct marketing as set forth above.
Use of the Practice's name in any advertising or promotions shall require the
Practice's advance approval.
3.19 Inconsistent Transaction by Business Manager. The Business
Manager agrees that in performing the Management Services with respect to the
Practice, it shall not enter into any agreements, commitments or transactions
or engage in any activities which are exclusively within
-27-
<PAGE> 28
the authority and responsibility of the Practice as set forth in this Agreement
or are otherwise materially inconsistent with the provisions of this Agreement.
3.20 Payment of Cash Portion of Note. From and after the effective
date hereof, Business Manager covenants and agrees to use its best efforts to
either (a) obtain from a financially secure third party such third party's
direct unconditional guaranty of payment of the mandatory cash portion of any
promissory note delivered by Business Manager in connection with an Acquisition
Transaction, or arrange a commercially reasonable credit facility or financing
arrangement from a financial institution or investor to be used for the payment
or direct security in form acceptable to the Practice for the payment of the
mandatory cash portion of such promissory note. Until payment of the mandatory
cash portion of the promissory note is protected in the foregoing manner,
Business Manager shall accumulate and reserve all of its net income, shall not
make any distributions of such net income to its shareholders, and shall not
use any of such reserved funds for acquisitions of, or mergers with, additional
health care practices. Notwithstanding the foregoing, Business Manager and its
subsidiaries shall be entitled to (i) continue its acquisitions and mergers
with the founding practices from the effective date hereof until December 31,
1996, (ii) enter into mergers with additional health care practices so long as
no cash consideration is used, and (iii) acquire or merge with additional
health care practices using such reserved funds so long as 2/3rds (66 2/3%) of
the shares held by the Founding Practices are voted in favor of such
acquisition or merger. For the purposes of this Section a "financially secure
third party" shall be deemed to be a financial institution or investor having a
lending ability, fund size or net worth in excess of $100.0 million.
4. OBLIGATIONS AND RESPONSIBILITIES OF THE PRACTICE.
4.1 Organization and Operation. The Practice, as a continuing
condition of Business Manager's obligations under this Business Management
Agreement, shall at all times during the Term be and remain legally organized
and operated to provide Professional Eye Care Services in a manner consistent
with all State, federal and local laws. The Practice shall operate and
maintain within the Practice Territory a full-time practice of ophthalmology
specializing in the provision of Professional Eye Care Services and shall
maintain and enforce employment agreements in the form of Exhibit 4.1A with the
Shareholders of the Practice specified in Exhibit 4.1B; provided, however, that
after the expiration of such employment agreements, and in the event that such
Shareholders continue a relationship with the Practice thereafter, the Practice
shall maintain and enforce employment agreements with such Shareholders and all
future Shareholders in the form of Exhibit 4.1C. Shareholders agree and the
Practice shall take steps to obtain the executed employment agreements in the
form of Exhibit 4.1C from such Shareholders after the five (5) year period and
all future Shareholders during the entire term of this Agreement if the
Shareholder elects to continue his relationship. After five (5) years from the
effective date of this Agreement, or earlier in the event of death or permanent
disability, a Shareholder may choose a successor to replace him as a
Shareholder. A Shareholder who wishes to have a successor replace him as a
Shareholder must first demonstrate to and obtain consent from Business Manager
that the successor is licensed to practice ophthalmology in the
-28-
<PAGE> 29
State, and is competent and capable to assume ownership of the Practice.
Business Manager Consent shall not be unreasonably withheld with respect to
such replacement. In the event of disability, death or planned retirement
after five years, Business Manager will make a good faith effort in assisting
the Practice in locating a possible successor. It is understood however that
Business Manager has no ultimate responsibility to find the ultimate successor,
which shall be the sole responsibility of the Shareholder. The Practice shall
not amend the employment agreements or waive any rights thereunder without the
prior approval of Business Manager. Recognizing that Business Manager would
not have entered into this Business Management Agreement but for the Practice's
covenant to maintain employment agreements with its Shareholders, the Practice
shall pay to Business Manager, in addition to the Management Fee, any damages,
compensation, payment, or settlement received by the Practice from each
Shareholder specified in Exhibit 4.1B pursuant to any non-competition covenant
contained in Exhibit 4.1A. Such payment shall constitute liquidated damages of
Business Manager for the Practice's breach of the covenant contained in this
Section 4.1. All expenses and costs in enforcing the foregoing covenants not
to compete shall be deemed to be Office Expenses. The Practice shall take
steps to have all future Shareholders execute any reasonable documentation as
required by Business Manager in connection with this Section.
4.2 Practice Personnel. The Practice shall retain, as a Practice
Expense or Shareholder Expense, as the case may be, and not as an Office
Expense, that number of Professionals sufficient in the sole discretion of the
Practice as are reasonably necessary and appropriate for the provision of
Professional Eye Care Services, each of whom shall act in accordance with the
applicable provisions of this Business Management Agreement. Each
Ophthalmologist retained by the Practice shall hold and maintain a valid and
unrestricted license to practice ophthalmology in the State, and shall be
competent in the practice of ophthalmology. The Practice shall enter into and
maintain with each such retained Ophthalmologist and enforce a written
employment agreement substantially in the form of either Exhibit 4.1A for
Shareholders of the Practice or Exhibit 4.2A for non-shareholders. Each
Optometrist retained by the Practice shall hold and maintain a valid and
unrestricted license to practice optometry in the State, and shall be competent
in the practice of optometry. The Practice shall enter into and maintain with
each such retained Optometrist and enforce a written employment agreement
substantially in the form of Exhibit 4.2B. Notwithstanding the foregoing
provisions, the employment contracts currently in effect on the effective date
of this Agreement with the non-shareholder Professionals identified on Exhibit
4.2C shall remain in force during the existing term; provided, however, that
upon completion of such term should the non-shareholder remain at the Practice
or at such time the non-shareholder Professional is granted options by Vision
21, such Professionals' employment contracts shall then be immediately replaced
with employment contracts in substantially the form of Exhibit 4.1C. The
Practice shall be responsible for hiring, training, supervision, discipline,
termination and paying the compensation, and benefits as applicable, for all
Professional personnel and other contracted or affiliated Professionals, and
for withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable
law. Business Manager shall, however, on behalf of the Practice, administer
the compensation with respect to such individuals
-29-
<PAGE> 30
in accordance with the written employment agreement between the Practice and
each Professional. The Practice shall cause its Professionals to obtain and
maintain all licenses and permits required in connection with the practice of
ophthalmology or optometry, any other business it has or the administration of
drugs by such Professionals. Business Manager shall neither control nor direct
any Professional in the performance of Professional Eye Care Services for
patients. All damages recovered for violations of non-competition covenants
from Professionals subject to employment agreements in the forms of Exhibit
4.1C, Exhibit 4.2A, or Exhibit 4.2B shall be treated as Adjusted Gross Revenue.
4.3 Professional Standards. As a continuing condition of Business
Manager's obligations hereunder:
(a) Each Ophthalmologist and any other Ophthalmologist
personnel retained by the Practice to provide ophthalmology services must (i)
have and maintain a valid and unrestricted license to practice ophthalmology in
the State, (ii) have and maintain a D.E.A. number, (iii) comply with, be
controlled and governed by and otherwise provide ophthalmology services in
accordance with applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethics and standard of care of the
medical community wherein the principal Office of the Practice is located and
(iv) unless otherwise approved by the Local Advisory Council, obtain and retain
appropriate medical staff membership with appropriate clinical privileges at
any hospital or health care facility at which ophthalmology services are to be
provided. Procurement of temporary staff privileges pending the completion of
the medical staff approval process shall satisfy this provision, provided the
Ophthalmologist actively pursues full appointment and actually receives full
appointment within a reasonable time.
(b) Each Optometrist and any other Optometrist
personnel retained by the Practice to provide optometry services must (i) have
and maintain a valid and unrestricted license to practice optometry in the
State, (ii) comply with, be controlled and governed by and otherwise provide
optometry services in accordance with applicable federal, State and municipal
laws, rules, regulations, ordinances and orders, and the ethics and standard of
care of the optometric community wherein the principal Office of the Practice
is located, (iii) obtain and retain appropriate staff membership with
appropriate privileges at any hospital or health care facility at which
optometry services are to be provided, and (iv) provide on a continual basis,
quality care to its patients. Procurement of temporary staff privileges
pending the completion of the staff approval process shall satisfy this
provision, provided the Optometrist actively pursues full appointment and
actually receives full appointment within a reasonable time.
4.4 Professional Eye Care Services. The Practice shall ensure
that Professionals are available as necessary to provide quality Professional
Eye Care Services to patients and shall assist the Business Manager in ensuring
that Clinical Personnel are available as necessary to provide quality
Professional Eye Care Services to patients. In the event that Professionals
employed by, or Shareholders of, the Practice are not available to provide
Professional Eye Care Services coverage, the Practice shall engage and retain
locum tenens coverage. Professionals
-30-
<PAGE> 31
retained on a locum tenens basis shall meet all of the requirements of Section
4.3, and the cost of providing locum tenens coverage shall be a Practice
Expense. With the assistance of the Business Manager, the Practice and the
Professionals shall be responsible for scheduling Professional and Clinical
Personnel coverage of all medical and optometric procedures. The Practice
shall cause all Professionals to exert their best efforts to develop and
promote the Practice in such manner as to ensure the Practice is able to serve
the diverse needs of the community.
4.5 Peer Review/Quality Assurance. The Practice shall adopt a
peer review/quality assurance program to monitor and evaluate the quality and
cost-effectiveness of Professional Eye Care Services provided by Professional
personnel of the Practice, the expenses of which shall be deemed an Office
Expense. Pursuant to such program, the Practice shall designate a committee of
Professionals to function as a medical peer review committee to review
credentials of potential recruits, perform quality assurance functions, and
otherwise resolve medical competence issues. The medical peer review committee
shall function pursuant to formal written policies and procedures. Upon
request of the Practice, Business Manager shall provide administrative
assistance to the Practice in performing its peer review/quality assurance
activities, but only if such assistance can be provided consistent with
maintaining the confidentiality, immunity, and non-discoverability of the
processes and actions of the peer review/quality assurance process of the
Practice.
4.6 Practice's Insurance. The Practice shall, as a Practice
Expense, obtain and maintain with commercial carriers chosen by the Practice
appropriate workers' compensation coverage for the Practice's employed
personnel, if any, and professional and comprehensive general liability
insurance covering the Practice and each of the Professionals and Clinical
Personnel the Practice retains to provide Professional Eye Care Services. The
comprehensive general liability coverage with respect to each Professional and
Clinical Personnel shall be in the minimum amount of One Million Dollars
($1,000,000) and professional liability coverage shall be in the minimum amount
of One Million Dollars ($1,000,000) for each occurrence and Three Million
Dollars ($3,000,000) annual aggregate; provided, however, that with Business
Manager Consent, which shall not be unreasonably withheld or delayed, the
Practice may from time-to-time change such liability coverage amounts to
amounts which are consistent with industry standards. The insurance policy or
policies shall provide for at least thirty (30) days' advance written notice to
the Practice from the insurer as to any alteration of coverage, cancellation,
or proposed cancellation for any cause. The Practice hereby releases Business
Manager from any and all liability for losses or damages caused by any act or
neglect of Business Manager occurring after the effective date hereof to the
extent that such losses or damages are covered by insurance; provided, however,
that such release shall not apply to any loss or damage caused by the willful,
wanton, or premeditated negligence of Business Manager. The Practice shall
obtain from any insurance company issuing the foregoing policies its consent to
the release from liability contained in this Section. The Practice shall cause
to be issued to Business Manager by such insurer or insurers a certificate
reflecting such coverage and obtain the consent of such insurer or insurers to
provide prior written notice to Business Manager equal to notice given to
-31-
<PAGE> 32
a Professional of the cancellation or proposed cancellation of such insurance
for any cause. Such insurance policies shall be issued by a carrier or
carriers having a current rating of not less than "A" as rated by A.M. Best
Company, unless Business Manager agrees in writing to the purchase of a policy
or policies from a carrier having a lesser rating than "A". The Local Advisory
Council may, from time-to-time, select a different commercial carrier or
carriers for such workers' compensation and professional and general liability
coverage upon the establishment of a program affecting substantially all
practice groups within the market in which the Practice is located for which
Business Manager provides management services, which decision shall be binding
upon the Practice. After such election of a single carrier or carriers by the
Local Advisory Council, the costs of such coverage shall continue to be treated
as a Practice Expense. Upon the termination of this Business Management
Agreement for any reason, the Practice shall continue to carry professional
liability insurance in the amounts specified herein for the shorter period of
(i) the period set forth in the State's statute of repose (or if no statute of
repose exists, the State's statute of limitations) for bringing professional
malpractice claims based upon injuries which are not immediately discoverable
plus any applicable tolling periods, or (ii) ten (10) years after termination;
or if the Practice dissolves or ceases to practice ophthalmology or optometry,
the Practice shall obtain and maintain as a Shareholder Expense "tail"
professional liability coverage, in the amounts specified in this Section for
the shorter period of (i) the period set forth in the State's statute of repose
(or if no statute of repose exists, the State's statute of limitations) for
bringing professional malpractice claims based upon injuries which are not
immediately discoverable plus any applicable tolling periods, or (ii) ten (10)
years. The Practice shall be responsible for paying all premiums for
Shareholder "tail" insurance coverage and such coverage shall be a Shareholder
Expense; provided, however, that the Practice may cause its Professionals to be
responsible for paying the premiums for such "tail" insurance coverage. Except
as determined by the Local Advisory Council, the professional liability
insurance carrier shall not be replaced or changed without Practice Consent and
Business Manager Consent.
4.7 Confidential and Proprietary Information. The Practice agrees
and acknowledges that all materials provided by Business Manager to the
Practice constitute Confidential Information disclosed in confidence and with
the understanding that it constitutes valuable business information developed
by Business Manager at great expenditures of time, effort, and money. The
Practice further agrees that it shall not, directly or indirectly, disclose any
Confidential Information of the Business Manager to other persons without
Business Manager's express written authorization, such Confidential Information
shall not be used in any way directly or indirectly detrimental to Business
Manager, and the Practice will keep such Confidential Information confidential
and will ensure that its affiliates and advisors who have access to such
Confidential Information comply with these nondisclosure obligations; provided,
however, that the Practice may disclose Confidential Information to those of
its Representatives who need to know Confidential Information for the purposes
of this Business Management Agreement, it being understood and agreed to by the
Practice that such Representatives will be informed of the confidential nature
of the Confidential Information, will agree to be bound by this Section, and
will be directed by the Practice not to disclose to any other person any
-32-
<PAGE> 33
Confidential Information. The Practice agrees to be responsible for any breach
of this Section by its affiliates, advisors, or Representatives. If the
Practice is requested or required (by oral questions, interrogatories, requests
for information or documents, subpoenas, civil investigative demands, or
similar processes) to disclose or produce any Confidential Information
furnished in the course of its dealings with Business Manager or its
affiliates, advisors, or Representatives, the Practice will (i) provide
Business Manager with prompt notice thereof and copies, if possible, and, if
not, a description, of the Confidential Information requested or required to be
produced so that Business Manager may seek an appropriate protective order or
waive compliance with the provisions of this Section and (ii) consult with
Business Manager as to the advisability of Business Manager's taking of legally
available steps to resist or narrow such request. The Practice further agrees
that, if in the absence of a protective order or the receipt of a waiver
hereunder, the Practice is nonetheless, in the written opinion of its legal
counsel, compelled to disclose or produce Confidential Information concerning
Business Manager to any tribunal legally authorized to request and entitled to
receive such Confidential Information or to stand liable for contempt or suffer
other censure or penalty, the Practice may disclose or produce such
Confidential Information to such tribunal without liability hereunder;
provided, however, that the Practice shall give Business Manager written notice
of the Confidential Information to be so disclosed or produced as far in
advance of its disclosure or production as is practicable and shall use its
best efforts to obtain, to the greatest extent possible, an order or other
reliable assurance that confidential treatment will be accorded to such
Confidential Information so required to be disclosed or produced. The Practice
acknowledges that the disclosure of Confidential Information to it by Business
Manager is done in reliance upon its representations and covenants in this
Business Management Agreement. Upon expiration or termination of this Business
Management Agreement by either Party for any reason whatsoever, the Practice
shall immediately return and shall cause its Representatives, affiliates, and
independent contractors to immediately return to Business Manager all
Confidential Information, and the Practice will not, and will cause its
Representatives, affiliates, and independent contractors not to, thereafter
use, appropriate or reproduce such Confidential Information. The Practice
further expressly acknowledges and agrees that any such use, appropriation, or
reproduction of any such Confidential Information by any of the foregoing after
the expiration or termination of this Agreement will result in irreparable
injury to Business Manager, that the remedy at law for the foregoing would be
inadequate, and that in the event of any such use, appropriation, or
reproduction of any such Confidential Information after the termination or
expiration of this Agreement, Business Manager, in addition to any other
remedies or damages available to it, shall be entitled to injunctive or other
equitable relief without the necessity of posting a bond, cash, or otherwise,
and without the necessity of proving actual damages. Such rights to relief
shall not preclude Business Manager from other remedies which may be available
to it hereunder.
4.8 Non-Competition. The Practice hereby recognizes and
acknowledges that Business Manager will incur substantial costs in providing
the equipment, support services, personnel, management, administration, and
other items and services that are the subject matter of this Business
Management Agreement and that in the process of providing services under this
-33-
<PAGE> 34
Business Management Agreement, the Practice will be privy to financial and
Confidential Information, to which the Practice would not otherwise be exposed.
The Parties also recognize that the services to be provided by Business Manager
will be feasible only if the Practice operates an active practice to which the
Professionals associated with the Practice devote their full time and
attention. The Practice agrees and acknowledges that the non-competition
covenants described hereunder are necessary for the protection of Business
Manager, and that Business Manager would not have entered into this Business
Management Agreement without the following covenants.
(a) During the Term of this Business Management
Agreement and except for its obligations pursuant to this Business Management
Agreement, the Practice shall not establish, operate, or provide Professional
Eye Care Services at a medical office, clinic or other health care facility
anywhere within twenty (20) miles of any current or future location at which
Business Manager provides business management services similar to the services
contemplated in this Agreement; provided, however, that the Practice may carry
on the activities described in Exhibit 1.3 without violating this Section 4.8.
(b) Except as specifically agreed to by Business
Manager in writing, the Practice and its Shareholders covenant and agree that
during the Term of this Business Management Agreement and for a period of two
(2) years from the date this Business Management Agreement is terminated, other
than if terminated by the Practice for cause, or expires, the Practice shall
not directly or indirectly own (excluding ownership of less than one percent
(1%) of the equity of any publicly traded entity and excluding ownership of the
common stock of Business Manager), manage, operate, control, contract with,
lend funds to, lend its name to, maintain any interest whatsoever in, or be
employed by, any enterprise (i) having to do with the provision, distribution,
promotion, or advertising of any type of management or administrative services
or products to third parties in competition with Business Manager, located
anywhere in the United States of America; and/or (ii) offering any type of
service(s) or product(s) to third parties substantially similar to those
offered by Business Manager to the Practice located anywhere in the United
States of America. Notwithstanding the above restriction, nothing herein shall
prohibit (i) the Practice or any of its Shareholders from providing management
and administrative services to this or their own ophthalmology practices after
the termination of this Business Management Agreement, (ii) the Practice or its
Shareholders from contracting with a third-party manager to provide
administrative or management services for its or their professional eye care
practices after termination of this Business Management Agreement and two (2)
years thereafter, as long as such relationship complies with the provisions of
this Section 4.8(b); (iii) any of the Practice's Shareholders from providing
management and administrative services to their own ophthalmology practices
after the termination of their employment relationship with the Practice in
accordance with this Business Management Agreement, and (iv) such Shareholders
from contracting with a third-party manager to provide administrative or
management services for their professional eye care practices after the
termination of their employment relationship with the Practice in accordance
with this Business Management Agreement. If the Practice violates this
Section, the Practice
-34-
<PAGE> 35
shall pay to Business Manager the amount received as consideration by the
Practice and/or the Shareholders in connection with the Acquisition
Transaction, as agreed upon liquidated damages. The Practice and the
Shareholders acknowledge and agree that such sum is reasonable in light of the
severe harm that Business Manager would suffer as a result of the Practice's
breach of this restrictive covenant. If the Practice fails to make payment of
liquidated damages as contemplated by this Section, Business Manager shall be
entitled among all other rights and remedies available at law or equity, to (i)
cancel the number of shares of Business Manager's common stock held by the
Practice or the Shareholders or, with respect to shares of Business Managers'
common stock entitled to be received by the Practice or the Shareholders
pursuant to the Acquisition Agreement, terminate its obligation to deliver such
number of shares of Business Manager's common stock, valued at the market price
per share representing such liquidated damages sum, or (ii) set off all or any
of such liquidated damages sum against amounts payable under any promissory
note held by the Practice or the Shareholders, or do both of the foregoing, but
in no event shall Business Manager be entitled to offset amounts in excess of
the liquidated damages sum pursuant to this Section.
(c) The written employment agreements in the form of
Exhibit 4.1A shall contain covenants of the Shareholder employees pursuant to
which the Shareholders agree not to compete with the Practice or with the
Business Manager within the Practice Territory for two (2) years after
termination or expiration of the employment agreement.
(d) The Practice shall obtain and enforce formal
written agreements from its Ophthalmologist employees in the form of Exhibit
4.2A or Exhibit 4.1C, as the case may be, and agreements from its Optometrist
employees in the form of Exhibit 4.2B, pursuant to which the employees agree
not to compete with the Practice or with the Business Manager within the
Practice Territory for one (1) year after termination or expiration of the
employment agreement.
(e) The Practice understands and acknowledges that
Business Manager shall suffer severe harm in the event that the foregoing
non-competition covenants in Section 4.8 are violated, and accordingly, if the
Practice breaches any obligation of Section 4.8, in addition to any other
remedies available under this Business Management Agreement, at law or in
equity, Business Manager shall be entitled to enforce this Business Management
Agreement by injunctive relief and by specific performance of the Business
Management Agreement, such relief to be without the necessity of posting a
bond, cash or otherwise. Additionally, nothing in this Section 4.8(e) shall
limit Business Manager's right to recover any other damages to which it is
entitled as a result of the Practice's breach. The time period for which the
non-competition covenant is effective shall be extended day for day for the
time period the Practice is in violation of the non-competition covenant. If
any provision of the covenants is held by a court of competent jurisdiction to
be unenforceable due to an excessive time period, geographic area, or
restricted activity, the covenant shall be reformed to comply with such time
period, geographic area, or restricted activity that would be held enforceable.
Following termination of this Agreement pursuant to Section 6.2(b) hereof, the
Practice shall not amend, alter or otherwise change any term or provision of
the restrictive covenants or liquidated damages provisions of
-35-
<PAGE> 36
the employment agreements with the Professionals. Following termination of
this Agreement pursuant to Section 6.2(a) hereof, the Practice and the
Professionals shall be relieved of the restrictions imposed by this Section
4.8.
4.9 Name, Trademark. The Practice represents and warrants that
the Practice conducts its professional practice under the name of, and only
under the name of "Lindstrom, Samuelson & Hardten Ophthalmology Associates,
P.A." and that such name is duly registered, qualified, or licensed under the
law of the State, and that, to the Practice's knowledge, the Practice is the
sole and absolute owner of the name in the State. The Practice covenants and
promises that, without the prior written consent of the Business Manager, the
Practice will not:
(a) take any action that is reasonably likely to result
in the loss of registration, qualification or licensure of the name;
(b) fail to take any reasonably necessary action that
will maintain the registration, qualification, or licensure current;
(c) license, sell, give, or otherwise transfer the name
or the right to use the name to any medical practice, ophthalmology or
optometry practice, Ophthalmologist, Optometrist, professional corporation, or
any other entity; or
(d) cease conducting the professional practice of the
Practice under the name.
4.10 Lease Assignment. Upon Business Manager's request, if the
Practice is the lessee of the Office under a lease with an unrelated and
unaffiliated lessor, the Practice shall assign the lease to Business Manager
upon receipt of consent from the lessor. The Practice shall use its best
efforts to assist in obtaining the lessor's consent to the assignment. Upon
request, the Practice shall execute any instruments and shall take any acts
that Business Manager may deem necessary to accomplish the assignment of the
lease.
4.11 Billing Information and Assignments; Establishment of Fees.
The Practice shall promptly provide the Business Manager with all billing and
other information reasonably requested by the Business Manager to enable it to
bill and collect the Practice's fees and other charges and reimbursement claims
pursuant to Section 3.9, and the Practice shall use its best efforts to procure
consents to assignments and other approvals and documents necessary to enable
the Business Manager to obtain payment or reimbursement from third parties for
such fees, other charges and claims. The Practice shall establish reasonable
fees for all professional and ancillary services and pharmaceutical items in
connection with the provision of Professional Eye Care Services.
4.12 Provider Agreements. The Practice shall not enter into
contractual arrangements with third parties for the Practice's provision of
Professional Eye Care Services which are
-36-
<PAGE> 37
inconsistent with guidelines established by the Local Advisory Council or any
capitated fee arrangement without the prior approval of the Practice Advisory
Council. Subject to the foregoing provision, the Practice shall have the final
authority with regard to all of such contractual arrangements.
4.13 Inconsistent Transaction by the Practice. The Practice agrees
that it shall not enter into any agreements, commitments or transactions or
engage in any activities which are within the authority and responsibility of
the Business Manager as set forth in this Agreement or otherwise materially
inconsistent with the provisions of this Agreement.
4.14 Recommendations. The Practice shall make recommendations to
Business Manager regarding the Office, the equipment, the business operations,
and the services to be provided by Business Manager under this Business
Management Agreement.
4.15 General Obligations. The Practice shall take all lawful
actions reasonably necessary to maximize revenues and shall not take any action
to reduce revenues other than in the ordinary course of business.
4.16 Tax Matters. The Practice shall prepare or arrange for the
preparation by an accountant selected by the Practice of all appropriate
corporate tax returns and reports required of the Practice including such
returns and reports required with respect to the Account. All costs and
expenses relating to the preparation of such returns and reports shall be
deemed a Shareholder Expense.
4.17 Shareholders' Undertaking to Enforce Certain Provisions of
Agreement. The Practice shall cause to be executed by all Shareholders of the
Practice an undertaking in the form of Exhibit 4.17 by such Shareholders to
ensure that the corporate existence of the Practice is maintained and that the
covenants not to compete described in Sections 4.1 and 4.2 of this Agreement
are enforced by the Practice against any individuals violating such covenants.
5. BUSINESS MANAGER'S COMPENSATION.
5.1 Management Fee. The Practice and Business Manager agree to
the compensation set forth herein as being paid to Business Manager in
consideration of a substantial commitment made by Business Manager hereunder
and that such fees are fair and reasonable. Each month Business Manager shall
be paid that percentage set forth in Exhibit 5.1 of the amount remaining after
(a) Office Expenses and Practice Expenses (excluding optical supplies) are
subtracted from (b) Adjusted Gross Revenue (the "Management Fee"). Business
Manager shall not be liable for any losses generated by the Practice, and in no
event shall the Management Fee be less than zero dollars. The payment of the
Management Fee shall take into account any losses generated by the Practice
arising after the effective date of this Agreement, with losses being carried
forward to offset future net revenues of the Practice (which for purposes of
this Section shall be deemed to be Adjusted Gross Revenue minus Office Expenses
and Practice Expenses).
-37-
<PAGE> 38
5.2 Reasonable Value. Payment of the Management Fee is not
intended to be and shall not be interpreted or applied as permitting Business
Manager to share in the Practice's fees for Professional Eye Care Services or
any other services, but is acknowledged as the Parties' negotiated agreement as
to the reasonable fair market value of Business Manager's commitment to pay all
Office Expenses and the fair market value of the equipment, contract analysis
and support, other support services, purchasing, personnel, office space,
management, administration, strategic management and other items and services
furnished by Business Manager pursuant to the Business Management Agreement,
considering the nature and volume of the services required and the risks
assumed by Business Manager. The Practice and Business Manager recognize and
acknowledge that Business Manager will incur substantial costs and business
risks in undertaking to pay all Office Expenses, arranging for the Practice's
use of the Office and in providing the equipment, support services, personnel,
marketing, office space, management, administration, and other items and
services that are the subject matter of this Business Management Agreement, and
certain of such costs and expenses can vary to a considerable degree according
to the extent of the Practice's business and services. It is the intent of the
Parties that the Management Fee reasonably compensate Business Manager for the
value to the Practice of Business Manager's administrative expertise, given the
considerable business risk to Business Manager in providing the Management
Services that are the subject of this Business Management Agreement.
5.3 Payment of Management Fee. To facilitate the payment of the
Management Fee as provided in Section 5.1(a) hereof, the Practice hereby
expressly authorizes Business Manager to make withdrawals of the Management Fee
from the Account as such fee becomes due and payable during the Term in
accordance with Section 3.10(a) and after termination as provided in Section
6.3. Business Manager shall deliver to the Practice an invoice for the
Management Fee accompanied by a reasonably detailed statement of the
information upon which the Management Fee calculation is based.
5.4 Assignment of Fees for Medical and Optometry Services.
(a) As security for the performance of its obligations
under this Business Management Agreement, the Practice hereby irrevocably
assigns and sets over to Business Manager all of its right to receive payment
for Professional Eye Care Services (other than rights to receive payments
relating to the activities described in Exhibit 1.3) to the extent permitted by
law (the "Accounts Receivable") and retain such payment for its own account,
and shall obtain a like assignment from all Professionals. To the extent such
rights to receive payment cannot legally be assigned, the "Accounts Receivable"
shall include the right to have any amounts received by the Practice pursuant
to such non-assignable rights paid over to Business Manager upon receipt. The
Practice shall take such action as may be necessary to confirm to Business
Manager the rights set forth in this Section 5.4(a).
(b) Without limiting the generality of the foregoing,
it is the intent of the Parties that the assignments to Business Manager of the
rights described in Section 5.4(a) above
-38-
<PAGE> 39
shall be inclusive of the rights of the Practice and the Professionals to
receive payment with respect to any services rendered prior to the effective
date of any expiration or termination of this Agreement; provided, however,
that the right to receive payments relating to the activities described in
Exhibit 1.3 shall be excluded from such assignment. The Practice agrees and
shall cause each Professional to agree, that Business Manager shall retain the
right to collect and hold as security any Accounts Receivable relating to any
such services rendered prior to the effective date of any such expiration or
termination ("Pre-Termination Accounts Receivable").
(c) The Practice acknowledges that it is the intent of
Business Manager to grant a security interest in (i) prior to an initial public
offering of Business Manager's common stock, seventy one percent (71.0%) of the
Pre-Termination Accounts Receivable, and (ii) after an initial public offering
of Business Manager's common stock, one hundred percent (100%) of the
Pre-Termination Accounts Receivable; to the lender(s) under its working capital
credit facility (whether one or more, the "Credit Facility Lender"), as in
effect from time-to-time. Pursuant to the 71.0% grant, the Credit Facility
Lender shall be entitled to collect and retain, upon default of Business
Manager, 71.0% of each dollar of the Pre-Termination Accounts Receivable
amounts received, with the remaining 29.0% received to be returned to the
Account. The Practice agrees that such security interest of the Credit
Facility Lender is intended to be a first priority security interest and is
superior to any right, title or interest which may be asserted by the Practice
or any Professional with respect to the then applicable portion of the
Pre-Termination Accounts Receivable or the proceeds thereof. The Practice
further agrees, and shall cause each Professional to agree, that, upon the
occurrence of an event which, under the terms of such working capital credit
facility, would allow the Credit Facility Lender to exercise its right to
collect such portion of the Pre-Termination Accounts Receivable and apply the
proceeds thereof toward amounts due under such working capital credit facility,
the Credit Facility Lender will succeed to all rights and powers of Business
Manager under the powers of attorney provided for in Section 3.9(f) above as if
such Credit Facility Lender had been named as the attorney-in-fact therein, and
the Practice and each Professional hereby waive, and the Credit Facility Lender
shall not take the Pre-Termination Accounts Receivable subject to, any and all
defenses the Practice and/or such Professionals may have with respect to money
coming into the Account and any defenses they may have against the Credit
Facility Lender. The Practice shall, and shall cause its Professionals to,
execute any and all documents, financing statements, and agreements reasonably
requested by such Credit Facility Lender to evidence and effectuate the Credit
Facility Lender's rights contemplated in this Section.
(d) In the event that, contrary to the mutual intent of
Business Manager and the Practice, the assignment of rights described in this
Section 5.4 shall be deemed, for any reason, to be ineffective as an outright
assignment, the Practice and each Professional shall, effective as of the date
of this Business Management Agreement, be deemed to have granted (and the
Practice does hereby grant, and shall cause each Professional to grant) to
Business Manager a first priority lien on and security interest in and to any
and all interests of the Practice and such Professionals in any accounts
receivable generated by the provision of Professional Eye Care Services by the
Practice and its Professionals or otherwise generated
-39-
<PAGE> 40
through the operations of the Office, and all proceeds with respect thereto, to
secure the payment to Business Manager of all amounts due to Business Manager
hereunder, and this Business Management Agreement shall be deemed to be a
security agreement to the extent necessary to give effect to the foregoing.
The Practice shall execute and deliver, and cause each Professional to execute
and deliver, all such financing statements as Business Manager may request in
order to perfect such security interest. The Practice shall not grant (and
shall not suffer any Professional to grant) any other lien on or security
interest in or to such accounts receivable or any proceeds thereof.
(e) Upon termination of this Business Management
Agreement, Business Manager shall release the foregoing lien with respect to
Accounts Receivable generated after the effective date of such termination and
shall execute and cause to be filed any termination statements relating to such
release of lien. However, it is understood that all rights of the Parties to
the Accounts Receivable shall be subordinate to any interest of the Credit
Facility Lender.
5.5 Disputes Regarding Fees.
(a) It is the Parties' intent that any disputes
regarding performance standards of the Business Manager be resolved to the
extent possible by good faith negotiation. To that end, the Parties agree that
if the Practice in good faith believes that Business Manager has failed to
perform its obligations, and that as a result of such failure, the Practice is
entitled to a set-off or reduction in its Management Fees, the Practice shall
give Business Manager notice of the perceived failure and request in the notice
a set-off or reduction in Management Fees. Business Manager and the Practice
shall then negotiate the dispute in good faith, and if an agreement is reached,
the Parties shall implement the resolution without further action.
(b) If the Parties cannot reach a resolution within a
reasonable time, the Parties shall submit the dispute to mediation to be
conducted in accordance with the Minnesota Mediation Rules.
(c) If the mediation process fails to resolve the
dispute, the dispute shall be submitted by either Party to binding arbitration
under Section 8.7.
6. TERM AND TERMINATION.
6.1 Initial and Renewal Term. The Term of this Business
Management Agreement will be for an initial period of forty (40) years after
the effective date, and shall be automatically renewed for successive five (5)
year periods thereafter, provided that neither Business Manager nor the
Practice shall have given notice of termination of this Business Management
Agreement at least one hundred twenty (120) days before the end of the initial
term or any renewal term, or unless otherwise terminated as provided in Section
6.2 of this Business Management Agreement.
-40-
<PAGE> 41
6.2 Termination.
(a) Termination by the Practice. The Practice may
immediately terminate this Agreement at its discretion, upon written notice
pursuant to Section 8.3, as follows:
i) If Business Manager becomes insolvent by
reason of its inability to pay its debts as they mature; is adjudicated
bankrupt or insolvent; files a petition in bankruptcy, reorganization or
similar proceeding under the bankruptcy laws of the United States or shall have
such a petition filed against it which is not discharged within thirty (30)
days; has a receiver or other custodian, permanent or temporary, appointed for
its business, assets or property; makes a general assignment for the benefit of
creditors; has its bank accounts, property or accounts attached; has execution
levied against its business or property; or voluntarily dissolves or liquidates
or has a petition filed for corporate dissolution and such petition is not
dismissed with thirty (30) days;
ii) If the Business Manager fails to comply
with any material provision of this Agreement, or any other agreement with the
Practice, and does not correct such failure within sixty (60) days after
written notice of such failure to comply is delivered by the Practice
specifying the nature of the breach in reasonable detail.
(b) Termination by Business Manager. Business Manager
may immediately terminate this Agreement at its discretion, upon written notice
pursuant to Section 8.3, as follows:
i) If the Practice becomes insolvent by
reason of its inability to pay its debts as they mature; is adjudicated
bankrupt or insolvent; files a petition in bankruptcy, reorganization or
similar proceeding under the bankruptcy laws of the United States or shall have
such a petition filed against it which is not discharged within thirty (30)
days; has a receiver or other custodian, permanent or temporary, appointed for
its business, assets or property; makes a general assignment for the benefit of
creditors; has its bank accounts, property or accounts attached; has execution
levied against its business or property; or voluntarily dissolves or liquidates
or has a petition filed for corporate dissolution and such petition is not
dismissed with thirty (30) days; or
ii) If the Practice fails to comply with any
material provision of this Agreement, or any other agreement with Business
Manager, and does not correct such failure within sixty (60) days after written
notice of such failure to comply is delivered by Business Manager specifying
the nature of the breach in reasonable detail.
(c) Termination by Agreement. In the event the
Practice and Business Manager shall mutually agree in writing, this Business
Management Agreement may be terminated on the date specified in such written
agreement.
-41-
<PAGE> 42
(d) Legislative, Regulatory or Administrative Change.
In the event there shall be a change in the Medicare or Medicaid statutes,
federal statutes, state statutes, case laws, administrative interpretations,
regulations or general instructions, the adoption of new federal or state
legislation, or a change in any third-party reimbursement system, any of which
are reasonably likely to materially and adversely affect the manner in which
either Party may perform or be compensated for its services under this Business
Management Agreement or which shall make this Business Management Agreement or
any related agreements unlawful or unenforceable, or which would be reasonably
likely to subject either Party to this Agreement, or any member, shareholder,
officer, director, employee, agent or affiliated organization to any civil or
criminal penalties or administrative sanctions, the Parties shall immediately
use their best efforts to enter into a new service arrangement or basis for
compensation for the services furnished pursuant to this Business Management
Agreement that complies with the law, regulation, or policy, or which minimizes
the possibility of such penalties, sanctions or unenforceability, and that
approximates as closely as possible the economic position of the Parties prior
to the change. If the Parties are unable to reach a new agreement within a
reasonable time, then either Party may submit the issue to arbitration pursuant
to Section 8.7 for the purpose of reaching an alternative arrangement that is
equitable under the circumstances.
6.3 Effects of Termination. Upon termination of this Business
Management Agreement, as hereinabove provided, neither Party shall have any
further obligations hereunder except for (i) obligations accruing prior to the
date of termination, including, without limitation, payment of the Management
Fee relating to services provided prior to the termination of this Business
Management Agreement, (ii) obligations, promises, or covenants set forth herein
that are expressly made to extend beyond the Term, including, without
limitation, insurance, indemnities and non-competition provisions, which
provisions shall survive the expiration or termination of this Business
Management Agreement, (iii) the obligation of the Practice described in Section
6.4, (iv) the obligation of Business Manager to repay amounts borrowed from the
Account pursuant to Section 5.4(a), and (v) the obligation of the Practice to
repay amounts advanced by Business Manager to the Practice. In effectuating
the provisions of this Section 6.3, the Practice specifically acknowledges and
agrees that if this Business Management Agreement terminates pursuant to
Sections 6.2(b) or (d), Business Manager shall continue for a period not to
exceed ninety (90) days to exclusively collect and receive on behalf of the
Practice all cash collections from accounts receivable in existence at the time
this Business Management Agreement is terminated, it being understood that (a)
such cash collections will represent compensation to Business Manager for
Management Services already rendered, (b) Business Manager shall not be
entitled to collect accounts receivables after the termination date if this
Agreement is terminated pursuant to Section 6.2(a), and (c) the Business
Manager shall deduct from such cash collections any other amounts owed to
Business Manager under this Business Management Agreement, including, without
limitation, (i) ten percent (10%) of such cash collections as its Management
Fee during any period after the termination of this Business Management
Agreement while such collections are taking place, (ii) any reasonable costs
incurred by Business Manager in carrying out the post termination procedures
and transactions contemplated herein, and (iii) any adjustments pursuant to
Section 3.10(b). Business Manager
-42-
<PAGE> 43
shall remit remaining amounts from such collection activities, if any, to the
Practice. Upon the expiration or termination of this Business Management
Agreement for any reason or cause whatsoever, Business Manager shall surrender
to the Practice all books and records pertaining to the Practice's
ophthalmology and optometry practices. All sums received or collected by
either Party after termination for Adjusted Gross Revenues earned prior to
termination shall be split in accordance with this Section 6.3.
6.4 Purchase Obligation. Upon expiration of this Business
Management Agreement in accordance with Section 6.1 or termination of this
Business Management Agreement by Business Manager, as set forth in Section
6.2(b) above, the Practice shall upon Business Manager's demand:
(a) Pay to Business Manager the difference between the
consideration received in the Acquisition Transaction minus the book value of
the net tangible assets (for purposes of such repurchase obligations such
difference shall be amortized over a forty (40) year period), deferred charges,
and all other amounts on the books of the Business Manager relating to the
Business Management Agreement, as such amounts shall be established pursuant to
the Acquisition Transaction and including amounts, if any, for the covenants
described in Section 4.8 above, as adjusted through the last day of the month
most recently ended prior to the date of such termination in accordance with
GAAP to reflect amortization or depreciation of the intangible assets, deferred
charges, or covenants;
(b) Purchase from Business Manager any real estate
owned by Business Manager and used as an Office at the greater of the appraised
fair market value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by
Business Manager and the Practice, each selecting a duly qualified appraiser,
who in turn will agree on a third appraiser. This agreed-upon appraiser shall
perform the appraisal which shall be binding on both Parties. In the event
either Party fails to select an appraiser within fifteen (15) days of the
selection of an appraiser by the other Party, the appraiser selected by the
other Party shall perform the appraisal which shall be binding on both Parties;
(c) Purchase at book value all improvements, additions,
or leasehold improvements that have been made by Business Manager at any Office
and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement;
(d) Assume all contracts and leases and the Practice's
pro rata share of all debts and payables that are obligations of Business
Manager and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement or the properties leased
or subleased by Business Manager; provided, however, that the Practice shall
only be obligated to assume such contracts and leases if the Practice will be
able to enjoy the benefits of the contracts and leases following such
assumption;
-43-
<PAGE> 44
(e) Purchase from Business Manager at book value all of
the equipment leased to the Practice, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its obligations
under this Business Management Agreement, and all other assets, including
inventory and supplies, tangibles and intangibles, set forth on the books of
Business Manager as adjusted through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to reflect
operations of the Office, depreciation, amortization, and other adjustments of
assets shown on the books of Business Manager; and
(f) Cause to be executed by Shareholders of the
Practice such personal guaranties and any security agreements reasonably
required by Business Manager in connection with the purchase described in this
Section 6.4. For purposes of this Section 6.4(f), the term "Shareholders"
shall mean any individual who is a Shareholder of the Practice on the date that
notice is given of the termination of this Business Management Agreement and
any additional individual who is a Shareholder of the Practice on the effective
date of this Business Management Agreement. However, such obligations of
personal guaranties by Shareholders shall expire effective five (5) years from
the date hereof and each Shareholder's guaranty shall terminate upon the death
of such Shareholder.
All current Shareholders of the Practice shall on or before the effective date
of this Business Management Agreement, and all individuals who become
Shareholders of the Practice after the effective date of commencement of this
Business Management Agreement shall upon becoming a Shareholder of the
Practice, execute and deliver to Business Manager an undertaking to comply with
this Section 6.4(f) which shall be in the form of Exhibit 6.4(f).
Notwithstanding the above, the Practice and the Shareholders shall not permit
without Business Manager Consent, during any three (3) year period during which
this Agreement is in effect and only after five (5) years from the commencement
hereof, the transfer of over fifty percent (50%) of the ownership interests of
the Practice to any existing or new Shareholders of the Practice or
combinations of existing or new Shareholders of the Practice, except in cases
of death, disability or retirement of such transferring Shareholders or
transfers to replacement Shareholders described in Section 4.1 in accordance
with the provisions set forth in Section 4.1.
6.5 Purchase Option. Upon termination of this Business Management
Agreement by the Practice pursuant to Section 6.2(a), the Practice shall be
released from the restrictive covenants in Section 4.8 and shall have the
option but not the obligation to do all or none of the following:
(a) Pay to Business Manager the difference between the
consideration received in the Acquisition Transaction minus the book value of
the net tangible assets (for purposes of such repurchase obligations such
difference shall be amortized over a forty (40) year period), deferred charges,
and all other amounts on the books of the Business Manager relating to the
Business Management Agreement, as such amounts shall be established pursuant to
the Acquisition Transaction and including amounts, if any, for the covenants
described in Section
-44-
<PAGE> 45
4.8 above, as adjusted through the last day of the month most recently ended
prior to the date of such termination in accordance with GAAP to reflect
amortization or depreciation of the intangible assets, deferred charges, or
covenants;
(b) Purchase from Business Manager any real estate
owned by Business Manager and used as an Office at the greater of the appraised
fair market value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by
Business Manager and the Practice, each selecting a duly qualified appraiser,
who in turn will agree on a third appraiser. This agreed-upon third appraiser
shall perform the appraisal which shall be binding on both Parties. In the
event either Party fails to select an appraiser within fifteen (15) days of the
selection of an appraiser by the other Party, the appraiser selected by the
other Party shall perform the appraisal which shall be binding on both Parties;
(c) Purchase at book value all improvements, additions,
or leasehold improvements that have been made by Business Manager at any Office
and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement;
(d) Assume all contracts and leases and the Practice's
pro rata share of all debts and payables that are obligations of Business
Manager and that relate principally to the performance of Business Manager's
obligations under this Business Management Agreement or the properties leased
or subleased by Business Manager; provided, however, that the Practice shall
only be obligated to assume such contracts and leases if the Practice will be
able to enjoy the benefits of the contracts and leases following such
assumptions; and
(e) Purchase from Business Manager at book value all of
the equipment leased to the Practice, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its obligations
under this Business Management Agreement, and all other tangible assets,
including inventory and supplies, set forth on the books of the Business
Manager as adjusted through the last day of the month most recently ended prior
to the date of such termination in accordance with GAAP to reflect operations
of the Office, depreciation, amortization, and other adjustments of assets
shown on the books of the Business Manager.
The Practice shall provide notice to Business Manager of its intent to
exercise the option above described at the same time that the Practice provides
notice to Business Manager of the Practice's election to terminate this
Business Management Agreement for cause.
6.6 Closing of Purchase. If the Practice purchases the assets
pursuant to Section 6.4 or 6.5, the Practice shall pay cash for the purchased
assets; provided, however, that the Practice may also use Business Manager's
common stock as consideration for the purchased assets, which stock shall be
valued for purposes of this Agreement as follows: (a) in the event of a Section
6.4
-45-
<PAGE> 46
termination, the shares shall be valued at the lower of the value on the date
the shares were received by the Shareholder (as agreed to by the parties), and
the value on the date of the closing of this purchase, or (b) in the event of a
Section 6.5 termination, the shares shall be valued at the higher of the value
of such shares on the dates set forth in 6.6(a) above. The amount of the
purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by the Practice and by any unpaid portion of
any promissory notes payable by Business Manager to any Shareholder of the
Practice, which shall be offset against the purchase price. The Practice and
all Shareholders of the Practice shall execute such documents as may be
required to assume the liabilities set forth in Section 6.4(d) or Section
6.5(c) and to remove Business Manager from any liability with respect to such
repurchased asset and with respect to any property leased or subleased by
Business Manager. The closing date for the purchase shall be determined by the
Parties, but shall in no event occur later than the expiration date of this
Business Management Agreement if this Agreement expires in accordance with
Section 6.1, or sixty (60) days from the date of the notice of termination for
cause. The termination of this Business Management Agreement shall become
effective upon the closing of the sale of the assets if the assets are
purchased, and all Parties shall be released from any restrictive covenants
provided for in Section 3.17 or Section 4.8 on the closing date. If the
Practice chooses not to purchase the assets pursuant to Section 6.5, the
termination shall be effective as of the notice date given by the Practice
under Section 6.2(b), at which time the parties shall be released from the
restrictive covenants in Section 3.17 and Section 4.8. From and after any
termination, each Party shall provide the other Party with reasonable access of
the books and records then owned by it to permit such requesting Party to
satisfy reporting and contractual obligations that may be required of it.
6.7 Limitation of Liability. In no event shall Business Manager
be liable to the Practice for any indirect, special or consequential damages or
lost profits, arising out of or related to this Agreement or the performance or
breach thereof, even if Business Manager has been advised of the possibility
thereof.
7. INDEMNIFICATION; THIRD PARTY CLAIMS.
7.1 Indemnification by the Practice. The Practice shall indemnify
and hold harmless Business Manager and Business Manager's shareholders,
directors, officers, agents and employees, from and against all claims,
demands, liabilities, losses, damages, costs and expenses, including reasonable
attorneys' fees, resulting in any manner, directly or indirectly, from the
negligent or intentional acts or omissions of the Practice or its members,
Shareholders, directors, officers, employees, agents or independent
contractors, including but not limited to any such claims, demands,
liabilities, losses, damages, costs and expenses which accrued or arose prior
to the date of execution of this Business Management Agreement.
7.2 Indemnification by Business Manager. Business Manager shall
indemnify and hold harmless the Practice, and the Practice's members,
Shareholders, directors, officers, agents and employees, from and against any
and all claims, demands, liabilities, losses, damages, costs
-46-
<PAGE> 47
and expenses, including reasonable attorneys' fees, resulting in any manner,
directly or indirectly, from the negligent or intentional acts or omissions of
Business Manager or its shareholders, directors, officers, employees, agents or
independent contractors.
7.3 Notice of Claim for Indemnification. No claims for
indemnification under this Agreement relating to claims solely between the
Parties shall be valid unless notice of such claim is delivered to the Practice
(in the case of a claim by Business Manager) or Business Manager (in the case
of a claim by the Practice) within one (1) year after the Party making such
claim first obtained knowledge of the facts upon which such claim is based.
Any such notice shall set forth in reasonable detail, to the extent known by
the Party giving such notice, the facts on which such claim is based and the
resulting estimated amount of damages.
7.4 Matters Involving Third Parties.
(a) If the Practice or Business Manager receives notice
or acquires knowledge of any matter which may give rise to a claim by another
person and which may then result in a claim for indemnification under this
Agreement, then: (i) if such notice or knowledge is received or acquired by
the Practice, the Practice shall promptly notify Business Manager; and (ii) if
such notice or knowledge is received or acquired by Business Manager, the
Business Manager shall promptly notify the Practice; except that no delay in
giving such notice shall diminish any obligation under this Agreement to
provide indemnification unless (and then solely to the extent) the Party from
whom such indemnification is sought is prejudiced.
(b) Any Party from whom such indemnification (the
"Indemnifying Party") is sought shall have the right to defend the Party
seeking such indemnification (the "Indemnified Party") against such claim by
another person (the "Third Party Claim") with counsel of the Indemnifying
Party's choice reasonably satisfactory to the Indemnified Party so long as: (i)
within fifteen (15) days after the Indemnified Party has given notice of the
Third Party Claim to the Indemnifying Party, the Indemnifying Party notifies
the Indemnified Party that the Indemnifying Party will indemnify the
Indemnified Party from and against all adverse consequences the Indemnified
Party may suffer caused by, resulting from, arising out of or relating to such
Third Party Claim; (ii) the Indemnifying Party provides the Indemnified Party
with evidence reasonably satisfactory to the Indemnified Party that the
Indemnifying Party has the financial resources necessary to defend against the
Third Party Claim and fulfill its indemnification obligations; (iii) the Third
Party Claim seeks money damages; (iv) settlement of, or an adverse judgment
with respect to, the Third Party Claim (other than a medical malpractice claim)
is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice adverse to the continuing business
interests of the Indemnified Party; and (v) the Indemnifying Party conducts the
defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 7.4(b): (i) the
Indemnified Party may retain separate co-
-47-
<PAGE> 48
counsel at its sole cost and expense and participate in the defense of the
Third Party Claim; (ii) the Indemnified Party shall not consent to the entry of
any judgment or enter into any settlement with respect to the Third Party Claim
without the prior consent of the Indemnifying Party; and (iii) the Indemnifying
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior consent of
the Indemnified Party.
(d) If any of the conditions specified in Section
7.4(b) is or becomes unsatisfied, however; (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it may deem advisable (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (ii) the Indemnifying Party shall
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' and
accountants' fees and expenses); and (iii) the Indemnifying Party shall remain
responsible for any adverse consequences the Indemnified Party may suffer
caused by, resulting from, arising out of or relating to such Third Party Claim
to the fullest extent provided in this Agreement.
7.5 Settlement. Except as permitted by Section 7.4, a Party shall
not compromise or settle any claim for which the other Party is obligated to
indemnify it without the written consent of such Party.
7.6 Cooperation. The Indemnified Party shall make available all
information and assistance that the Indemnifying Party may reasonably request
in conjunction with assessing, defending and settling said claim.
8. MISCELLANEOUS.
8.1 Administrative Services Only. Nothing in this Business
Management Agreement is intended or shall be construed to allow Business
Manager to exercise control, authority or direction over the manner or method
by which the Practice and its Professionals perform Professional Eye Care
Services or other professional health care services. The rendition of all
Professional Eye Care Services, including, but not limited to, the prescription
or administration of medicine and drugs, shall be the sole responsibility of
the Practice and its Professionals, and Business Manager shall not interfere in
any manner or to any extent therewith. Nothing contained in this Business
Management Agreement shall be construed to permit Business Manager to engage in
the practice of ophthalmology or optometry, it being the sole intention of the
Parties hereto that the services to be rendered to the Practice by Business
Manager are solely for the purpose of providing nonmedical management and
administrative services to the Practice so as to enable the Practice to devote
its full time and energies to the professional conduct of its professional eye
care practice and provision of Professional Eye Care Services to its patients
and not to administration or practice management.
-48-
<PAGE> 49
8.2 Status of Independent Contractor. It is expressly
acknowledged that the Parties hereto are "independent contractors," and nothing
in this Business Management Agreement is intended and nothing shall be
construed to create an employer/employee, partnership, or joint venture
relationship, or to allow either to exercise control or direction over the
manner or method by which the other performs the services that are the subject
matter of this Business Management Agreement; provided always that the services
to be provided hereunder shall be furnished in a manner consistent with the
standards governing such services and the provisions of this Business
Management Agreement. Each Party understands and agrees that (i) the other
will not be treated as an employee for federal tax purposes, (ii) neither will
withhold on behalf of the other any sums for income tax, unemployment
insurance, social security, or any other withholding pursuant to any law or
requirement of any governmental body or make available any of the benefits
afforded to its employees, (iii) all of such payments, withholdings, and
benefits, if any, are the sole responsibility of the Party incurring the
liability, and (iv) each will indemnify and hold the other harmless from any
and all loss or liability arising with respect to such payments, withholdings,
and benefits, if any.
8.3 Notices. Any notice, demand, or communication required,
permitted, or desired to be given hereunder shall be deemed effectively given
when in writing and personally delivered or mailed by prepaid certified or
registered mail, return receipt requested, addressed as follows:
The Practice: Lindstrom, Samuelson & Hardten
Ophthalmology Associates, P.A.
710 East 24th Street Minneapolis,
Minnesota 55404 Attention:
Richard L. Lindstrom, M.D.
Business Manager: Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida
Attention: Richard T. Welch, CFO
with a copy to: Shumaker, Loop & Kendrick, LLP
101 East Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
Attention: Darrell C. Smith, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate.
-49-
<PAGE> 50
8.4 Governing Law. This Business Management Agreement shall in
all respects be governed, interpreted and construed in accordance with the laws
of the State without giving effect to principles of comity or conflicts of laws
thereof.
8.5 Jurisdiction and Venue. Business Manager and the Practice
hereby consent to the personal jurisdiction and venue of the state and federal
courts in the judicial circuit where the Practice has its principal corporate
office, and do hereby waive all questions of personal jurisdiction and venue,
including, without limitation, the claim or defense that such courts constitute
an inconvenient forum.
8.6 Assignment. Except as may be herein specifically provided to
the contrary, this Business Management Agreement shall inure to the benefit of
and be binding upon the Parties hereto and their respective legal
representatives, successors, and assigns; provided, however, that the Practice
may not assign this Business Management Agreement without the prior written
consent of Business Manager, which consent may be withheld. The sale,
transfer, pledge, or assignment of any of the ownership interests held by any
Shareholder of the Practice, the sale of any material portion of its assets by
the Practice, or the issuance by the Practice of voting ownership interests to
any other person (except to replacement Shareholders as described in Section
4.1), or any combination of such transactions within a period of five (5)
years, such that the existing Shareholders in the Practice fail to maintain a
majority of the voting interests in the Practice shall be deemed an attempted
assignment by the Practice, and shall be null and void unless consented to in
writing by Business Manager prior to any such transfer or issuance. Any breach
of this provision, whether or not void or voidable, shall constitute a material
breach of the Business Management Agreement, and in the event of such breach,
Business Manager may terminate this Business Management Agreement upon
twenty-four (24) hours' notice to the Practice and shall have all rights
available at law or in equity. Except as otherwise provided in this Agreement,
the Parties agree that until an initial public offering of Business Manager's
common stock occurs, Business Manager may only assign or transfer its rights
and obligations under this Business Management Agreement with the prior written
consent of the Practice. Except as otherwise provided in this Agreement, after
an initial public offering of Business Manager's common stock occurs, Business
Manager may assign or transfer its rights and obligations under this Business
Management Agreement only in the following situations: (a) pursuant to a merger
of Business Manager into another entity or the sale of substantially all of the
assets of Business Manager to a health care company; (b) pursuant to the sale
of all of the health care contracts of Business Manager within a multistate
region in which the Practice is located with the Practice's consent, which
shall not be unreasonably withheld and which may not be withheld where the
proposed assignment or transfer is to a healthcare practice management company
with similar or greater financial standing, expertise and service capabilities
to that of Business Manager; (c) pursuant to a transfer or assignment of this
Agreement to one of Business Manager's subsidiaries or parent organizations; or
(d) pursuant to any transfer or assignment to or by any financial lender of the
Business Manager, and this Agreement is subordinate to the rights of such
lender. After such assignment and transfer, the Practice agrees to look solely
to such assignee or transferee for performance of this Business
-50-
<PAGE> 51
Management Agreement. In addition, Business Manager or the assignee or
transferee shall have the right to (i) collaterally assign its interest in this
Business Management Agreement and its right to collect Management Fees
hereunder to any financial institution or other third party without the consent
of the Practice, and (ii) subject to the foregoing provisions, assign its
rights and obligations hereunder to any third party without the consent of the
Practice. In the event that Business Manager assigns its rights and
obligations hereunder to one or more of its subsidiaries, Business Manager
shall unconditionally guaranty the obligations of such subsidiary or
subsidiaries. The Practice and executing Shareholders agree to execute in the
future any and all documentation reasonably required to subordinate their
rights pursuant to this Section 8.6 to that of a lender.
8.7 Arbitration. The Parties shall use good faith negotiation to
resolve any controversy, dispute or disagreement arising out of or relating to
this Business Management Agreement or the breach of this Business Management
Agreement. Except as otherwise provided herein and except as it relates to
Sections 3.14, 3.17, 4.7 and 4.8 of this Business Management Agreement and
except for matters which are to be determined by the Local Advisory Council
and/or the National Appeals Council as contemplated in this Business Management
Agreement, any matter not resolved by negotiation shall be submitted to
mediation conducted in accordance with the Minnesota Mediation Rules. If the
mediation process fails to resolve the dispute, the matter shall be submitted
to binding and confidential arbitration in accordance with the National Health
Lawyers Association Alternative Dispute Resolution Rules of Procedure for
Arbitration and with one individual knowledgeable in the health care business
serving as the arbitrator. Each Party will, upon the written request of the
other Party, promptly provide the other with copies of documents relevant to
the issues raised by any claim or counterclaim. Other discovery may be ordered
by the arbitrator to the extent the arbitrator deems additional discovery
relevant and appropriate, and any dispute regarding discovery shall be
determined by the arbitrator, which determination shall be conclusive.
8.8 Waiver of Breach. The waiver by either Party of a breach or
violation of any provision of this Business Management Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
8.9 Enforcement. In the event either Party resorts to legal
action to enforce or interpret any provision of this Business Management
Agreement, the prevailing Party shall be entitled to recover the costs and
expenses of such action so incurred, including, without limitation, reasonable
attorneys' fees.
8.10 Gender and Number. Whenever the context of this Business
Management Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.
8.11 Additional Assurances. Except as may be herein specifically
provided to the contrary, the provisions of this Business Management Agreement
shall be self-operative and shall
-51-
<PAGE> 52
not require further agreement by the Parties; provided, however, at the request
of either Party, the other Party shall execute such additional instruments and
take such additional acts as are reasonable and as the requesting Party may
deem necessary to effectuate this Business Management Agreement.
8.12 Consents, Approvals, and Exercise of Discretion. Whenever
this Business Management Agreement requires any consent or approval to be given
by either Party, or either Party must or may exercise discretion, the Parties
agree that such consent or approval shall not be unreasonably withheld or
delayed, and that such discretion shall be reasonably exercised.
8.13 Force Majeure. Neither Party shall be liable or deemed to be
in default for any delay or failure in performance under this Business
Management Agreement or other interruption of service deemed to result,
directly or indirectly, from acts of God, civil or military authority, acts of
public enemy, war accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either Party's
employees, or any other similar cause beyond the reasonable control of either
Party unless such delay or failure in performance is expressly addressed
elsewhere in this Business Management Agreement. Notwithstanding the same, the
Parties hereto agree to continue this Agreement to the best degree they can so
long as reasonably possible and the Practice shall not be excused from its
obligations under Sections 4.2, 6.4 and 6.6 pursuant to this Section 8.13.
8.14 Severability. The Parties hereto have negotiated and prepared
the terms of this Business Management Agreement in good faith with the intent
that each and every one of the terms, covenants and conditions herein be
binding upon and inure to the benefit of the respective Parties. Accordingly,
if any one or more of the terms, provisions, promises, covenants or conditions
of this Business Management Agreement or the application thereof to any person
or circumstance shall be adjudged to any extent invalid, unenforceable, void or
voidable for any reason whatsoever by a court of competent jurisdiction or an
arbitration tribunal, such provision shall be reformed, construed and enforced
as if such unenforceable provision had not been contained herein, and each and
all of the remaining terms, provisions, promises, covenants and conditions of
this Business Management Agreement or their application to other persons or
circumstances shall not be affected thereby and shall be valid and enforceable
to the fullest extent permitted by law. To the extent this Business Management
Agreement is in violation of applicable law, then the Parties agree to
negotiate in good faith to amend the Business Management Agreement, to the
extent possible consistent with its purposes, to conform to law. If the
Parties are unable to amend the Business Management Agreement in a manner which
conforms with applicable law, then either Party may submit the matter to
arbitration pursuant to Section 8.7 for the purpose of reaching an alternative
arrangement that is equitable under the circumstances.
8.15 Press Releases and Public Announcements. Except as otherwise
required by law or by applicable rules of any securities exchange or
association of securities dealers, neither the Practice nor the Business
Manager shall issue any press release, make any public announcement
-52-
<PAGE> 53
or otherwise disclose any information for the purpose of publication by any
print, broadcast or other public media, relating to the transactions
contemplated by this Agreement, without the prior approval of the other Party.
8.16 Divisions and Headings. The divisions of this Business
Management Agreement into articles, sections, and subsections and the use of
captions and headings in connection therewith are solely for convenience and
shall not affect in any way the meaning or interpretation of this Business
Management Agreement.
8.17 Amendments and Execution. This Business Management Agreement
and any amendments hereto shall be in writing and executed in multiple copies
on behalf of the Practice by its President, and on behalf of Business Manager
by its President. Each multiple copy shall be deemed an original, but all
multiple copies together shall constitute one and the same instrument.
8.18 Licenses, Permits and Certificates. Business Manager and the
Practice shall each obtain and maintain in effect, at all times during the term
of this Business Management Agreement, all licenses, permits and certificates
required by law which are applicable to the performance of their respective
obligations pursuant to this Business Management Agreement.
8.19 No Third Party Beneficiaries. Except as otherwise provided
herein, this Business Management Agreement shall not confer any rights or
remedies upon any person other than Business Manager and the Practice and their
respective successors and permitted assigns.
8.20 Compliance with Applicable Laws. Business Manager and the
Practice shall comply with all applicable federal, state and local laws,
regulations, rules and restrictions in the conduct of their obligations under
this Business Management Agreement.
8.21 Language Construction. The Practice and Business Manager
acknowledge that each Party hereto and its counsel have reviewed and revised
this Business Management Agreement and agree that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting Party shall not be employed in the interpretation of this Business
Management Agreement.
8.22 Entire Business Management Agreement. With respect to the
subject matter of this Business Management Agreement, this Business Management
Agreement supersedes all previous contracts and constitutes the entire
agreement between the Parties. Neither Party shall be entitled to benefits
other than those specified herein. No prior oral statements or contemporaneous
negotiations or understandings or prior written material not specifically
incorporated herein shall be of any force and effect, and no changes in or
additions to this Business Management Agreement shall be recognized unless
incorporated herein by amendment as provided herein, such amendment(s) to
become effective on the date stipulated in such amendment(s). The Parties
specifically acknowledge that, in entering into and executing this
-53-
<PAGE> 54
Business Management Agreement, the Parties rely solely upon the representations
and agreements contained in this Business Management Agreement and no others.
8.23 DISCLAIMER OF WARRANTY. BUSINESS MANAGER MAKES NO WARRANTY,
EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE OFFICE OR ANY EQUIPMENT PROVIDED
BY BUSINESS MANAGER PURSUANT TO THIS BUSINESS MANAGEMENT AGREEMENT, AND ALL
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
EXPRESSLY DISCLAIMED.
8.24 Control of Board of Directors. While there is no assurance
that an initial public offering of Business Manager's common stock shall occur,
should Business Manager fail to complete the same on or before April 1, 1998,
the Board of Directors shall be controlled and the Business Manager managed by
individuals designated by the founding health care practices acquired in
December of 1996. If such initial public offering does not occur on or before
April 1, 1998, each of such founding health care practices shall be entitled to
vote that number of shares of Business Manager then held by such founding
practices and the number of shares of Business Manager then held by the equity
owners of such founding practices to elect a new board of directors of Business
Manager; provided, however, that after April 1, 1998 and until February 28,
2000, Theodore N. Gillette and his majority owned health care practice (and
their respective successors and assigns) shall not be entitled to vote their
respective shares of common stock of Business Manager in any election of
directors during such period.
8.25 Agreement for Future Good Faith Negotiation. The Parties
hereto agree that should either the chosen underwriters to a future initial
public offering or Business Manager's accounting firm make recommendations
regarding changes to this Business Management Agreement at a later date and
prior to the offering which either such underwriters or accountants reasonably
believe are necessary based upon customs in the industry to prevent any
material adverse valuation issue or to obtain favorable accounting treatment
for Business Manager, the Parties shall negotiate in good faith to modify any
terms which could have such a negative effect or which could result in such
favorable accounting treatment. In such event, the revisions shall be deemed
to be retroactive to the effective date of this Business Management Agreement.
8.26 Agreement to Transfer Stock and Stock Pledge.
Contemporaneously with the execution of this Agreement and to ensure the
continued viability and production of a Practice owned by one (1) Shareholder
(if applicable) the Parties hereto have executed and delivered that certain
Agreement to Transfer Stock and Stock Pledge pursuant to which the Business
Manager and the Shareholder of the Practice have agreed to pledge all of the
shares of common stock of the Practice to the Business Manager and have agreed
that upon the death or disability of such Shareholder, the Practice shall be
entitled to designate a replacement Professional to acquire all such shares of
common stock of the Practice in return for payment of a fair value for such
stock. Additionally, any current or future Shareholder of a Practice that
becomes a sole Shareholder shall execute such agreement at the time the
Shareholder gains such status.
-54-
<PAGE> 55
8.27 Authority. Business Manager and the Practice hereby warrant
and represent to each other that they have the requisite corporate authority to
execute and deliver this Business Management Agreement in their respective
name.
8.28 Waiver of Jury Trial. Any right to trial by jury with respect
to any claim or proceeding relating to or arising out of this Business
Management Agreement is waived by the Parties.
8.29 Indemnification of Advisory Council Members. The parties
hereto (and their successors) agree to indemnify and hold harmless all future
members of any Advisory Council established pursuant to the terms hereof from
any and all liability, claims, damages, costs and attorneys fees resulting from
their decisions and actions as a member of such Advisory Council, so long as
the decision or action is made in good faith.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-55-
<PAGE> 56
IN WITNESS WHEREOF, the Practice and Business Manager have caused this
Business Management Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
WITNESSES: "PRACTICE"
LINDSTROM, SAMUELSON & HARDTEN
OPHTHALMOLOGY ASSOCIATES, P.A.
/s/
- ---------------------------------- By: /s/ Richard L. Lindstrom
---------------------------------
/s/ Name: Richard L. Lindstrom, M.D.
- ---------------------------------- Title: President
"BUSINESS MANAGER"
VISION 21, INC.
/s/ By: /s/ Theodore N. Gillette
- ---------------------------------- ----------------------------------
/s/ Name: Theodore N. Gillette
- ---------------------------------- Title: President
-56-
<PAGE> 57
STATE OF MINNESOTA )
COUNTY OF __________________)
The foregoing Business Management Agreement was executed before me this
___ day of December, 1996, by Richard L. Lindstrom, M.D., as President of
Lindstrom, Samuelson & Hardten Ophthalmology Associates, P.A., who is
personally known to me or who has produced as identification and who did take
an oath.
NOTARY PUBLIC:
Sign:___________________________________
Print:__________________________________
My Commission Expires:
STATE OF FLORIDA )
COUNTY OF ________________)
The foregoing Business Management Agreement was executed before me this
___ day of December, 1996, by Theodore N. Gillette as President of Vision 21,
Inc., a Florida corporation who is personally known to me or who has produced
as identification and who did take an oath.
NOTARY PUBLIC:
Sign:___________________________________
Print:__________________________________
My Commission Expires:
-57-
<PAGE> 58
Exhibit 1.18
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Description of Office Expenses.
Practice Expenses and Shareholders Expenses
[Table depicting breakdown of Office Expenses,
Practice Expenses and Shareholder Expenses omitted.]
<PAGE> 59
Exhibit 1.26
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Practice Territory
[Map(s) depicting twenty-mile radius from each office location omitted.]
<PAGE> 60
Exhibit 1.3
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Fees Excluded from Adjusted Gross Revenue
None
<PAGE> 61
Exhibit 1.8
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Description of Business Manager Expenses
As of the Closing Date, Business Manager Expenses shall specifically
include:
1. expenses relating to services provided to Business Manager and the
Practice under current service agreements by Bruce Maller and BSM Consulting, to
the extent such expenses do not exceed the Practices' share (pro-rata amongst
all practices managed by the Business Manager, at any given moment, e.g., 32
practices = 1/32nd of such expense) of the services currently contracted for
between Maller, BSM Consulting and Business Manager at an anticipated annual
cost of $480,000;
2. costs related to the current regional corporate structure, current
corporate overhead, strategic planning, and managed care administration;
3. expenses related to travel at the request of Business Manager except as
otherwise permitted in 1.18(h);
4. costs of stock option programs or grants to Physician and staff;
5. expenses related to services provided to Business Manager and the
Practice by Medical Director Richard Lindstrom, M.D. as part of the current
Medical Director Service Agreement; and
6. corporate overhead, except as defined in Section 1.18(k).
<PAGE> 62
Exhibit 1.18
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Leasehold Obligations in Excess of Fair Market Value
None
<PAGE> 63
Exhibit 2.10
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Market Area
State of Minnesota
<PAGE> 64
Exhibit 3.7
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Unsettled Issues Regarding Personnel
None
<PAGE> 65
Exhibit 3.17
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Entities and Relationships Excluded From
Noncompetition Covenant from Business Manager
None
<PAGE> 66
Exhibit 4.1A
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Form of Founding Shareholder Employment Agreement
PHYSICIAN EMPLOYMENT AGREEMENT
(FOUNDING SHAREHOLDER)
This Physician Employment Agreement (this "Employment Agreement") dated
as of ____________, 19__, is by and between Lindstrom, Samuelson & Hardten
Ophthalmology Associates, P.A., a Minnesota professional association (the
"Practice"), and _____________________, M.D., an individual (the
"Ophthalmologist").
R E C I T A L S
A. The Practice is a professional association organized under the
laws of the State of Minnesota (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. Vision 21, Inc., a Florida corporation ("Vision 21") has
acquired substantially all of the business assets of the Practice, pursuant to
that certain Asset Purchase Agreement (the "Acquisition Agreement") of even date
herewith.
C. The Practice and Vision 21 have entered into a Business
Management Agreement (the "Business Management Agreement") of even date
herewith, whereby Vision 21 has agreed to provide various management services to
the Practice and the Practice has agreed to have its professional employees
execute employment agreements in a form substantially the same as this
Employment Agreement, and it is intended that except as otherwise limited
herein, Vision 21 be a third-party beneficiary of the restrictive covenants
contained in this Employment Agreement.
D. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
E. The Ophthalmologist owns shares of common stock of the
Practice, is licensed to practice medicine in the State and desires to be
employed by the Practice upon the terms and subject to the conditions set forth
in this Employment Agreement.
F. The Ophthalmologist possesses special knowledge relating to
the business and assets acquired pursuant to the Acquisition Agreement and has
developed valuable, long-term relationships with patients to be cared for by the
Practice which make him valuable to the Practice and which will contribute to
the Practice's future success.
G. In consideration for and in connection with the Acquisition
Agreement and such employment arrangement, the parties hereto desire to enter
into a covenant not to compete and a non-disclosure covenant.
<PAGE> 67
NOW, THEREFORE, in consideration of the premises, the mutual promises,
covenants and conditions herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby agree as follows:
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist is
employed pursuant to the terms of this Employment Agreement to practice medicine
on behalf of the Practice. The Ophthalmologist shall devote substantially all of
his time, best efforts and attention to the practice of medicine on behalf of
the Practice and shall provide patient care of the highest quality. In addition
to the foregoing duties, the Ophthalmologist shall undertake additional duties
as directed by the Practice. During the term hereof and any renewal, the
Ophthalmologist shall not, without the written consent of the Practice and
Vision 21, (1) render professional services to or for any person, firm,
corporation or other organization for compensation; or (2) engage in any
activity that competes with the interest of the Practice or Vision 21 whether
Ophthalmologist is acting by himself or as an officer, director, shareholder,
employee, partner or fiduciary. Any consent granted to the Ophthalmologist shall
be revocable by the Practice or Vision 21 at any time upon thirty (30) days'
notice, and the Ophthalmologist agrees to cease and desist upon receipt of such
notice. Notwithstanding the above, the Practice recognizes that the
Ophthalmologist shall have the right to engage in those matters expressly
described on Schedule 2.01 attached hereto so long as such permitted activities
do not result in materially reduced services to the Practice as compared to the
Ophthalmologist's previous services to his practice and so long as the same does
not materially impact the Ophthalmologist's ability to perform hereunder or
materially impact the Ophthalmologist's anticipated productivity.
2.02 Subject to Board Standards and Requirements. The Practice
recognizes that professional regulatory groups and bodies such as the State
Board of Medicine may from time to time establish standards and requirements
with regard to the practice of medicine by physicians licensed to practice
medicine. All restrictions contained herein with respect to the duties and
obligations of the Ophthalmologist shall be subject to said standards and
requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice.
Exhibit 4.1A - Page 2
<PAGE> 68
The Ophthalmologist recognizes that patients treated by him may subsequently be
assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The ophthalmologist of record for each patient
treated by Ophthalmologist shall be one of the individual owners of the
Practice.
4. Term of Employment. The term of employment of Ophthalmologist
by the Practice pursuant to this Employment Agreement shall be for five (5)
years (the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date").
5. Place of Employment. Ophthalmologist's principal place of work
shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Ophthalmologist under this Employment Agreement, the
Practice shall pay to or provide Ophthalmologist with the compensation
determined by the Board of Directors.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review
and evaluate the performance of Ophthalmologist under this Employment Agreement
with Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Ophthalmologist the Notice of
Termination (as hereinafter defined) and (ii) pay Ophthalmologist his
Exhibit 4.1A - Page 3
<PAGE> 69
annual base salary through the Date of Termination (as hereinafter defined) at
the rate in effect at the time the Notice of Termination is given plus any bonus
or incentive compensation which have been earned or have become payable pursuant
to the terms of any compensation or benefit plan or have vested as of the Date
of Termination, but which have not yet been paid.
11. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 11 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
11.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any
provision of this Employment Agreement which remains uncured for a period of
thirty (30) days after notification by Practice of the specific nature of the
breach;
(iii) for good cause which shall include
insubordination, conduct reflecting moral turpitude, conduct diminishing the
goodwill or reputation of the Practice, conduct disloyal to the Practice,
material violation of any representation, warranty or covenant of this
Agreement; conviction of any felony, or suspension or revocation of
Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
11.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination which shall not be less than
thirty (30) days from the date such Notice of Termination is given unless the
Notice of Termination is provided pursuant to Sections 11.01(iii), (iv) or (v),
in which case the Date of Termination shall be the date that Notice of
Termination is received by the Ophthalmologist.
11.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
12. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of
Exhibit 4.1A - Page 4
<PAGE> 70
experts, evidence and counsel incurred by the prevailing party in any and all
proceedings arising out of this Employment Agreement, including trial, appellate
and bankruptcy proceedings.
13. Notices. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the respective
addresses last given by each party in writing to the other (provided that all
notices to the Practice shall be directed to the attention of the Practice with
a copy to the Secretary of the Practice). All notices and communication shall be
deemed to have been received on the date of delivery thereof, on the third
business day after the mailing thereof, or on the second day after deposit
thereof with an expedited courier service, except that notice of change of
address shall be effective only upon receipt.
14. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Ophthalmologist, in such amounts and in such
form or forms as the Practice may determine. Ophthalmologist shall, at the
request of the Practice, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Practice has applied for such insurance.
Ophthalmologist hereby represents that to his knowledge there are no facts or
circumstances that would preclude the Practice from obtaining life insurance on
Ophthalmologist.
15. Proprietary Information and Inventions. Ophthalmologist
understands and acknowledges that:
15.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
(and by virtue of the Business Management Agreement entered into by the Practice
and Vision 21, Ophthalmologist's employment creates a relationship of confidence
and trust between the Ophthalmologist and Vision 21) with respect to certain
information applicable to the business of the Practice and Vision 21, which may
be made known to Ophthalmologist by the Practice or Vision 21 or learned by
Ophthalmologist during the Employment Period.
15.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or has otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered, or
developed by or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to the
contrary, the term "Proprietary Information" shall not include (i) information
which is in the public domain, (ii) information which is published or
Exhibit 4.1A - Page 5
<PAGE> 71
otherwise becomes part of the public domain through no fault of Ophthalmologist,
(iii) information which Ophthalmologist can demonstrate was in Ophthalmologist's
possession at the time of disclosure and was not acquired by Ophthalmologist
directly or indirectly from the Practice or Vision 21 on a confidential basis,
(iv) information which becomes available to Ophthalmologist on a
non-confidential basis from a source other than the Practice or Vision 21 and
which source, to the best of Ophthalmologist's knowledge, did not acquire the
information on a confidential basis or (v) information required to be disclosed
by any federal or state law, rule or regulation or by any applicable judgment,
order or decree or any court or governmental body or agency having jurisdiction
in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's employment
by the Practice and after its termination or expiration, Ophthalmologist shall
keep in strictest confidence and trust all Proprietary Information, and
Ophthalmologist shall not use or disclose any Proprietary Information without
the written consent of the Practice and Vision 21, except as may be necessary in
the ordinary course of performing Ophthalmologist's duties as an employee of the
Practice. This Section 15 shall survive the termination or expiration of this
Employment Agreement.
16. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Ophthalmologist shall, at the request of the Practice,
promptly surrender to the Practice any patient files, records, or x-rays, as
well as any Proprietary Information or document, memorandum, record, patient
record, letter or other paper in his possession or under his control relating to
the operation, business or affairs of the Practice or Vision 21.
17. Prior Employment Agreements; Successor Employment Agreements.
Ophthalmologist represents and warrants that Ophthalmologist's performance of
all the terms of this Employment Agreement and as an employee of the Practice
does not, and will not, breach any agreement to keep in confidence proprietary
information acquired by Ophthalmologist in confidence or in trust prior to
Ophthalmologist's employment by the Practice. Ophthalmologist has not entered
into, and shall not enter into, any agreement, either written or oral, which is
in conflict with this Employment Agreement or which would be violated by
Ophthalmologist's entering into, or carrying out his obligations under, this
Employment Agreement. Immediately following the expiration of the term of this
Employment Agreement, Ophthalmologist shall, if he intends to continue his
relationship with the Practice, execute a new Employment Agreement with the
Practice in substantially the form of Exhibit 4.1C of the Business Management
Agreement.
18. Restrictive Covenant. Ophthalmologist acknowledges and
recognizes (i) that Ophthalmologist shall come into possession of Proprietary
Information and (ii) the highly competitive nature of the respective businesses
of the Practice and Vision 21 and, accordingly, agrees that in consideration of
the premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of two (2) years
following the date of expiration or termination of this Employment Agreement,
directly or indirectly (i) practice medicine or engage in the business of
managing ophthalmology or optometry practices or related eye care medical
facilities within the area described in Schedule 18, whether such engagement
shall be as an employer, officer, director, owner, employee, consultant,
stockholder, partner or other participant. Ophthalmologist
Exhibit 4.1A - Page 6
<PAGE> 72
further agrees that during the period of Ophthalmologist's employment by
Practice, and for a period of two (2) years following the termination or
expiration of this Employment Agreement, Ophthalmologist will not, directly or
indirectly, (i) solicit any employee or consultant of Vision 21 or the Practice
for the purposes of hiring or retaining such employee or consultant, (ii)
utilize the services of any entity engaged in the business of managing
ophthalmology or optometry practices or related eye care or medical facilities,
or (iii) contact any present or prospective client of Vision 21 to solicit such
person or entity to enter into a management contract with any organization other
than Vision 21. If Ophthalmologist violates this Section, Ophthalmologist shall
pay to Vision 21 the one half (1/2) of the amount of the consideration received
by Ophthalmologist in connection with the Acquisition Agreement (including one
half (1/2) of the Ophthalmologist's pro rata share (based on his equity
ownership in the Practice) of any consideration received by the Practice in
connection with the Acquisition Agreement), as agreed upon liquidated damages.
The Ophthalmologist acknowledges that such sum is reasonable in light of the
resulting loss of intangible asset value associated with the Ophthalmologist's
breach of this restrictive covenant. The Ophthalmologist further acknowledges
and agrees that such liquidated damages sum shall be in addition to any
liquidated damages which may be owed by Ophthalmologist to the Practice in
connection with a breach by Ophthalmologist of Section 4 hereof. If the
Ophthalmologist fails to make payment of liquidated damages as contemplated by
this Section 18 within thirty (30) days of Ophthalmologist's receiving notice
from the Practice or Vision 21 of the violation of this Section, Vision 21,
shall, in addition to all other rights and remedies available at law or equity,
be entitled to (i) cancel the number of shares of Vision 21 common stock held by
the Ophthalmologist or, with respect to shares of Vision 21 common stock
entitled to be received by the Ophthalmologist pursuant to the Acquisition
Agreement, terminate its obligation to deliver such number of shares of Vision
21 common stock, valued as set forth in Section 6.6(a) of the Business
Management Agreement representing all or a portion of such liquidated damages
sum, or (ii) set off all or any of such liquidated damages sum against amounts
payable under any promissory note held by the Ophthalmologist, or do both of the
foregoing, but in no event shall Vision 21 be entitled to offset amounts in
excess of the liquidated damages sum pursuant to this Section 18.
Ophthalmologist further agrees that (i) such liquidated damages shall be in
addition to the remedies available to the Practice or Vision 21 as set forth in
Section 19 below, (ii) Vision 21 is a third-party beneficiary of this Section
18, (iii) this Section 18 is intended for the benefit of Vision 21, (iv) this
Section 18 may be enforced by the Practice's and Vision 21's successors and/or
assigns, and (v) the enforcement of this Section 18 will not violate public
policy. This Section 18 shall survive the termination or expiration of this
Employment Agreement. Notwithstanding the foregoing, Vision 21 shall not have
any right to enforce any provisions of this Employment Agreement if the Business
Management Agreement terminates pursuant to Section 6.2(a) of the Business
Management Agreement.
19. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a temporary
injunction, a temporary restraining order or other permanent injunction merely
prohibiting Ophthalmologist from engaging in the practice of medicine or
engaging in the management of any medical practice during the prohibited period
within the prohibited area would not be an adequate remedy upon breach or
threatened breach of this Employment Agreement, and consequently agrees, upon
any such breach or threatened breach, to the
Exhibit 4.1A - Page 7
<PAGE> 73
granting of injunctive relief prohibiting Ophthalmologist from engaging in any
activities prohibited by this Employment Agreement. No remedy herein conferred
is intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given hereunder
now or hereinafter existing at law or in equity or by statute or otherwise. It
is expressly understood and agreed by Ophthalmologist that although the parties
consider the restrictions contained in this Employment Agreement to be
reasonable, if a court determines that the time or territory or any other
restriction contained in this Employment Agreement is an unenforceable
restriction on the activities of Ophthalmologist, such provision in this
Employment Agreement shall not be rendered void but shall be deemed to be
amended to apply as to such maximum time and territory and to such extent as
such court may judicially determine or indicate to be reasonable. This Section
19 shall survive the termination or expiration of this Employment Agreement.
20. Successive Employment Notice. Within five (5) business days
after the Termination Date, Ophthalmologist shall provide notice to the Practice
of Ophthalmologist's next intended employment. If such employment is not known
by Ophthalmologist at such date, Ophthalmologist shall notify the Practice
immediately upon determination of such information. Ophthalmologist shall
continue to provide the Practice with notice of Ophthalmologist's place and
nature of employment and any change in place or nature of employment during the
period ending three (3) years after the expiration or termination of this
Employment Agreement. Failure of Ophthalmologist to provide the Practice with
such information in an accurate and timely fashion shall be deemed to be a
breach of this Employment Agreement and shall entitle the Practice to all
remedies provided for in this Employment Agreement as a result of such breach.
21. Business Management Agreement. Ophthalmologist agrees not to
commit any act or engage in any omission that would cause the Practice to breach
the Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Ophthalmologist and such
officer as may be specifically designated by the Board of Directors of the
Practice and by such officer as may be specifically designated by the Board of
Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time, and such waiver shall not operate or be
construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Ophthalmologist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable
Exhibit 4.1A - Page 8
<PAGE> 74
to the extent of any such invalidity or unenforceability. It is expressly
understood and agreed that while the Practice and Ophthalmologist consider the
restrictions contained in this Employment Agreement reasonable for the purpose
of preserving for the Practice the good will, other proprietary rights and
intangible business value of the Practice, if a final judicial determination is
made by a court having jurisdiction that the time or territory or any other
restriction contained in this Employment Agreement is an unreasonable or
otherwise unenforceable restriction against Ophthalmologist, the provisions of
such clause shall not be rendered void but shall be deemed amended to apply as
to maximum time and territory and to such other extent as such court may
judicially determine or indicate to be reasonable.
26. Third-Party Beneficiary. Vision 21 is a third-party
beneficiary of Sections 4, 15, 18, 19 and 25 of this Employment Agreement and
the restrictive covenants contained in this Employment Agreement are intended
for the benefit of Vision 21. Except as otherwise provided herein, this
Employment Agreement shall not confer any rights or remedies upon any person
other than the Practice, Ophthalmologist and Vision 21 and their respective
successors and permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State in which the Practice conducts
its business.
29. Counterparts. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed by
the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
LINDSTROM, SAMUELSON & HARDTEN
OPHTHALMOLOGY ASSOCIATES, P.A.
By
-------------------------------------
, its President
"OPHTHALMOLOGIST"
---------------------------------------
, M.D.
----------------------------------
Exhibit 4.1A - Page 9
<PAGE> 75
Exhibit 4.1B
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
List of Practice Shareholders
1. Richard L. Lindstrom, M.D.
2. Thomas W. Samuelson, M.D.
3. David R. Hardten, M.D.
<PAGE> 76
Exhibit 4.1C
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Form of Physician Employment Agreement (Shareholder - Key Professional)
PHYSICIAN EMPLOYMENT AGREEMENT
(SHAREHOLDER - KEY PROFESSIONAL)
This Physician Employment Agreement (this "Employment Agreement") dated
as of _______________, 19__, is by and between Lindstrom, Samuelson & Hardten
Ophthalmology Associates, P.A., a Minnesota professional association (the
"Practice"), and ______________________________, an individual (the
"Ophthalmologist").
R E C I T A L S
A. The Practice is a professional association organized under the
laws of the State of Minnesota (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. The Practice and Vision 21, Inc., a Florida corporation
("Vision 21") have entered into a Business Management Agreement (the "Business
Management Agreement") dated as of December 1, 1996, whereby Vision 21 has
agreed to provide various management services to the Practice and the Practice
has agreed to have its shareholder and key professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision 21
be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
C. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
D. The Ophthalmologist is licensed to practice medicine in the
State and desires to be employed by the Practice upon the terms and subject to
the conditions set forth in this Employment Agreement.
E. The Ophthalmologist possesses special knowledge relating to
the business and assets of the Practice and Vision 21 and has developed
valuable, long-term relationships with patients to be cared for by the Practice
which make him valuable to the Practice and which will contribute to the
Practice's and Vision 21's future success.
NOW, THEREFORE, in consideration of the premises, the mutual promises,
covenants and conditions herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby agree as follows:
<PAGE> 77
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist
is employed pursuant to the terms of this Employment Agreement to practice
medicine on behalf of the Practice. The Ophthalmologist shall devote
substantially all of his time, best efforts and attention to the practice of
medicine on behalf of the Practice and shall provide patient care of the highest
quality. In addition to the foregoing duties, the Ophthalmologist shall
undertake additional duties as directed by the Practice. During the term hereof
and any renewal, the Ophthalmologist shall not, without the written consent of
the Practice and Vision 21, (1) render professional services to or for any
person, firm, corporation or other organization for compensation; or (2) engage
in any activity that competes with the interest of the Practice or Vision 21
whether Ophthalmologist is acting by himself or as an officer, director,
shareholder, employee, partner or fiduciary. Any consent granted to the
Ophthalmologist shall be revocable by the Practice or Vision 21 at any time upon
thirty (30) days' notice, and the Ophthalmologist agrees to cease and desist
upon receipt of such notice. Notwithstanding the above, the Practice recognizes
that the Ophthalmologist shall have the right to engage in those matters
expressly described on Schedule 2.01 attached hereto so long as such permitted
activities do not result in materially reduced services to the Practice as
compared to the Ophthalmologist's previous services to his practice and so long
as the same does not materially impact the Ophthalmologist's ability to perform
hereunder or materially impact the Ophthalmologist's anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Medicine may from time to time establish standards and
requirements with regard to the practice of medicine by physicians licensed to
practice medicine. All restrictions contained herein with respect to the duties
and obligations of the Ophthalmologist shall be subject to said standards and
requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice. The Ophthalmologist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
Exhibit 4.1C - Page 2
<PAGE> 78
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The ophthalmologist of record for each patient
treated by Ophthalmologist shall be one of the individual owners of the
Practice.
4. Term of Employment. The term of employment of Ophthalmologist
by the Practice pursuant to this Employment Agreement shall be for three (3)
years (the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date"). The term of this Agreement shall renew automatically at
the end of each term of this Agreement for an additional three (3) year term
unless either party hereto provides notice to the other at least ninety (90)
days prior to the expiration of any term.
5. Place of Employment. Ophthalmologist's principal place of work
shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Ophthalmologist under this Employment Agreement, the
Practice shall pay to or provide Ophthalmologist with the compensation set forth
in Schedule 6 attached to this Agreement.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review
and evaluate the performance of Ophthalmologist under this Employment Agreement
with Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Ophthalmologist the Notice of
Termination (as hereinafter defined) and (ii) pay Ophthalmologist his annual
base salary through the Date of Termination (as hereinafter defined) at the rate
in effect at the time the Notice of Termination is given plus any bonus or
incentive compensation which have been earned or have become payable pursuant to
the terms of any compensation or benefit plan or have vested as of the Date of
Termination, but which have not yet been paid.
Exhibit 4.1C - Page 3
<PAGE> 79
11. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 11 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
11.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any
provision of this Employment Agreement which remains uncured for a period of
thirty (30) days after notification by Practice of the specific nature of the
breach;
(iii) for good cause which shall include
insubordination, conduct reflecting moral turpitude, conduct diminishing the
goodwill or reputation of the Practice, conduct disloyal to the Practice,
material violation of any representation, warranty or covenant of this
Agreement; conviction of any felony, or suspension or revocation of
Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
11.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination which shall not be less than
thirty (30) days from the date such Notice of Termination is given unless the
Notice of Termination is provided pursuant to Sections 11.01(iii), (iv) or (v),
in which case the Date of Termination shall be the date that Notice of
Termination is received by the Ophthalmologist.
11.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
12. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel incurred by the prevailing party in any and all proceedings arising out
of this Employment Agreement, including trial, appellate and bankruptcy
proceedings.
13. Notices. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage
Exhibit 4.1C - Page 4
<PAGE> 80
prepaid, or by expedited (overnight) courier with an established national
reputation, shipping prepaid or billed to sender, in either case addressed to
the respective addresses last given by each party in writing to the other
(provided that all notices to the Practice shall be directed to the attention of
the Practice with a copy to the Secretary of the Practice). All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
14. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Ophthalmologist, in such amounts and in such
form or forms as the Practice may determine. Ophthalmologist shall, at the
request of the Practice, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Practice has applied for such insurance.
Ophthalmologist hereby represents that to his knowledge there are no facts or
circumstances that would preclude the Practice from obtaining life insurance on
Ophthalmologist.
15. Proprietary Information and Inventions. Ophthalmologist
understands and acknowledges that:
15.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
(and by virtue of the Business Management Agreement entered into by the Practice
and Vision 21, Ophthalmologist's employment creates a relationship of confidence
and trust between the Ophthalmologist and Vision 21) with respect to certain
information applicable to the business of the Practice and Vision 21, which may
be made known to Ophthalmologist by the Practice or Vision 21 or learned by
Ophthalmologist during the Employment Period.
15.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or has otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered, or
developed by or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to the
contrary, the term "Proprietary Information" shall not include (i) information
which is in the public domain, (ii) information which is published or otherwise
becomes part of the public domain through no fault of Ophthalmologist, (iii)
information which Ophthalmologist can demonstrate was in Ophthalmologist's
possession at the time of disclosure and was not acquired by Ophthalmologist
directly or indirectly from the Practice or Vision 21 on a confidential basis,
(iv) information which becomes available to Ophthalmologist on a
non-confidential basis from a source other than the Practice or Vision 21 and
which source, to the best of Ophthalmologist's knowledge, did not acquire the
information on a confidential basis or (v) information required to be disclosed
by any
Exhibit 4.1C - Page 5
<PAGE> 81
federal or state law, rule or regulation or by any applicable judgment, order or
decree or any court or governmental body or agency having jurisdiction in the
premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's employment
by the Practice and after its termination or expiration, Ophthalmologist shall
keep in strictest confidence and trust all Proprietary Information, and
Ophthalmologist shall not use or disclose any Proprietary Information without
the written consent of the Practice and Vision 21, except as may be necessary in
the ordinary course of performing Ophthalmologist's duties as an employee of the
Practice. This Section 15 shall survive the termination or expiration of this
Employment Agreement.
16. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Ophthalmologist shall, at the request of the Practice,
promptly surrender to the Practice any patient files, records, or x-rays, as
well as any Proprietary Information or document, memorandum, record, patient
record, letter or other paper in his possession or under his control relating to
the operation, business or affairs of the Practice or Vision 21.
17. Prior Employment Agreements; Successor Employment Agreements.
Ophthalmologist represents and warrants that Ophthalmologist's performance of
all the terms of this Employment Agreement and as an employee of the Practice
does not, and will not, breach any agreement to keep in confidence proprietary
information acquired by Ophthalmologist in confidence or in trust prior to
Ophthalmologist's employment by the Practice. Ophthalmologist has not entered
into, and shall not enter into, any agreement, either written or oral, which is
in conflict with this Employment Agreement or which would be violated by
Ophthalmologist's entering into, or carrying out his obligations under, this
Employment Agreement. Following the expiration of the term of this Employment
Agreement, Ophthalmologist shall, if he intends to continue his relationship
with the Practice, execute a new Employment Agreement with the Practice in
substantially the form of Exhibit 4.1C of the Business Management Agreement.
18. Restrictive Covenant. Ophthalmologist acknowledges and
recognizes (i) that Ophthalmologist shall come into possession of Proprietary
Information and (ii) the highly competitive nature of the respective businesses
of the Practice and Vision 21 and, accordingly, agrees that in consideration of
the premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of one (1) year
following the date of expiration or termination of this Employment Agreement,
directly or indirectly (i) practice medicine or engage in the business of
managing ophthalmology or optometry practices or related eye care medical
facilities within the area described in Schedule 18, whether such engagement
shall be as an employer, officer, director, owner, employee, consultant,
stockholder, partner or other participant. Ophthalmologist further agrees that
during the period of Ophthalmologist's employment by Practice, and for a period
of two (2) years following the termination or expiration of this Employment
Agreement, Ophthalmologist will not, directly or indirectly, (i) solicit any
employee or consultant of Vision 21 or the Practice for the purposes of hiring
or retaining such employee or consultant, (ii) utilize the services of any
entity engaged in the business of managing ophthalmology or optometry practices
or related eye care or medical facilities, or (iii) contact any present or
prospective client of Vision 21 to solicit such person or entity to enter into a
management contract with any organization other than Vision 21. If
Ophthalmologist violates this
Exhibit 4.1C - Page 6
<PAGE> 82
Section, Ophthalmologist shall pay to Vision 21 the sum of Three Hundred
Thousand Dollars ($300,000) as agreed upon liquidated damages. The
Ophthalmologist acknowledges that such sum is reasonable in light of the
resulting loss of intangible asset value associated with the Ophthalmologist's
breach of this restrictive covenant. Ophthalmologist further agrees that (i)
such liquidated damages shall be in addition to the remedies available to the
Practice and Vision 21 as set forth in Section 19 below, (ii) Vision 21 is a
third-party beneficiary of this Section 18, (iii) this Section 18 is intended
for the benefit of Vision 21, (iv) this Section 18 may be enforced by the
Practice's and Vision 21's successors and/or assigns, and (v) the enforcement of
this Section 18 will not violate public policy. This Section 18 shall survive
the termination or expiration of this Employment Agreement. Notwithstanding the
foregoing, Vision 21 shall not have any right to enforce any provisions of this
Employment Agreement if the Business Management Agreement terminates pursuant to
Section 6.2(a) of the Business Management Agreement.
19. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a temporary
injunction, a temporary restraining order or other permanent injunction merely
prohibiting Ophthalmologist from engaging in the practice of medicine or
engaging in the management of any medical practice during the prohibited period
within the prohibited area would not be an adequate remedy upon breach or
threatened breach of this Employment Agreement, and consequently agrees, upon
any such breach or threatened breach, to the granting of injunctive relief
prohibiting Ophthalmologist from engaging in any activities prohibited by this
Employment Agreement. No remedy herein conferred is intended to be exclusive of
any other remedy, and each and every such remedy shall be cumulative and shall
be in addition to any other remedy given hereunder now or hereinafter existing
at law or in equity or by statute or otherwise. It is expressly understood and
agreed by Ophthalmologist that although the parties consider the restrictions
contained in this Employment Agreement to be reasonable, if a court determines
that the time or territory or any other restriction contained in this Employment
Agreement is an unenforceable restriction on the activities of Ophthalmologist,
such provision in this Employment Agreement shall not be rendered void but shall
be deemed to be amended to apply as to such maximum time and territory and to
such extent as such court may judicially determine or indicate to be reasonable.
This Section 19 shall survive the termination or expiration of this Employment
Agreement.
20. Business Management Agreement. Ophthalmologist agrees not to
commit any act or engage in any omission that would cause the Practice to breach
the Business Management Agreement with Vision 21.
21. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Ophthalmologist and such
officer as may be specifically designated by the Board of Directors of the
Practice and by such officer as may be specifically designated by the Board of
Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or conditions at the same
or at any prior or
Exhibit 4.1C - Page 7
<PAGE> 83
subsequent time, and such waiver shall not operate or be construed as a waiver
of any subsequent breach of the same provision or condition by any of the
Practice, Ophthalmologist or Vision 21.
22. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
23. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
24. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Ophthalmologist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Ophthalmologist, the
provisions of such clause shall not be rendered void but shall be deemed amended
to apply as to maximum time and territory and to such other extent as such court
may judicially determine or indicate to be reasonable.
25. Third-Party Beneficiary. Vision 21 is a third-party
beneficiary of Sections 4, 15, 18, 19 and 25 of this Employment Agreement and
the restrictive covenants contained in this Employment Agreement are intended
for the benefit of Vision 21. Except as otherwise provided herein, this
Employment Agreement shall not confer any rights or remedies upon any person
other than the Practice, Ophthalmologist and Vision 21 and their respective
successors and permitted assigns.
26. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
27. Governing Law. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State in which the Practice conducts
its business.
28. Counterparts. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
Exhibit 4.1C - Page 8
<PAGE> 84
IN WITNESS WHEREOF, this Employment Agreement has been duly executed by
the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
LINDSTROM, SAMUELSON & HARDTEN
OPHTHALMOLOGY ASSOCIATES, P.A.
By
------------------------------------
, its President
"OPHTHALMOLOGIST"
--------------------------------------
, Ophthalmologist
Exhibit 4.1C - Page 9
<PAGE> 85
Exhibit 4.2A
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Form of Physician Employment Agreement (Non-Shareholder)
PHYSICIAN EMPLOYMENT AGREEMENT
(NON-SHAREHOLDER)
This Physician Employment Agreement (this "Employment Agreement") dated
as of _______________, 19__, is by and between Lindstrom, Samuelson & Hardten
Ophthalmology Associates, P.A., a Minnesota professional association (the
"Practice"), and ______________________________, an individual (the
"Ophthalmologist").
R E C I T A L S:
A. The Practice is a professional association organized under the
laws of the State of Minnesota (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
C. The Ophthalmologist is licensed to practice medicine in the
State and desires to be employed by the Practice upon the terms and subject to
the conditions set forth in this Employment Agreement.
D. The Practice and Vision 21, Inc. ("Vision 21") have entered
into a Business Management Agreement (the "Business Management Agreement")
whereby Vision 21 has agreed to have its professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision 21
be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist is
employed pursuant to the terms of this Employment Agreement to practice medicine
on behalf of the Practice. The Ophthalmologist shall devote substantially all of
his time, best efforts and attention to the practice of medicine on behalf of
the Practice and shall provide quality patient care. In addition to the
foregoing duties, the Ophthalmologist shall undertake additional duties as
directed by the Practice. During the term hereof and any renewal, the
Ophthalmologist shall not, without the written consent of the Practice and
Vision 21,
<PAGE> 86
(1) render professional services to or for any person, firm, corporation or
other organization for compensation; or (2) engage in any activity that competes
with the interest of the Practice or Vision 21 whether Ophthalmologist is acting
by himself or as an officer, director, shareholder, employee, partner or
fiduciary. Any consent granted to the Ophthalmologist shall be revocable by the
Practice or Vision 21 at any time upon thirty (30) days' notice, and the
Ophthalmologist agrees to cease and desist upon receipt of such notice.
Notwithstanding the above, the Practice recognizes that the Ophthalmologist
shall have the right to engage in those matters expressly described on Schedule
2.01 attached hereto so long as such permitted activities do not result in
materially reduced services to the Practice as compared to the Ophthalmologist's
previous services to his practice and so long as the same does not materially
impact the Ophthalmologist's ability to perform hereunder or materially impact
the Ophthalmologist's anticipated productivity.
2.02 Subject to Board Standards and Requirements. The Practice
recognizes that professional regulatory groups and bodies such as the State
Board of Medicine may from time to time establish standards and requirements
with regard to the practice of medicine by physicians licensed to practice
medicine. All restrictions contained herein with respect to the duties and
obligations of the Ophthalmologist shall be subject to said standards and
requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice. The Ophthalmologist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The ophthalmologist of record for each patient
treated by Ophthalmologist shall be one of the individual owners of the
Practice.
4. Term of Employment. The term of employment of Ophthalmologist by the
Practice pursuant to this Employment Agreement shall be for two (2) years (the
"Employment Period") commencing on the date of this Agreement (the "Commencement
Date") unless otherwise terminated earlier under the
Exhibit 4.2A - Page 2
<PAGE> 87
provisions of this Employment Agreement. The term of this Agreement shall renew
automatically at the end of each term of this Agreement for an additional two
(2) year term unless either party hereto provides notice to the other at least
ninety (90) days prior to the expiration of the term.
5. Place of Employment. Ophthalmologist's principal place of work shall
be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Ophthalmologist under this Employment Agreement, the
Practice shall pay to or provide Ophthalmologist with the compensation set forth
in Schedule 6 attached to this Agreement.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review and
evaluate the performance of Ophthalmologist under this Employment Agreement with
Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment Agreement
may be terminated with Cause (as hereinafter defined) by the Practice provided
that the Practice shall (i) give Ophthalmologist the Notice of Termination (as
hereinafter defined) and (ii) pay Ophthalmologist his annual base salary through
the Date of Termination (as hereinafter defined) at the rate in effect at the
time the Notice of Termination is given plus any bonus or incentive compensation
which have been earned or have become payable pursuant to the terms of any
compensation or benefit plan or have vested as of the Date of Termination, but
which have not yet been paid.
11. Termination without Cause by the Practice or with Cause by the
Ophthalmologist. This Employment Agreement may be terminated by the Practice
without cause or by the Ophthalmologist with cause and in the event that the
Practice terminates the Ophthalmologist without cause, the Practice shall give
written notice to the Ophthalmologist at least ninety (90) days prior to the
Date of Termination.
12. Definitions. In addition to the words and terms elsewhere defined
in this Employment Agreement, certain capitalized words and terms used in this
Employment Agreement shall have the meanings given to them by the definitions
and descriptions in this Section 12 unless the context or use indicates another
or different meaning or intent, and such definition shall be equally applicable
to both the singular and plural forms of any of the capitalized words and terms
herein defined. The following words and terms are defined terms under this
Employment Agreement:
12.01 Cause. A termination with "Cause" by the Practice shall
mean a termination of this Employment Agreement for any of the following
reasons:
Exhibit 4.2A - Page 3
<PAGE> 88
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any provision
of this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
absenteeism, theft, dishonesty, insubordination, conduct reflecting moral
turpitude, conduct diminishing the goodwill or reputation of the Practice;
conduct disloyal to the Practice, violation of any representation, warranty or
covenant of this Agreement; conviction of any felony, or suspension or
revocation of Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
12.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination.
12.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
13. Fees and Expenses. The prevailing party in any contest or dispute
under this Employment Agreement shall receive from the other party all legal
fees and related expenses (including the costs of experts, evidence and counsel)
incurred by the prevailing party in any and all proceedings as a result of a
contest or dispute arising out of this Employment Agreement including trial,
appellate and bankruptcy proceedings.
14. Notices. For the purposes of this Employment Agreement, notices
and all other communications provided for in the Employment Agreement shall be
in writing and shall be deemed to have been duly given when personally delivered
or sent by certified mail, return receipt requested, postage prepaid, or by
expedited (overnight) courier with an established national reputation, shipping
prepaid or billed to sender, in either case addressed to the respective
addresses last given by each party in writing to the other (provided that all
notices to the Practice shall be directed to the attention of the Practice with
a copy to the Secretary of the Practice. All notices and communication shall be
deemed to have been received on the date of delivery thereof, on the third
business day after the mailing thereof, or on the second day after deposit
thereof with an expedited courier service, except that notice of change of
address shall be effective only upon receipt.
15. Life Insurance. The Practice may, at any time after the execution
of this Employment Agreement, apply for and procure as owner and for its own
benefit, life insurance on Ophthalmologist, in such amounts and in such form or
forms as the Practice may determine. Ophthalmologist shall, at the request of
the Practice, submit to such medical examinations, supply such information, and
execute such documents as may be required by the insurance company or companies
to whom the Practice has applied
Exhibit 4.2A - Page 4
<PAGE> 89
for such insurance. Ophthalmologist hereby represents that to his knowledge
there are no facts or circumstances that would preclude the Practice from
obtaining life insurance on Ophthalmologist.
16. Proprietary Information and Inventions. Ophthalmologist understands
and acknowledges that:
16.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
with respect to certain information applicable to the business of the Practice,
and Vision 21 which may be made known to Ophthalmologist by the Practice or
Vision 21 or learned by Ophthalmologist during the Employment Period.
16.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered or
developed by, or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to the
contrary, the term "Proprietary Information" shall not include (i) information
which is in the public domain, (ii) information which is published or otherwise
becomes part of the public domain through no fault of Ophthalmologist, (iii)
information which Ophthalmologist can demonstrate was in Ophthalmologist's
possession at the time of disclosure and was not acquired by Ophthalmologist
directly or indirectly from the Practice or Vision 21 on a confidential basis,
(iv) information which becomes available to Ophthalmologist on a
non-confidential basis from a source other than the Practice or Vision 21 and
which source, to the best of Ophthalmologist's knowledge, did not acquire the
information on a confidential basis or (v) information required to be disclosed
by any federal or state law, rule or regulation or by any applicable judgment,
order or decree or any court or governmental body or agency having jurisdiction
in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's employment
by the Practice and after its termination or expiration, Ophthalmologist shall
keep in strictest confidence and trust all Proprietary Information, and
Ophthalmologist shall not use or disclose any Proprietary Information without
the written consent of the Practice and Vision 21, except as may be necessary in
the ordinary course of performing Ophthalmologist's duties as an employee of the
Practice. This Section 16 shall survive the termination or expiration of this
Employment Agreement.
17. Patient Files and Surrender of Documents. To the extent permitted
by law, all records contained in the files of patients shall be the property of
the Practice. Ophthalmologist shall, at the request of the Practice, promptly
surrender to the Practice any patient files, records, or x-rays, as well as any
Proprietary Information or document, memorandum, record, patient record, letter
or other paper in his possession or under his control relating to the operation,
business or affairs of the Practice or Vision 21.
Exhibit 4.2A - Page 5
<PAGE> 90
18. Prior Employment Agreements. Ophthalmologist represents and
warrants that Ophthalmologist's performance of all the terms of this Employment
Agreement and as an employee of the Practice does not, and will not, breach any
agreement to keep in confidence proprietary information acquired by
Ophthalmologist in confidence or in trust prior to Ophthalmologist's employment
by the Practice. Ophthalmologist has not entered into, and shall not enter into,
any agreement, either written or oral, which is in conflict with this Employment
Agreement or which would be violated by Ophthalmologist's entering into, or
carrying out his obligations under, this Employment Agreement.
19. Restrictive Covenant. Ophthalmologist acknowledges and recognizes
(i) that Ophthalmologist shall come into possession of Proprietary Information
and (ii) the highly competitive nature of the respective businesses of the
Practice and Vision 21 and, accordingly, agrees that in consideration of the
premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of one (1) year
following the date of expiration or termination of this Employment Agreement
(unless terminated without cause by the Practice), directly or indirectly (i)
practice medicine or engage in the business of managing ophthalmology or
optometry practices or related eye care medical facilities within the area
described in Schedule 19, whether such engagement shall be as an employer,
officer, director, owner, employee, consultant, stockholder, partner or other
participant. Ophthalmologist further agrees that during the period of
Ophthalmologist's employment by Practice, and for a period of one (1) year
following the termination or expiration of this Employment Agreement,
Ophthalmologist will not, directly or indirectly, (i) solicit any employee or
consultant of Vision 21 for the purposes of hiring or retaining such employee or
consultant, (ii) utilize the services of any entity engaged in the business of
managing ophthalmology or optometry practices or related eye care or medical
facilities, or (iii) contact any present or prospective client of Vision 21 to
solicit such person or entity to enter into a management contract with any
organization other than Vision 21. Ophthalmologist further agrees that (i)
Vision 21 is a third-party beneficiary of this Section 19, (ii) this Section 19
is intended for the benefit of Vision 21, (iii) this Section 19 may be enforced
by Practice's and Vision 21's successors and/or assigns, and (iv) the
enforcement of this Section 19 will not violate public policy. This Section 19
shall survive the termination or expiration of this Employment Agreement.
Notwithstanding the foregoing, Vision 21 shall not have any right to enforce any
provisions of this Employment Agreement if the Business Management Agreement
terminates pursuant to Section 6.2(a) of the Business Management Agreement.
20. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to, equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a temporary
injunction, a temporary restraining order or other permanent injunction merely
prohibiting Ophthalmologist from engaging in the practice of medicine or
engaging in the management of any medical practice during the prohibited period
within the prohibited area would not be an adequate remedy upon breach or
threatened breach of this Employment Agreement, and consequently agrees upon any
such breach or threatened breach to the granting of injunctive relief
prohibiting Ophthalmologist from engaging in any activities prohibited by this
Employment Agreement. No remedy herein conferred is intended to be exclusive of
any other remedy, and each and every such remedy shall be cumulative and shall
be in addition to any other remedy given hereunder now or hereinafter existing
at law or in equity or by statute or otherwise. It is expressly understood and
agreed by Ophthalmologist that although the parties consider the restrictions
contained in this Employment Agreement to be reasonable, if a court determines
that the time or territory or any other
Exhibit 4.2A - Page 6
<PAGE> 91
restriction contained in this Employment Agreement is an unenforceable
restriction on the activities of Ophthalmologist, as such provision in this
Employment Agreement shall not be rendered void but shall be deemed to be
amended as to apply to such maximum time and territory and to such extent as
such court may judicially determine or indicate to be reasonable. This Section
20 shall survive the termination or expiration of this Employment Agreement.
21. Business Management Agreement. Ophthalmologist agrees not to commit
any act or engage in any omission that would cause the Practice to breach the
Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Ophthalmologist and such officer
as may be specifically designated by the Board of Directors of the Practice and
by such officer as may be specifically designated by the Board of Directors of
Vision 21. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Employment Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time, and such waiver shall not operate or be construed as a
waiver of any subsequent breach of the same provision or condition by any of the
Practice, Ophthalmologist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and conditions
of this Employment Agreement shall be valid unless the same are in writing and
signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any provision
of this Employment Agreement, whether in whole or in part, shall not in any way
affect the validity and/or enforceability of any other provision herein
contained. Any invalid or unenforceable provision shall be deemed severable to
the extent of any such invalidity or unenforceability. It is expressly
understood and agreed that while the Practice and Ophthalmologist consider the
restrictions contained in this Employment Agreement reasonable for the purpose
of preserving for the Practice the good will, other proprietary rights and
intangible business value of the Practice, if a final judicial determination is
made by a court having jurisdiction that the time or territory or any other
restriction contained in this Employment Agreement is an unreasonable or
otherwise unenforceable restriction against Ophthalmologist, the provisions of
such clause shall not be rendered void but shall be deemed amended to apply as
to maximum time and territory and to such other extent as such court may
judicially determine or indicate to be reasonable.
26. Third Party Beneficiary. Vision 21 is a third-party beneficiary of
Sections 4, 16, 17, 19, 20 and 25 of this Employment Agreement and the
restrictive covenants contained in this Employment Agreement are intended for
the benefit of Vision 21. Except as otherwise provided herein, this Employment
Agreement shall not confer any rights or remedies upon any person other than the
Practice, Ophthalmologist and Vision 21 and their respective successors and
permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's successors
and/or assigns are authorized to enforce the restrictive covenants contained in
this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed and
enforced pursuant to the laws of the State in which the Practice conducts its
business.
Exhibit 4.2A - Page 7
<PAGE> 92
29. Counterparts. This Employment Agreement may be executed in more
than one (1) counterpart and each counterpart shall be considered an original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed by
the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
LINDSTROM, SAMUELSON & HARDTEN
OPHTHALMOLOGY ASSOCIATES, P.A.
By
-------------------------------------
, its President
"OPHTHALMOLOGIST"
---------------------------------------
, Ophthalmologist
Exhibit 4.2A - Page 8
<PAGE> 93
Exhibit 4.2B
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Form of Optometrist Employment Agreement
OPTOMETRIST EMPLOYMENT AGREEMENT
(NON-SHAREHOLDER)
This Optometrist Employment Agreement (this "Employment Agreement")
dated as of _______________, 19__, is by and between Lindstrom, Samuelson &
Hardten Ophthalmology Associates, P.A., a Minnesota professional association
(the "Practice"), and ______________________________, an individual (the
"Optometrist").
R E C I T A L S:
A. The Practice is a professional association organized under the
laws of the State of Minnesota (the "State") and is authorized to practice
optometry in the State through licensed individuals.
B. The Practice desires to employ Optometrist upon the terms and
subject to the terms and conditions set forth in this Employment Agreement.
C. The Optometrist is licensed to practice optometry in the State
and desires to be employed by the Practice upon the terms and subject to the
conditions set forth in this Employment Agreement.
D. The Practice and Vision 21, Inc. ("Vision 21") have entered
into a Business Management Agreement (the "Business Management Agreement")
whereby Vision 21 has agreed to have its professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision 21
be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. Employment. The Practice hereby employs Optometrist, and Optometrist
hereby accepts employment with the Practice, all upon the terms and subject to
the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Optometry. The Optometrist is
employed pursuant to the terms of this Employment Agreement to practice
optometry on behalf of the Practice. The Optometrist shall devote substantially
all of his time, best efforts and attention to the practice of optometry on
behalf of the Practice and shall provide quality patient care. In addition to
the foregoing duties, the Optometrist shall undertake additional duties as
directed by the Practice. During the term hereof and any renewal, the
Optometrist shall not, without the written consent of the Practice and Vision
21, (1) render professional
<PAGE> 94
services to or for any person, firm, corporation or other organization for
compensation; or (2) engage in any activity that competes with the interest of
the Practice or Vision 21 whether Optometrist is acting by himself or as an
officer, director, shareholder, employee, partner or fiduciary. Any consent
granted to the Optometrist shall be revocable by the Practice or Vision 21 at
any time upon thirty (30) days' notice, and the Optometrist agrees to cease and
desist upon receipt of such notice. Notwithstanding the above, the Practice
recognizes that the Optometrist shall have the right to engage in those matters
expressly described on Schedule 2.01 attached hereto so long as such permitted
activities do not result in materially reduced services to the Practice as
compared to the Optometrist's previous services to his practice and so long as
the same does not materially impact the Optometrist's ability to perform
hereunder or materially impact the Optometrist's anticipated productivity.
2.02 Subject to Board Standards and Requirements. The Practice
recognizes that professional regulatory groups and bodies such as the State
Board of Optometry may from time to time establish standards and requirements
with regard to the practice of optometry by optometrists licensed to practice
optometry. All restrictions contained herein with respect to the duties and
obligations of the Optometrist shall be subject to said standards and
requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Optometrist recognizes that the Practice shall
have complete authority with regard to the acceptance for treatment of or the
refusal to treat any patient and the Practice shall have complete authority with
regard to the establishment of the appropriate fee for professional service.
3.02 The Practice shall direct and control the assignment
of patients to the Optometrist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Optometrist agrees to treat such patients as are assigned to him by the
Practice. The Optometrist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Optometrist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Optometrist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Optometrist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The optometrist of record for each patient treated by
Optometrist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Optometrist by the
Practice pursuant to this Employment Agreement shall be for two (2) years (the
"Employment Period") commencing on the date of this Agreement (the "Commencement
Date") unless otherwise terminated earlier under the provisions of this
Employment Agreement. The term of this Agreement shall renew automatically at
the
Exhibit 4.2B - Page 2
<PAGE> 95
end of each term of this Agreement for an additional two (2) year term unless
either party hereto provides notice to the other at least ninety (90) days prior
to the expiration of the term.
5. Place of Employment. Optometrist's principal place of work shall be
located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Optometrist under this Employment Agreement, the
Practice shall pay to or provide Optometrist with the compensation set forth in
Schedule 6 attached to this Agreement.
7. Adherence to Standards. Optometrist shall comply with the written
policies, standards, rules and regulations of the Practice from time to time
established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review and
evaluate the performance of Optometrist under this Employment Agreement with
Optometrist.
9. Expenses. The Practice may reimburse Optometrist for reasonable,
ordinary and necessary expenses incurred by him in connection with his
employment hereunder that have been approved in advance by the Practice;
provided, however, Optometrist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment Agreement
may be terminated with Cause (as hereinafter defined) by the Practice provided
that the Practice shall (i) give Optometrist the Notice of Termination (as
hereinafter defined) and (ii) pay Optometrist his annual base salary through the
Date of Termination (as hereinafter defined) at the rate in effect at the time
the Notice of Termination is given plus any bonus or incentive compensation
which have been earned or have become payable pursuant to the terms of any
compensation or benefit plan or have vested as of the Date of Termination, but
which have not yet been paid.
11. Termination without Cause by the Practice or with Cause by the
Optometrist. This Employment Agreement may be terminated by the Practice without
cause or by the Optometrist with cause and in the event that the Practice
terminates the Optometrist without cause, the Practice shall give written notice
to the Optometrist at least ninety (90) days prior to the Date of Termination.
12. Definitions. In addition to the words and terms elsewhere defined
in this Employment Agreement, certain capitalized words and terms used in this
Employment Agreement shall have the meanings given to them by the definitions
and descriptions in this Section 12 unless the context or use indicates another
or different meaning or intent, and such definition shall be equally applicable
to both the singular and plural forms of any of the capitalized words and terms
herein defined. The following words and terms are defined terms under this
Employment Agreement:
12.01 Cause. A termination with "Cause" by the Practice shall mean a
termination of this Employment Agreement for any of the following reasons:
Exhibit 4.2B - Page 3
<PAGE> 96
(i) Optometrist's failure to promptly and adequately
perform the duties assigned by Practice after being notified by the Practice of
the specific act(s) constituting such failure and being given a period of thirty
(30) days after notification by the Practice to correct such failure;
(ii) upon Optometrist's breach of any provision of
this Employment Agreement which remains uncured for a period of thirty (30) days
after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include absenteeism,
theft, dishonesty, insubordination, conduct reflecting moral turpitude, conduct
diminishing the goodwill or reputation of the Practice; conduct disloyal to the
Practice, violation of any representation, warranty or covenant of this
Agreement; conviction of any felony, or suspension or revocation of
Optometrist's license to practice optometry;
(iv) upon Optometrist's death; or
(v) upon Optometrist's disability if the disability
renders Optometrist unable to practice optometry on a full-time basis for a
period of more than ninety (90) days in any consecutive six (6) month period.
12.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination.
12.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
13. Fees and Expenses. The prevailing party in any contest or dispute
under this Employment Agreement shall receive from the other party all legal
fees and related expenses (including the costs of experts, evidence and counsel)
incurred by the prevailing party in any and all proceedings as a result of a
contest or dispute arising out of this Employment Agreement including trial,
appellate and bankruptcy proceedings.
14. Notices. For the purposes of this Employment Agreement, notices
and all other communications provided for in the Employment Agreement shall be
in writing and shall be deemed to have been duly given when personally delivered
or sent by certified mail, return receipt requested, postage prepaid, or by
expedited (overnight) courier with an established national reputation, shipping
prepaid or billed to sender, in either case addressed to the respective
addresses last given by each party in writing to the other (provided that all
notices to the Practice shall be directed to the attention of the Practice with
a copy to the Secretary of the Practice. All notices and communication shall be
deemed to have been received on the date of delivery thereof, on the third
business day after the mailing thereof, or on the second day after deposit
thereof with an expedited courier service, except that notice of change of
address shall be effective only upon receipt.
15. Life Insurance. The Practice may, at any time after the execution
of this Employment Agreement, apply for and procure as owner and for its own
benefit, life insurance on Optometrist, in such amounts and in such form or
forms as the Practice may determine. Optometrist shall, at the request of the
Practice, submit to such medical examinations, supply such information, and
execute such documents as may be required by the insurance company or companies
to whom the Practice has applied for such
Exhibit 4.2B - Page 4
<PAGE> 97
insurance. Optometrist hereby represents that to his knowledge there are no
facts or circumstances that would preclude the Practice from obtaining life
insurance on Optometrist.
16. Proprietary Information and Inventions. Optometrist understands and
acknowledges that:
16.01 Trust. Optometrist's employment creates a relationship
of confidence and trust between Optometrist and the Practice with respect to
certain information applicable to the business of the Practice, and Vision 21
which may be made known to Optometrist by the Practice or Vision 21 or learned
by Optometrist during the Employment Period.
16.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered or
developed by, or made known to Optometrist during the period of or arising out
of employment by the Practice) or in which property rights have been or may be
assigned or otherwise conveyed to the Practice or Vision 21, which information
has commercial value in the respective businesses in which the Practice and
Vision 21 are engaged and is treated by the Practice and Vision 21 as
confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to the
contrary, the term "Proprietary Information" shall not include (i) information
which is in the public domain, (ii) information which is published or otherwise
becomes part of the public domain through no fault of Optometrist, (iii)
information which Optometrist can demonstrate was in Optometrist's possession at
the time of disclosure and was not acquired by Optometrist directly or
indirectly from the Practice or Vision 21 on a confidential basis, (iv)
information which becomes available to Optometrist on a non-confidential basis
from a source other than the Practice or Vision 21 and which source, to the best
of Optometrist's knowledge, did not acquire the information on a confidential
basis or (v) information required to be disclosed by any federal or state law,
rule or regulation or by any applicable judgment, order or decree or any court
or governmental body or agency having jurisdiction in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Optometrist assigns to the Practice
and Vision 21 any rights Optometrist may have or acquire in such Proprietary
Information. At all times, both during Optometrist's employment by the Practice
and after its termination or expiration, Optometrist shall keep in strictest
confidence and trust all Proprietary Information, and Optometrist shall not use
or disclose any Proprietary Information without the written consent of the
Practice and Vision 21, except as may be necessary in the ordinary course of
performing Optometrist's duties as an employee of the Practice. This Section 16
shall survive the termination or expiration of this Employment Agreement.
17. Patient Files and Surrender of Documents. To the extent permitted
by law, all records contained in the files of patients shall be the property of
the Practice. Optometrist shall, at the request of the Practice, promptly
surrender to the Practice any patient files, records, or x-rays, as well as any
Proprietary Information or document, memorandum, record, patient record, letter
or other paper in his possession or under his control relating to the operation,
business or affairs of the Practice or Vision 21.
Exhibit 4.2B - Page 5
<PAGE> 98
18. Prior Employment Agreements. Optometrist represents and warrants
that Optometrist's performance of all the terms of this Employment Agreement and
as an employee of the Practice does not, and will not, breach any agreement to
keep in confidence proprietary information acquired by Optometrist in confidence
or in trust prior to Optometrist's employment by the Practice. Optometrist has
not entered into, and shall not enter into, any agreement, either written or
oral, which is in conflict with this Employment Agreement or which would be
violated by Optometrist's entering into, or carrying out his obligations under,
this Employment Agreement.
19. Restrictive Covenant. Optometrist acknowledges and recognizes (i)
that Optometrist shall come into possession of Proprietary Information and (ii)
the highly competitive nature of the respective businesses of the Practice and
Vision 21 and, accordingly, agrees that in consideration of the premises
contained herein Optometrist will not, during the period of Optometrist's
employment by the Practice and for a period of one (1) year following the date
of expiration or termination of this Employment Agreement (unless terminated
without cause by the Practice), directly or indirectly (i) practice optometry or
engage in the business of managing optometry practices or related eye care
optometric facilities within the area described in Schedule 19, whether such
engagement shall be as an employer, officer, director, owner, employee,
consultant, stockholder, partner or other participant. Optometrist further
agrees that during the period of Optometrist's employment by Practice, and for a
period of one (1) year following the termination or expiration of this
Employment Agreement, Optometrist will not, directly or indirectly, (i) solicit
any employee or consultant of Vision 21 for the purposes of hiring or retaining
such employee or consultant, (ii) utilize the services of any entity engaged in
the business of managing optometry practices or related eye care or optometric
facilities, or (iii) contact any present or prospective client of Vision 21 to
solicit such person or entity to enter into a management contract with any
organization other than Vision 21. Optometrist further agrees that (i) Vision 21
is a third-party beneficiary of this Section 19, (ii) this Section 19 is
intended for the benefit of Vision 21, (iii) this Section 19 may be enforced by
Practice's and Vision 21's successors and/or assigns, and (iv) the enforcement
of this Section 19 will not violate public policy. This Section 19 shall survive
the termination or expiration of this Employment Agreement. Notwithstanding the
foregoing, Vision 21 shall not have any right to enforce any provisions of this
Employment Agreement if the Business Management Agreement terminates pursuant to
Section 6.2(a) of the Business Management Agreement.
20. Remedies. Optometrist acknowledges and agrees that the Practice's
and Vision 21's remedy at law for a breach or a threatened breach of the
provisions herein would be inadequate, and in recognition of this fact, in the
event of a breach or threatened breach by Optometrist of any of the provisions
of this Employment Agreement, it is agreed that the Practice and Vision 21 shall
be entitled to, equitable relief in the form of specific performance, a
temporary restraining order, a temporary or permanent injunction or any other
equitable remedy which may then be available, without posting bond or other
security. Optometrist acknowledges that the granting of a temporary injunction,
a temporary restraining order or other permanent injunction merely prohibiting
Optometrist from engaging in the practice of optometry or engaging in the
management of any optometric practice during the prohibited period within the
prohibited area would not be an adequate remedy upon breach or threatened breach
of this Employment Agreement, and consequently agrees upon any such breach or
threatened breach to the granting of injunctive relief prohibiting Optometrist
from engaging in any activities prohibited by this Employment Agreement. No
remedy herein conferred is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to any
other remedy given hereunder now or hereinafter existing at law or in equity or
by statute or otherwise. It is expressly understood and agreed by Optometrist
that although the parties consider the restrictions contained in this Employment
Agreement to be reasonable, if a court determines that the time or territory or
any other restriction contained in this Employment Agreement is an unenforceable
restriction on the activities of Optometrist, as such provision
Exhibit 4.2B - Page 6
<PAGE> 99
in this Employment Agreement shall not be rendered void but shall be deemed to
be amended as to apply to such maximum time and territory and to such extent as
such court may judicially determine or indicate to be reasonable. This Section
20 shall survive the termination or expiration of this Employment Agreement.
21. Business Management Agreement. Optometrist agrees not to commit any
act or engage in any omission that would cause the Practice to breach the
Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment Agreement
may be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing and signed by Optometrist and such officer as
may be specifically designated by the Board of Directors of the Practice and by
such officer as may be specifically designated by the Board of Directors of
Vision 21. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Employment Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time, and such waiver shall not operate or be construed as a
waiver of any subsequent breach of the same provision or condition by any of the
Practice, Optometrist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and conditions
of this Employment Agreement shall be valid unless the same are in writing and
signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any provision
of this Employment Agreement, whether in whole or in part, shall not in any way
affect the validity and/or enforceability of any other provision herein
contained. Any invalid or unenforceable provision shall be deemed severable to
the extent of any such invalidity or unenforceability. It is expressly
understood and agreed that while the Practice and Optometrist consider the
restrictions contained in this Employment Agreement reasonable for the purpose
of preserving for the Practice the good will, other proprietary rights and
intangible business value of the Practice, if a final judicial determination is
made by a court having jurisdiction that the time or territory or any other
restriction contained in this Employment Agreement is an unreasonable or
otherwise unenforceable restriction against Optometrist, the provisions of such
clause shall not be rendered void but shall be deemed amended to apply as to
maximum time and territory and to such other extent as such court may judicially
determine or indicate to be reasonable.
26. Third Party Beneficiary. Vision 21 is a third-party beneficiary of
Sections 4, 16, 17, 19, 20 and 25 of this Employment Agreement and the
restrictive covenants contained in this Employment Agreement are intended for
the benefit of Vision 21. Except as otherwise provided herein, this Employment
Agreement shall not confer any rights or remedies upon any person other than the
Practice, ophthalmologist and Vision 21 and their respective successors and
permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's successors
and/or assigns are authorized to enforce the restrictive covenants contained in
this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed and
enforced pursuant to the laws of the State in which the Practice conducts its
business.
Exhibit 4.2B - Page 7
<PAGE> 100
29. Counterparts. This Employment Agreement may be executed in more
than one (1) counterpart and each counterpart shall be considered an original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed by
the Practice and Optometrist as of the date first above written.
"PRACTICE"
LINDSTROM, SAMUELSON & HARDTEN
OPHTHALMOLOGY ASSOCIATES, P.A.
By
-------------------------------------
, its President
"OPTOMETRIST"
---------------------------------------
, Optometrist
Exhibit 4.2B - Page 8
<PAGE> 101
Exhibit 4.2C
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
List of Non-Shareholder Professionals
in Non-Standard Employment Contracts
None
<PAGE> 102
Exhibit 4.17
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
SHAREHOLDERS' UNDERTAKING TO MAINTAIN PRACTICE'S
CORPORATE EXISTENCE AND ENFORCEMENT OF COVENANTS
NOT TO COMPETE
As an inducement to the Business Manager to enter into this Business
Management Agreement with the Practice or as required in the Business Management
Agreement, each of the undersigned person(s), having an ownership interest in
the Practice, irrevocably and unconditionally covenants and agrees to maintain
in good standing the corporate existence of the Practice under the laws of the
State and to cause the Practice to use its best efforts to enforce employment
agreements (including those covenants not to compete requirements described in
Sections 4.1 and 4.2) against any individuals violating such employment
agreements (and covenants not to compete). The undersigned persons further
unconditionally covenant and agree to indemnify and hold harmless Business
Manager from and against any and all claims requirements, demands, liabilities,
losses, damages, costs and expenses, including reasonable attorneys' fees,
resulting in any manner from the failure of the Practice to remain in good
standing under the laws of the State or the failure of the Practice to use its
best efforts to enforce those employment agreements and covenants not to compete
described in Section 4.1 and 4.2 of such Business Management Agreement, a copy
of which has been delivered to the undersigned for his review. The undersigned
acknowledges that he or she has received adequate consideration for the
execution hereof. After a period of five (5) years from December 1, 1996, this
Undertaking may be assumed by a successor Shareholder or Shareholders, in
accordance with the terms and conditions set forth in Section 4.1 of the
Business Management Agreement, whereupon the undersigned shall be released to
the extent of such assumption, provided that any such successor Shareholder
executes a form similar to this.
IN WITNESS WHEREOF, the undersigned(s) have executed this Shareholders'
Undertaking as of the day and year written opposite such shareholder's name.
Date:
----------------- ---------------------------------------------------
Richard L. Lindstrom, M.D.
Date:
----------------- ---------------------------------------------------
Thomas W. Samuelson, M.D.
Date:
----------------- ---------------------------------------------------
David R. Hardten, M.D.
<PAGE> 103
Exhibit 5.1
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
Management Fee Percentage
Thirty percent (30%)
<PAGE> 104
Exhibit 6.4(f)
to Business Management Agreement among Lindstrom,
Samuelson & Hardten Ophthalmology Associates, P.A.
(the "Practice"), and Vision 21, Inc. ("Business
Manager")
SHAREHOLDERS' UNDERTAKING TO CARRY OUT
PRACTICE'S PURCHASE OBLIGATION
As an inducement to the Business Manager to enter into this Business
Management Agreement with the Practice or as required in Business Management
Agreement, each of the undersigned person(s), having an ownership interest in
the Practice, irrevocably and unconditionally covenants and agrees subject to
the limitations contained in the Business Management Agreement to (i) cause the
Practice to carry out the purchase obligation described in Section 6.4(f) of the
Business Management Agreement, (ii) personally execute and deliver the personal
guarantees and security agreements referred to in Section 6.4(f) of such
Business Management Agreement, a copy of which has been delivered to the
undersigned for his review, and (iii) execute the documents described in Section
6.6. The undersigned acknowledges that he or she has received adequate
consideration for the execution hereof.
IN WITNESS WHEREOF, the undersigned(s) have executed this Shareholders'
Undertaking as of the day and year written opposite such shareholder's name.
Date:
----------------- ---------------------------------------------------
Richard L. Lindstrom, M.D.
Date:
----------------- ---------------------------------------------------
Thomas W. Samuelson, M.D.
Date:
----------------- ---------------------------------------------------
David R. Hardten, M.D.
<PAGE> 1
EXHIBIT 10.28
"CONFIDENTIAL TREATMENT
REQUESTED BY VISION TWENTY-ONE, INC."
AGREEMENT AND PLAN OF REORGANIZATION
DATED: DECEMBER 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . 12
4. REPRESENTATIONS AND WARRANTIES OF THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5. REPRESENTATIONS AND WARRANTIES OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6. {INTENTIONALLY OMITTED} . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7. CLOSING DATE REPRESENTATIONS AND WARRANTIES OF THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . 41
8. SECURITIES LAW MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9. COVENANTS OF THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10. COVENANTS OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11. COVENANTS OF VISION 21, THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12. CONDITIONS PRECEDENT OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
13. CONDITIONS PRECEDENT OF THE COMPANY AND THE PHYSICIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
14. CLOSING DELIVERIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
15. POST CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
16. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
17. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
18. PHYSICIAN EMPLOYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19. NON-COMPETITION AND CONFIDENTIALITY COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
20. DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
21. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
ii
<PAGE> 4
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement"), dated
effective as of December 1, 1996, is by and among DR. SMITH & ASSOCIATES,
#6950, P.A., a Florida professional association, (the "Company"), PAUL SMITH,
O.D., (the "Optometrist"), and VISION 21, INC., a Florida corporation ("Vision
21").
R E C I T A L S
A. Optometrist is an optometrist licensed to practice
optometry in the State (as defined herein) and currently conducts an optometry
practice through the Company.
B. Optometrist owns all of the issued and outstanding shares
of capital stock of the Company.
C. The Company and Vision 21 desire to effect a business
combination and merger of the Company with and into Vision 21 upon the terms
and subject to the satisfaction of the conditions precedent contained herein
(the "Merger").
D. It is intended that for federal income tax purposes the
Merger shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
E. Vision 21 cannot acquire certain of the Company's assets
because of laws prohibiting general business corporations from engaging in the
practice of optometry, or exercising control over optometrists practicing
optometry, and accordingly, the Company and Vision 21 desire that the Company
divest itself of such assets prior to the Merger.
F. Prior to the Merger, the Company intends to form a new
professional corporation ("New P.C.") to which it intends to transfer its
optometric business and all of its Optometric Assets (as defined herein) in
exchange for all of New P.C.'s capital stock and to distribute such stock to
Optometrist in a transaction that will qualify for tax free treatment under
Section 355 of the Code.
G. New P.C. intends to employ the Optometrist and enter into a
Business Management Agreement (as defined herein) with the Company immediately
prior to the Merger; and
H. As a result of the Merger, the Surviving Corporation (as
defined herein) will acquire the optometry practice management business and all
of the Non-optometric Assets (as
1
<PAGE> 5
herein defined) of the Company associated with such business to the extent
permitted by law and assume all of Company's obligations under the Business
Management Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
1.1. AAA. The term "AAA" shall mean the American
Arbitration Association.
1.2. Accountants. The term "Accountants" shall mean
the accounting firm for Vision 21.
1.3. Accounts Receivable. The term "Accounts
Receivable" shall have the meaning set forth in Section 3.39.
1.4. Acquisition Proposal. The term "Acquisition
Proposal" shall have the meaning set forth in Section 3.34.
1.5. Affiliate. The term "Affiliate" with respect to
any person or entity shall mean a person or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, such person or entity.
1.6. Applicable Laws. The term "Applicable Laws"
shall have the meaning set forth in Section 21.5.
1.7. Audit. The term "Audit" shall have the meaning
set forth in Section 3.9.
1.8. Business. The term "Business" shall have the
meaning set forth in Section 19.1(b)(i).
1.9. Business Management Agreement. The term
"Business Management Agreement" shall mean the Business Management Agreement
entered into between the Company and New P.C. prior to the Closing.
1.10. Cash Compensation. The term "Cash Compensation"
shall have the meaning set forth in Section 3.11(a).
1.11. Claim Notice. The term "Claim Notice" shall have
the meaning set forth in Section 16.3(a).
2
<PAGE> 6
1.12. Closing. The term "Closing" shall mean the
consummation of the transactions contemplated by this Agreement.
1.13. Closing Date. The term "Closing Date" shall mean
December 1, 1996 or such other date as mutually agreed upon by the parties.
1.14. Code. The term "Code" shall mean the Internal
Revenue Code of 1986, as amended.
1.15. Commitments. The term "Commitments" shall have
the meaning set forth in Section 3.15(a).
1.16. Common Stock. The term "Common Stock" or "Vision
21 Common Stock" shall mean the common stock, par value $.01 per share, of
Vision 21.
1.17. Company Balance Sheet. The term "Company Balance
Sheet" shall have the meaning set forth in Section 3.9.
1.18. Company Balance Sheet Date. The term "Company
Balance Sheet Date" shall have the meaning set forth in Section 3.9.
1.19. Company Common Stock. The term "Company Common
Stock" shall mean the common stock, par value $__________ per share of the
Company.
1.20. Compensation Plans. The term "Compensation
Plans" shall have the meaning set forth in Section 3.11(b)(ii).
1.21. Competing Business. The term "Competing
Business" shall have the meaning set forth in Section 19.1(b).
1.22. Competitor. The term "Competitor" shall mean any
person or entity which, individually or jointly with others, whether for its
own account or for that of any other person or entity, owns, or holds any
ownership or voting interest in any person or entity engaged in, the practice
of optometry, the practice of optometry, the operation of out patient eye
surgical facilities, the operation of refractive surgery centers and the
operation of optical shops; provided, however, that such term shall not include
any Affiliate of Vision 21 or any entity with which Vision 21 has an agreement
similar to the Business Management Agreement in effect.
1.23. Confidential Information Memorandum. The term
"Confidential Information Memorandum" shall mean that certain disclosure
memorandum distributed by Vision 21 to the Company and Optometrist dated as of
September 27, 1996, and any amendments or revisions thereto.
3
<PAGE> 7
1.24. Controlled Group. The term "Controlled Group"
shall have the meaning set forth in Section 3.12(g).
1.25. Corporation Law. The term "Corporation Law"
shall mean the statutes, regulations and laws governing business corporations
and professional corporations in the State.
1.26. Damages. The term "Damages" shall have the
meaning set forth in Section 16.1.
1.27. Effective Time. The term "Effective Time" shall
have the meaning set forth in Section 2.3.
1.28. Election Period. The term "Election Period"
shall have the meaning set forth in Section 16.3(a).
1.29. Employee Benefit Plans. The term "Employee
Benefit Plans" shall have the meaning set forth in Section 3.12(a).
1.30. Employee Policies and Procedures. The term
"Employee Policies and Procedures" shall have the meaning set forth in Section
3.11(d).
1.31. Employment Agreements. The term "Employment
Agreements" shall have the meaning set forth in Section 3.11(c).
1.32. Environmental Laws. The term "Environmental
Laws" shall have the meaning set forth in Section 3.27(a).
1.33. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
1.34. Exchange Act. The term "Exchange Act" shall mean
the Securities Exchange Act of 1934, as amended.
1.35. FBCA. The term "FBCA" shall mean the Florida
Business Corporation Act.
1.36. Financial Statements. The term "Financial
Statements" shall have the meaning set forth in Section 3.9.
1.37. GAAP. The term "GAAP" shall mean generally
accepted accounting principles, applied on a consistent basis with prior
periods, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board
4
<PAGE> 8
or in such other statements by such other entity or other practices and
procedures as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of the
determination.
1.38. Governmental Authority. The term "Governmental
Authority" shall mean any national, state, provincial, local or tribunal
governmental, judicial or administrative authority or agency.
1.39. Indemnified Party. The term "Indemnified Party"
shall have the meaning set forth in Section 16.3(a).
1.40. Indemnifying Party. The term "Indemnifying
Party" shall have the meaning set forth in Section 16.3(a).
1.41. Indemnity Notice. The term "Indemnity Notice"
shall have the meaning set forth in Section 16.3(d).
1.42. Initial Public Offering. The term "Initial
Public Offering" shall mean the potential initial underwritten public offering
of Vision 21 Common Stock contemplated by Vision 21.
1.43. Insurance Policies. The term "Insurance
Policies" shall have the meaning set forth in Section 3.16.
1.44. IRS. The term "IRS" shall mean the Internal
Revenue Service.
1.45. Material Adverse Effect. The term "Material
Adverse Effect" shall mean a material adverse effect on the Non-optometric
Assets and the Company's business, operations, condition (financial or
otherwise) or results of operations, taken as a whole, considering all relevant
facts and circumstances.
1.46. Merger . The term "Merger" shall have the
meaning set forth in the Recitals hereto.
1.47. Merger Consideration. The term "Merger
Consideration" shall mean the consideration set forth in Sections 2.8, 2.9 and
2.11 of this Agreement.
1.48. Merger Consideration Adjustment Amount. The term
"Merger Consideration Adjustment Amount" shall have the meaning set forth in
Section 2.12(c).
1.49. Non-optometric Assets. The term "Non-optometric
Assets" shall mean all of the assets of the Company except for the Optometric
Assets.
5
<PAGE> 9
1.50. Optometric Assets. The term "Optometric Assets"
shall mean the Company's right, title and interest in any assets as set forth
on Schedule 1.50A which by law cannot be acquired by Vision 21 which shall also
be deemed to include (a) life insurance policies covering the life of any
employee of the Company, (b) personal effects listed on Schedule 1.50B; and
those assets of which the entire cost of maintenance are deemed to be "Practice
Expenses" in the Business Management Agreement.
1.51. Optometrist Employee. The term "Optometrist
Employee" shall mean those licensed optometrists who are employees of the
Company, but are not shareholders.
1.55 Optometrist Employment Agreement. The term
"Optometrist Employment Agreement" shall mean the Optometrist Employment
Agreement to be executed between Optometrist and New P.C., and between any
Optometrist Employee and New P.C.
1.52. Payors. The term "Payors" shall have the meaning
set forth in Section 3.30.
1.53. Permitted Encumbrances. The term "Permitted
Encumbrances" shall have the meaning set forth in Section 3.14(b).
1.54. Proposed Merger Consideration Adjustment. The
term "Proposed Merger Consideration Adjustment" shall have the meaning set
forth in Section 2.11(b).
1.55. Practice. The term "Practice" shall mean the
optometry and all other vision related health-care practices conducted from
time to time by the Company prior to and on the Closing Date and by the New
P.C. after the Closing Date.
1.56. Professional Employee. The term "Professional
Employee" shall mean any Optometrist Employee.
1.57. Proprietary Rights. The term "Proprietary
Rights" shall have the meaning set forth in Section 3.17.
1.58. Registration Statement. The term "Registration
Statement" shall have the meaning set forth in Section 11.1.
1.59. Related Acquisitions. The term "Related
Acquisitions" shall mean the pending acquisitions by Vision 21 with third
parties which are expected to be completed simultaneously with this Merger.
1.60. SEC. The term "SEC" shall mean the Securities and
Exchange Commission.
6
<PAGE> 10
1.61. Securities. The term "Securities" shall mean the
shares of Vision 21 Common Stock to be delivered to Optometrist at the Closing.
1.62. Securities Act. The term "Securities Act" shall
mean the Securities Act of 1933, as amended.
1.63. State. The term "State" shall mean the State in
which the Company is incorporated.
1.64. Surviving Corporation. The term "Surviving
Corporation" shall have the meaning set forth in Section 2.1.
1.65. Tax Returns. The term "Tax Returns" shall have
the meaning set forth in Section 3.18(a).
1.66. Third Party Claim. The term "Third Party Claim"
shall have the meaning set forth in Section 16.3(a).
1.67. Vision 21 Financial Statements. The term "Vision
21 Financial Statements" shall have the meaning set forth in Section 5.9.
2. THE MERGER.
2.1. The Merger. Subject to the terms and conditions
of this Agreement, at the Effective Time, the Company shall be merged with and
into Vision 21 in accordance with this Agreement and the separate corporate
existence of the Company shall thereupon cease. Vision 21 shall be the
surviving corporation in the Merger (in such capacity, hereinafter referred to
as the "Surviving Corporation") and shall continue to be governed by the laws
of the State of Florida, and the separate corporate existence of Vision 21 with
all its rights, privileges, powers, immunities, purposes and franchises shall
continue unaffected by the Merger, except as set forth herein. The Merger
shall have the effects specified in the FBCA and the Corporation Law.
2.2. The Closing. The Closing shall take place on the
Closing Date at the offices of Shumaker, Loop & Kendrick, LLP, 101 E. Kennedy
Boulevard, Suite 2800, Tampa, Florida 33602 or at such other location in the
State as the parties shall mutually agree.
2.3. Effective Time. If all the conditions precedent
to the Merger set forth in this Agreement shall have been fulfilled or waived
in accordance herewith and this Agreement shall not have been terminated in
accordance with the terms set forth herein, the parties hereto shall cause to
be properly executed and filed on the Closing Date, a Certificate of Merger
meeting the requirements of the FBCA and the Corporation Law. The Certificate
of Merger shall be filed with the Secretary of State of the State of Florida
and of the State in accordance
7
<PAGE> 11
with the FBCA and the Corporation Law and the Merger shall become effective on
the Closing Date, to be designated in such filings as the effective time of the
Merger (the "Effective Time").
2.4. Articles of Incorporation of Surviving
Corporation. Effective at the Effective Time, the Articles of Incorporation of
Vision 21 shall be the Articles of Incorporation of the Surviving Corporation
unless and until duly amended in accordance with its terms.
2.5. Bylaws of Surviving Corporation. The Bylaws of
Vision 21 in effect immediately prior to the Effective Time shall be the Bylaws
of the Surviving Corporation, unless and until duly amended in accordance with
their terms.
2.6. Directors of the Surviving Corporation. The
persons who are directors of Vision 21 immediately prior to the Effective Time
shall, from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and Bylaws.
2.7. Officers of the Surviving Corporation. The
persons who are officers of Vision 21 immediately prior to the Effective Time
shall, from and after the Effective Time, be the officers of the Surviving
Corporation and shall hold their same respective offices until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal.
2.8. Conversion of Company Common Stock. The manner
of converting shares of Company Common Stock in the Merger shall be as follows:
a. As a result of the Merger and without
any action on the part of the holder thereof, all shares of Company Common
Stock issued and outstanding at the Effective Time shall cease to exist, and
each holder of a certificate representing any such shares of Company Common
Stock shall thereafter cease to have any rights with respect to such shares of
Company Common Stock, except the right to receive upon the surrender of such
certificate, on the Closing Date, validly issued, fully paid and nonassessable
shares of Vision 21 Common Stock determined in accordance with the provisions
of Exhibit 2.8(a) attached hereto.
b. Each share of Company Common Stock
held in the Company's treasury at the Effective Time, by virtue of the Merger,
shall cease to be outstanding and shall be cancelled and retired without
payment of any consideration therefor and shall cease to exist.
c. At the Effective Time, each share of
Vision 21 Common Stock issued and outstanding as of the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder
thereto, continue unchanged and remain outstanding as a validly issued, fully
paid, nonassessable share of Vision 21 Common Stock.
8
<PAGE> 12
2.9. Exchange of Certificates Representing Shares of
Company Common Stock.
a. On the Closing Date (i) the
Optometrist, as the holder of a certificate or certificates representing shares
of Company Common Stock, upon surrender of such certificate or certificates,
shall receive, as part of the Merger Consideration, the number of shares of
Vision 21 Common Stock determined in accordance with the provisions of Exhibit
2.8(a) attached hereto; and (ii) until the certificate or certificates
representing Company Common Stock have been surrendered by the Optometrist and
replaced by a certificate or certificates representing Vision 21 Common Stock,
the certificate or certificates representing Company Common Stock shall, for
all purposes be deemed to evidence ownership of the number of shares of Vision
21 Common Stock determined in accordance with the provisions of Exhibit 2.8(a)
attached hereto. All shares of Vision 21 Common Stock issuable to the
Optometrist in the Merger shall be deemed for all purposes to have been issued
by Vision 21 at the Effective Time, although the Merger Consideration shall not
actually be paid by Vision 21 to the Optometrist until the Closing Date.
b. The Optometrist shall deliver to
Vision 21 at Closing the certificate or certificates representing Company
Common Stock owned by him, duly endorsed in blank by the Optometrist, or
accompanied by duly endorsed stock powers in blank, and with all necessary
transfer tax and other revenue stamps, acquired at the Optometrist's expense,
affixed and cancelled. The Optometrist agrees to cure any deficiencies with
respect to the endorsement of the certificates or other documents of conveyance
with respect to such Company Common Stock or with respect to the stock powers
accompanying any Company Common Stock. Upon such a delivery, the Optometrist
shall receive in exchange therefor, a certificate representing that number of
shares of Vision 21 Common Stock that the Optometrist is entitled to receive
pursuant to Section 2.8 hereof.
2.10. Fractional Shares. Notwithstanding any other
provision herein, no fractional shares of Vision 21 Common Stock will be
issued. Fractional shares shall be rounded up to the nearest whole number of
shares.
2.11. Merger Consideration Adjustments. (a) The
Merger Consideration shall be subject to adjustment to the extent that Current
Assets (as defined herein) or Current Liabilities Assumed (as defined herein)
materially differ from the amounts customarily arising in the ordinary course
of business of the Company as of November 30, 1996. The term "Current Assets"
shall mean petty cash, Accounts Receivable, prepaid expenses, Inventory,
supplies and other current assets (excluding cash in banks, certificates of
deposit, other cash equivalents, current portion of capital leases and prepaid
Income Taxes). The term "Current Liabilities Assumed" shall mean the audited
balances as of November 30, 1996 of trade accounts payable, accrued payroll,
accrued payroll taxes, accrued benefits, and other current liabilities
(excluding notes payable, current portion of capital leases and long-term debt
and income and franchise taxes and accrued shareholder expenses). The
adjustment shall be settled in cash (which shall be set-off from moneys due New
P.C. pursuant to the Business Management
9
<PAGE> 13
Agreement) or Vision 21 Common Stock at Vision 21's option. The parties also
agree that to the extent the adjustments materially impact the goodwill created
by the transaction, there shall be an adjustment for the related impact of net
income created by the change in amortization of such goodwill and the Merger
Consideration shall be increased or reduced to reflect the impact on net income
settled in cash or Vision 21 Common Stock at Vision 21's option.
(b) Within sixty (60) days following the Closing
Date, Vision 21 shall present to the Optometrist its Merger Consideration
Adjustment (the "Proposed Merger Consideration Adjustment") calculated in
accordance with Section 2.11(a) hereof. The Optometrist shall, within thirty
(30) days after the delivery by Vision 21 of the Proposed Merger Consideration
Adjustment, complete his review thereof. In the event that the Optometrist
believes that the Proposed Purchase Price Adjustment has not been prepared on
the basis set forth in Section 2.11(a) or otherwise contests any item set forth
therein, the Optometrist shall, on or before the last day of such 30 day
period, so object to Vision 21 in writing, setting forth a specific description
of the nature of the objection and the corresponding adjustments the
Optometrist believes should be made. If no objection is received by Vision 21
on or before the last day of such 30 day period, then the Proposed Merger
Consideration Adjustment delivered by Vision 21 shall be final. If an
objection has been made and Vision 21 and the Optometrist are unable to resolve
all of their disagreements with respect to the proposed adjustments within 15
days following the delivery of the Optometrist's objection, the dispute shall
be submitted to arbitration as provided in Section 18.1 except that the
arbitrator shall be instructed to deliver his determination of the dispute to
the parties no later than 30 days after the arbitration hearing. Vision 21
shall provide to the Optometrist and his accountants full access to all
relevant books, records and work papers utilized in preparing the Proposed
Merger Consideration Adjustment.
2.12. Subsequent Actions. If, at any time after the
Effective Time, the Surviving Corporation shall determine or be advised that
any deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of the Company acquired or to be
acquired by the Surviving Corporation as a result of, or in connection with,
the Merger or otherwise to carry out this Agreement, and to effect the
cancellation of all outstanding shares of Company Common Stock in return for
the consideration set forth in this Agreement, the officers and directors of
the Surviving Corporation shall, at the sole cost and expense of the Surviving
Corporation, be authorized to execute and deliver, in the name and on behalf of
the Company, such deeds, bills of sale, assignments and assurances, and to take
and do, in the name and on behalf of the Company, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties or assets in
the Surviving Corporation or otherwise to carry out this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
Optometrist. The Company and the Optometrist, jointly and severally, represent
and warrant to Vision 21 that the following are true and correct as of the date
hereof, and shall be true and correct through the Closing Date as if made on
that date; when used in this Section 3, the term
10
<PAGE> 14
"best knowledge" shall mean in the case of the Company the best knowledge of
those individuals listed on Schedule 3:
3.1. Organization and Good Standing; Qualification.
The Company is a professional corporation duly organized, validly existing and
in good standing under the laws of the State, with all requisite corporate
power and authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, but it is acknowledged and understood by the
Parties that upon consummation of Merger, the Company will no longer be
qualified as a professional corporation under the Corporation Law. The Company
is not duly qualified and licensed to do business in any other jurisdiction.
The Company does not have any assets, employees or offices in any state other
than the State. Except as set forth on Schedule 3.1, neither the Company, the
Optometrist nor any Professional Employee owns, directly or indirectly, any of
the capital stock of any other corporation or any equity, profit sharing,
participation or other interest in any corporation, partnership, joint venture
or other entity that is engaged in a business that is a Competitor.
3.2. Capitalization. The authorized capital stock of
the Company consists of 50,000,000 shares of Company Common Stock, of which
5,465,673 shares are issued and outstanding. The Optometrist owns all of the
issued and outstanding Company Common Stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholder agreements, except to the extent disclosed on Schedule 3.2. Each
outstanding share of Company Common Stock has been legally and validly issued
and is fully paid and nonassessable. No shares of Company Common Stock are
owned by the Company in treasury. No shares of Company Common Stock have been
issued or disposed of in violation of the preemptive rights, rights of first
refusal or similar rights of any of the Company's stockholders. The Company
has no bonds, debentures, notes or other obligations the holders of which have
the right to vote (or are convertible into or exercisable for securities having
the right to vote) with the stockholders of the Company on any matter.
3.3. Transactions in Capital Stock. The Company has
not acquired any capital stock of the Company within the two (2) year period
preceding the execution of this Agreement. Except as set forth on Schedule
3.3, there exist no options, warrants, subscriptions or other rights to
purchase, or securities convertible into or exchangeable for, any of the
authorized or outstanding securities of the Company, and no option, warrant,
call, conversion right or commitment of any kind exists which obligates the
Company to issue any of its authorized but unissued capital stock. Except as
set forth on Schedule 3.3, the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any of its equity
securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. Neither the equity structure of the Company
nor the relative ownership of shares among any of its stockholders has been
altered or changed within the two (2) year period preceding the date of this
Agreement.
11
<PAGE> 15
3.4. Continuity of Business Enterprise. Except as set
forth on Schedule 3.4, and except as contemplated by this Agreement, there has
not been any sale, distribution or spin-off of significant assets of the
Company or any of its Affiliates other than in the ordinary course of business
within the two (2) year period preceding the date of this Agreement.
3.5. Corporate Records. The copies of the Articles or
Certificate of Incorporation and Bylaws, and all amendments thereto, of the
Company that have been delivered or made available to Vision 21 are true,
correct and complete copies thereof, as in effect on the date hereof. The
minute books of the Company, copies of which have been delivered or made
available to Vision 21, contain accurate minutes of all meetings of, and
accurate consents to all actions taken without meetings by, the Board of
Directors (and any committees thereof) and the stockholders of the Company in
the three (3) years prior to the Closing Date, and contain all other material
minutes and consents of the directors and stockholders of the Company since its
formation.
3.6. Authorization and Validity. The execution,
delivery and performance by the Company of this Agreement and the other
agreements contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby to be performed by the Company, have been duly
authorized by the Company. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. The
Company has obtained, in accordance with applicable law and its Articles or
Certificate of Incorporation and Bylaws, the approval of its stockholders
necessary for the consummation of the transactions contemplated hereby.
3.7. Compliance. Except as disclosed on Schedule 3.7,
the execution and delivery of the documents contemplated hereunder and the
consummation of the transactions contemplated thereby by the Company will not
(i) violate any provision of the Company's organizational documents, (ii)
violate any material provision of or result in the breach of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any material obligation under, any mortgage, lien, lease, contract,
license, instrument or any other agreement to which the Company is a party,
(iii) result in the creation or imposition of any material lien, charge,
pledge, security interest or other material encumbrance upon any property of
the Company or (iv) violate or conflict with any order, award, judgment or
decree or other material restriction or to the best of the Company's knowledge
violate or conflict with any law, ordinance or regulation to which the Company
or its property is subject.
3.8. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by the Company or the
consummation by such party of the transactions contemplated thereby, except for
those consents or approvals set forth on Schedule 3.8.
12
<PAGE> 16
3.9. Financial Statements. The Company has furnished
to Vision 21 its unaudited balance sheet and related unaudited statements of
income, retained earnings and cash flows for its prior three (3) full fiscal
years, and its unaudited interim balance sheet for the fiscal period ended
September 30, 1996 (the "Company Balance Sheet", and the date thereof shall be
referred to as the "Company Balance Sheet Date") and related unaudited
statements of income, retained earnings and cash flows for the twelve months
then ended (all collectively, with the related notes thereto, the "Financial
Statements"). The Financial Statements fairly present the financial condition
and results of operations of the Company as of the dates and for the periods
indicated except as otherwise indicated in the Financial Statements. The
Company and the Optometrist expressly warrant that they will have prior to the
Closing fairly, accurately and completely provided all necessary information
requested in or relevant to the preparation of the audit to be conducted by the
Accountants or their designees prior to Closing (the "Audit"). The cost of the
Audit shall be paid by Vision 21 and all materials prepared by Vision 21's
Accountants in connection with the Audit shall be solely the property of Vision
21.
3.10. Liabilities and Obligations. Except as set forth
on Schedule 3.10, the Financial Statements reflect all liabilities of the
Company, accrued, contingent or otherwise that would be required to be
reflected thereon, or in the notes thereto, prepared in accordance with GAAP,
except for liabilities and obligations incurred in the ordinary course of
business since the Company Balance Sheet Date. Except as set forth in the
Financial Statements or on Schedule 3.10, the Company is not liable upon or
with respect to, or obligated in any other way to provide funds in respect of
or to guarantee or assume in any manner, any debt, obligation or dividend of
any person, corporation, association, partnership, joint venture, trust or
other entity, and the Company does not know of any valid basis for the
assertion of any other claims or liabilities of any nature or in any amount.
3.11. Employee Matters.
a. Cash Compensation. Schedule 3.11(a)
contains a complete and accurate list of the names, titles and annual cash
compensation as of the Closing Date, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, Schedule
3.11(a) contains a complete and accurate description of (i) all increases in
Cash Compensation of employees of the Company during the current fiscal year
and the immediately preceding fiscal year and (ii) any promised increases in
Cash Compensation of employees of the Company that have not yet been effected.
b. Compensation Plans. Schedule 3.11(b)
contains a complete and accurate list of all compensation plans, arrangements
or practices (the "Compensation Plans") sponsored by the Company or to which
the Company contributes on behalf of its employees, other than Employment
Agreements listed on Schedule 3.11(c) and Employee Benefit Plans listed on
Schedule 3.12(a). The Compensation Plans include without limitation plans,
arrangements or practices that provide for performance awards, and stock
ownership or stock options. The Company has provided or made available to
Vision 21 a copy of each written
13
<PAGE> 17
Compensation Plan and a written description of each unwritten Compensation
Plan. Except as set forth on Schedule 3.11(b), each of the Compensation Plans
can be terminated or amended at will by the Company.
c. Employment Agreements. Except as set
forth on Schedule 3.11(c), the Company is not a party to any employment
agreement ("Employment Agreements") with respect to any of its employees.
Employment Agreements include without limitation employee leasing agreements,
employee services agreements and non-competition agreements.
d. Employee Policies and Procedures.
Schedule 3.11(d) contains a complete and accurate list of all employee manuals
and all material policies, procedures and work-related rules (the "Employee
Policies and Procedures") that apply to employees of the Company. The Company
has provided or made available to Vision 21 a copy of all written Employee
Policies and Procedures and a written description of all material unwritten
Employee Policies and Procedures.
e. Unwritten Amendments. Except as
described on Schedule 3.11(b), 3.11(c), or 3.11(d), no material unwritten
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans or, Employee Policies and
Procedures.
f. Labor Compliance. The Company has
been and is in compliance with all applicable laws, rules, regulations and
ordinances respecting employment and employment practices, terms and conditions
of employment and wages and hours, except for any such failures to be in
compliance that, individually or in the aggregate, would not result in a
Material Adverse Effect, and the Company is not liable for any arrearages of
wages or penalties for failure to comply with any of the foregoing. The
Company has not engaged in any unfair labor practices or discriminated on the
basis of race, color, religion, sex, national origin, age, disability or
handicap in its employment conditions or practices that would, individually or
in the aggregate, result in a Material Adverse Effect. Except as set forth on
Schedule 3.11(f), there are no (i) unfair labor practice charges or complaints
or racial, color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company and the Optometrist, threatened against the Company before any federal,
state or local court, board, department, commission or agency (nor, to the
knowledge of the Company and the Optometrist, does any valid basis therefor
exist) or (ii) existing or, to the actual knowledge of the Company and the
Optometrist, threatened labor strikes, disputes, grievances, controversies or
other labor troubles affecting the Company (nor, to the best knowledge of the
Company and the Optometrist, does any valid basis therefor exist).
g. Unions. The Company has never been a
party to any agreement with any union, labor organization or collective
bargaining unit. No employees of the Company are represented by any union,
labor organization or collective bargaining unit. Except as set forth on
Schedule 3.11(g), to the actual knowledge of the Company, none of the
14
<PAGE> 18
employees of the Company has threatened to organize or join a union, labor
organization or collective bargaining unit.
h. Aliens. All employees of the Company
are, to the best knowledge of the Company, citizens of, or are authorized in
accordance with federal immigration laws to be employed in, the United States.
3.12. Employee Benefit Plans.
a. Identification. Schedule 3.12(a)
contains a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three (3) years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Vision 21 copies of all plan
documents, determination letters, pending determination letter applications,
trust instruments, insurance contracts, administrative services contracts,
annual reports, actuarial valuations, summary plan descriptions, summaries of
material modifications, administrative forms and other documents that
constitute a part of or are incident to the administration of the Employee
Benefit Plans. In addition, the Company has provided or made available to
Vision 21 a written description of all existing practices engaged in by the
Company that constitute Employee Benefit Plans. Except as set forth on
Schedule 3.12(a) and subject to the requirements of the Code and ERISA, each of
the Employee Benefit Plans can be terminated or amended at will by the Company.
Except as set forth on Schedule 3.12(a), no unwritten amendment exists with
respect to any Employee Benefit Plan. Except as set forth on Schedule
3.12(b)-(l), each of the following paragraphs is true and correct.
b. Administration. Each Employee Benefit
Plan has been administered and maintained in compliance with all applicable
laws, rules and regulations, except where the failure to be in compliance would
not, individually or in the aggregate, result in a Material Adverse Effect.
The Company and the Optometrist have (i) made all necessary filings with
respect to such Employee Benefit Plans, including the timely filing of Form
5500 if applicable, and (ii) made all necessary filings, reports and
disclosures pursuant to and have complied with all requirements of the IRS
Voluntary Compliance Resolution Program, if applicable, with respect to all
profit sharing retirement plans and pension plans in which employees of the
Company participate.
c. Examinations. Except as set forth on
Schedule 3.12(c), the Company has not received any notice that any Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency.
15
<PAGE> 19
d. Prohibited Transactions. No
prohibited transactions (within the meaning of Section 4975 of the Code or
Sections 406 and 407 of ERISA) have occurred with respect to any Employee
Benefit Plans.
e. Claims and Litigation. No pending or,
to the actual knowledge of the Company and the Optometrist, threatened claims,
suits, or other proceedings exist with respect to any Employee Benefit Plan
other than normal benefit claims filed by participants or beneficiaries.
f. Qualification. As set forth in more
detail on Schedule 3.12(f), the Company has received a favorable determination
letter or ruling from the IRS for each of the Employee Benefit Plans intended
to be qualified within the meaning of Section 401(a) of the Code and/or
tax-exempt within the meaning of Section 501(a) of the Code. Except as set
forth on Schedule 3.12(f), no proceedings exist or, to the actual knowledge of
the Company have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
g. Funding Status. No accumulated
funding deficiency (within the meaning of Section 412 of the Code), whether or
not waived, exists with respect to any Employee Benefit Plan or any plan
sponsored by any member of a controlled group (within the meaning of Section
412(n)(6)(B) of the Code) in which the Company is a member ("Controlled
Group"). With respect to each Employee Benefit Plan subject to Title IV of
ERISA, the assets of each such plan are at least equal in value to the present
value of accrued benefits determined on an ongoing basis as of the date hereof.
The Company does not sponsor any Employee Benefit Plan described in Section
501(c)(9) of the Code. None of the Employee Benefit Plans are subject to
actuarial assumptions.
h. Excise Taxes. Neither the Company nor
any member of a Controlled Group has any liability to pay excise taxes with
respect to any Employee Benefit Plan under applicable provisions of the Code or
ERISA.
i. Multiemployer Plans. Neither the
Company nor any member of a Controlled Group is or ever has been obligated to
contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
j. Pension Benefit Guaranty Corporation.
None of the Employee Benefit Plans are subject to the requirements of Title IV
of ERISA.
k. Retirees. The Company has no
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who may retire or any of its former
employees who have retired except as may be required pursuant to the
continuation of coverage provisions of Section 4980B of the Code and Sections
501 through 508 of ERISA.
16
<PAGE> 20
l. Other Compensation. Except as set
forth on Schedule 3.11(a), 3.11(b), 3.11(c), 3.11(d) and 3.12(a), neither the
Company, the Optometrist nor any Professional Employee is a party to any
compensation or debt arrangement with any person relating to the provision of
healthcare related services other than arrangements with the Company or the
Optometrist.
3.13. Absence of Certain Changes. Except as set forth
on Schedule 3.13 or as contemplated in this Agreement, since the Company
Balance Sheet Date, the Company has not:
a. suffered a Material Adverse Effect,
whether or not caused by any deliberate act or omission of the Company or the
Optometrist;
b. contracted for the purpose of
acquiring any capital asset having a cost in excess of $5,000 or made any
single expenditure in excess of $5,000;
c. incurred any indebtedness for borrowed
money (other than short-term borrowings in the ordinary course of business), or
issued or sold any debt securities;
d. incurred or discharged any material
liabilities or obligations except in the ordinary course of business;
e. paid any amount on any indebtedness
prior to the due date, forgiven or cancelled any claims or any debt in excess
of $5,000, or released or waived any rights or claims except in the ordinary
course of business;
f. mortgaged, pledged or subjected to any
security interest, lien, lease or other charge or encumbrance any of its
properties or assets (other than statutory liens arising in the ordinary course
of business or other liens that do not materially detract from the value or
interfere with the use of such properties or assets);
g. suffered any damage or destruction to
or loss of any assets (whether or not covered by insurance) that has,
individually or in the aggregate, resulted in a Material Adverse Effect;
h. acquired or disposed of any assets
having an aggregate value in excess of $5,000, except in the ordinary course of
business;
i. written up or written down the
carrying value of any of its assets, other than accounts receivable in the
ordinary course of business;
j. changed the costing system or
depreciation methods of accounting for its assets in any material respect;
17
<PAGE> 21
k. lost or terminated any employee,
patient, customer or supplier that has, individually or in the aggregate,
resulted in a Material Adverse Effect;
l. increased the compensation of any
director, officer, key employee or consultant, except as disclosed on Schedule
3.11(a);
m. increased the compensation of any
employee (except for increases in the ordinary course of business consistent
with past practice) or hired any new employee who is expected to receive
annualized compensation of at least $15,000;
n. made any payments to or loaned any
money to any person or entity referred to in Section 3.25;
o. formed or acquired or disposed of any
interest in any corporation, partnership, joint venture or other entity;
p. redeemed, purchased or otherwise
acquired, or sold, granted or otherwise disposed of, directly or indirectly,
any of its capital stock or securities, or agreed to change the terms and
conditions of any such capital stock, securities or rights;
q. entered into any agreement providing
for total payments in excess of $5,000 in any twelve (12) month period with any
person or group, or modified or amended in any material respect the terms of
any such existing agreement, except in the ordinary course of business;
r. entered into, adopted or amended any
Employee Benefit Plan, except as contemplated hereby or the other agreements
contemplated hereby; or
s. entered into any other commitment or
transaction or experienced any other event that would materially interfere with
its performance under this Agreement or any other agreement or document
executed or to be executed pursuant to this Agreement, or otherwise has,
individually or in the aggregate, resulted in a Material Adverse Effect.
3.14. Title; Leased Assets.
a. Real Property. The Company does not
own any interest (other than leasehold interests referred to on Schedule
3.14(c)) in real property. The leased real property referred to on Schedule
3.14(c) constitutes the only real property necessary for the conduct of the
Company's business.
b. Personal Property. Except as set
forth on Schedule 3.14(b), the Company and/or the Optometrist has good, valid
and marketable title to all the personal property constituting the
Non-
18
<PAGE> 22
optometric Assets. The personal property constituting the Non-optometric
Assets constitute the only personal property necessary for the conduct of the
Company's business (except for the Optometric Assets). Upon consummation of
the transactions contemplated hereby, such interest in the Non-optometric
Assets shall be free and clear of all security interests, liens, claims and
encumbrances, other than those set forth on Schedule 3.14(b) (the "Permitted
Encumbrances") and statutory liens arising in the ordinary course of business
or other liens that do not materially detract from the value or interfere with
the use of such properties or assets.
c. Leases. A list and brief description
of (i) all leases of real property and (ii) leases of personal property
involving rental payments within any twelve (12) month period in excess of
$12,000, in either case to which the Company is a party, either as lessor or
lessee, are set forth on Schedule 3.14(c). All such leases are valid and, to
the knowledge of the Company, enforceable in accordance with their respective
terms except as may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally or the availability of equitable
remedies.
3.15. Commitments.
a. Commitments; Defaults. Except as set
forth on Schedule 3.15 or as otherwise disclosed pursuant to this Agreement,
the Company is not a party to nor bound by, nor are any of the shares of
Company Common Stock subject to, nor are the Non-optometric Assets or the
assets or the business of the Company bound by, whether or not in writing, any
of the following (collectively, "Commitments"):
i) partnership or joint
venture agreement;
ii) guaranty or suretyship,
indemnification or contribution agreement or performance bond;
iii) debt instrument, loan
agreement or other obligation relating to indebtedness for borrowed money or
money lent or to be lent to another;
iv) contract to purchase real
property;
v) agreement with dealers or
sales or commission agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with this Agreement and the
transactions contemplated hereby) involving total payments within any twelve
(12) month period in excess of $2,000 and which is not terminable on thirty
(30) days' notice or without penalty;
vi) agreement relating to any
material matter or transaction in which an interest is held by a person or
entity that is an Affiliate of the Company or the Optometrist;
19
<PAGE> 23
vii) agreement for the
acquisition of services, supplies, equipment, inventory, fixtures or other
property involving more than $2,000 in the aggregate;
viii) powers of attorney;
ix) contracts containing
non-competition covenants;
x) agreement providing for the
purchase from a supplier of all or substantially all of the requirements of the
Company of a particular product or services;
xi) agreements regarding
clinical research;
xii) agreements with Payors and
contracts to provide optometric or health care services; or
xiii) any other agreement or
commitment not made in the ordinary course of business or that is material to
the business, operations, condition (financial or otherwise) or results of
operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Vision 21. Except as set forth on Schedule 3.15
and to the Company's best knowledge, there are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that,
with the giving of notice or lapse of time or both, would constitute defaults
by the Company or, to the best knowledge of the Company, any other party to a
material Commitment, and no penalties have been incurred nor are amendments
pending, with respect to the material Commitments, except as described on
Schedule 3.15. The Commitments are in full force and effect and are valid and
enforceable obligations of the Company, and to the best knowledge of the
Company, are valid and enforceable obligations of the other parties thereto, in
accordance with their respective terms, and no defenses, off-sets or
counterclaims have been asserted or, to the best knowledge of the Company, may
be made by any party thereto (other than the Company), nor has the Company
waived any rights thereunder, except as described on Schedule 3.15. Except as
set forth on Schedule 3.15, no consents or approvals are required under the
terms of any agreement listed on Schedule 3.15 in connection with the
transactions contemplated herein; including without limitation the Merger.
b. No Cancellation or Termination of
Commitment. Except as disclosed pursuant to this Agreement or contemplated
hereby, and except where such default would not have a Material Adverse Effect
on the business, (i) neither the Company nor the Optometrist has received
notice of any plan or intention of any other party to any Commitment to
exercise any right to cancel or terminate any Commitment, and the Company does
not know of any fact that would justify the exercise of such a right; and (ii)
neither the Company nor the
20
<PAGE> 24
Optometrist currently contemplates, or has reason to believe any other person
currently contemplates, any amendment or change to any Commitment.
3.16. Insurance. The Company, the Optometrist and each
Professional Employee carries property, liability, malpractice, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described on Section 3.16 (the "Insurance
Policies"). The Insurance Policies are all of the insurance policies of the
Company, the Optometrist and each Professional Employee relating to the
business of the Company and the Non-optometric Assets. All of the Insurance
Policies are issued by insurers of recognized responsibility, and, to the best
knowledge of the Company, are valid and enforceable policies, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. All
Insurance Policies shall be maintained in force without interruption up to and
including the Closing Date. True, complete and correct copies of all Insurance
Policies have been provided or made available to Vision 21. Except as set
forth on Schedule 3.16, neither the Company nor the Optometrist has received
any notice or other communication from any issuer of any Insurance Policy
cancelling such policy, materially increasing any deductibles or retained
amounts thereunder, and to the actual knowledge of the Company, no such
cancellation or increase of deductibles, retainages or premiums is threatened.
Except as set forth on Schedule 3.16, neither the Company, the Optometrist nor
any Professional Employee has any outstanding claims, settlements or premiums
owed against any Insurance Policy, and the Company, the Optometrist and each
Professional Employee has given all notices or has presented all potential or
actual claims under any Insurance Policy in due and timely fashion. Except as
set forth on Schedule 3.16, since January 1, 1994, neither the Company, the
Optometrist nor any Professional Employee has filed a written application for
any professional liability insurance coverage which has been denied by an
insurance agency or carrier, and the Company, the Optometrist and each
Professional Employee has been continuously insured for professional
malpractice claims for at least the past seven (7) years (or such shorter
periods of time that any Professional Employee has been licensed to practice
optometry). Schedule 3.16 also sets forth a list of all claims under any
Insurance Policy in excess of $10,000 per occurrence filed by the Company, the
Optometrist and each Professional Employee since January 1, 1994.
3.17. Proprietary Rights and Information. Set forth on
Schedule 3.17 is a true and correct description of the following ("Proprietary
Rights"):
a. all trademarks, trade-names, service
marks and other trade designations, including common law rights, registrations
and applications therefor, and all patents and applications therefor currently
owned, in whole or in part, by the Company, and all licenses, royalties,
assignments and other similar agreements relating to the foregoing to which the
Company is a party (including the expiration date thereof if applicable); and
b. all agreements relating to technology,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how
21
<PAGE> 25
or processes generally available to other healthcare providers), or which it
licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, such ownership or use does not conflict,
infringe or violate the rights of any other person. Except as disclosed on
Schedule 3.17, no consent of any person will be required for the use thereof by
Vision 21 upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or for infringement by the Company of the
proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. To the best knowledge of the Company and the
Optometrist, the Company has the right to use, free and clear of any adverse
claims or rights of others, all trade secrets, customer lists and proprietary
information required for the marketing of all merchandise and services formerly
or presently sold or marketed by it.
3.18. Taxes.
a. Filing of Tax Returns. The Company
has duly and timely filed (in accordance with any extensions duly granted by
the appropriate governmental agency, if applicable) with the appropriate
governmental agencies all federal, state, local or foreign income, excise,
corporate, franchise, property, sales, use, payroll, withholding, provider,
value added and other tax returns and reports (collectively the "Tax Returns")
required to be filed by the United States or any state or any political
subdivision thereof or any foreign jurisdiction. All such Tax Returns or
reports are complete and accurate in all material respects and properly reflect
the taxes of the Company for the periods covered thereby.
b. Payment of Taxes. Except for such
items as the Company may be disputing in good faith by proceedings in
compliance with applicable law, which are described on Schedule 3.18, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records for all of the same that have not yet become
due, and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
c. No Pending Deficiencies,
Delinquencies, Assessments or Audits. Except as set forth on Schedule 3.18,
the Company has not received any notice that any tax deficiency or delinquency
has been asserted against the Company. There is no unpaid assessment, proposal
for additional taxes, deficiency or delinquency in the payment of any of the
taxes of the Company that could be asserted by any taxing authority. There is
no taxing authority audit of the Company pending, or to the actual knowledge of
the Company, threatened, and the results of any completed audits are properly
reflected in the Financial Statements. The Company has not, to its best
knowledge, violated any federal, state, local or foreign tax law.
22
<PAGE> 26
d. No Extension of Limitation Period.
The Company has not granted an extension to any taxing authority of the
limitation period during which any tax liability may be assessed or collected.
e. All Withholding Requirements
Satisfied. All monies required to be withheld by the Company and paid to
governmental agencies for all income, social security, unemployment insurance,
sales, excise, use, and other taxes have been collected or withheld and paid to
the respective governmental agencies.
f. Foreign Person. Neither the Company
nor the Optometrist is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
g. Safe Harbor Lease. None of the
Non-optometric Assets constitutes property that the Company, Vision 21, or any
Affiliate of Vision 21, will be required to treat as being owned by another
person pursuant to the "Safe Harbor Lease" provisions of Section 168(f)(8) of
the Code prior to repeal by the Tax Equity and Fiscal Responsibility Act of
1982.
h. Tax Exempt Entity. None of the assets
of the Company and none of the Non- optometric Assets are subject to a lease to
a "tax exempt entity" as such term is defined in Section 168(h)(2) of the Code.
i. Collapsible Corporation. The Company
has not at any time consented, and the Optometrist will not permit the Company
to elect, to have the provisions of Section 341(f)(2) of the Code apply to it.
j. Boycotts. The Company has not at any
time participated in or cooperated with any international boycott as defined in
Section 999 of the Code.
k. Parachute Payments. No payment
required or contemplated to be made by the Company will be characterized as an
"excess parachute payment" within the meaning of Section 280G(b)(1) of the
Code.
l. S Corporation. The Company has not
made an election to be taxed as an "S" corporation under Section 1362(a) of the
Code.
m. Personal Service Corporation. The
Company is not a personal service corporation subject to the provisions of
Section 269A of the Code.
n. Personal Holding Company. The Company
is not or has not been a personal holding company within the meaning of Section
542 of the Code.
3.19. Compliance with Laws. The Company has not
failed, and neither the Company nor the Optometrist is aware of any failure by
the Optometrist or any Professional
23
<PAGE> 27
Employee to comply with all applicable laws, regulations and licensing
requirements relating to the operation of the Practice or failure to file with
the proper authorities all necessary statements and reports except where the
failure to so comply or file would not, individually or in the aggregate,
result in a Material Adverse Effect. There are no existing violations by the
Company, and neither the Company nor the Optometrist is aware of any existing
violations by the Optometrist or any Professional Employee of any federal,
state or local law or regulation that could, individually or in the aggregate,
result in a Material Adverse Effect. The Company, the Optometrist and each
Professional Employee possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of the Company's business as now
conducted, all of which are listed (with expiration dates, if applicable) on
Schedule 3.19. Except as set forth on Schedule 3.19, the transactions
contemplated by this Agreement will not result in a default under or a breach
or violation of, or adversely affect the rights and benefits afforded by any
such licenses, franchises, permits or government authorizations, except for any
such default, breach or violation that would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule
3.19, since January 1, 1993, neither the Company, the Optometrist nor, to the
knowledge of the Company based on a certificate in writing obtained from each
Professional Employee, any Professional Employee has received any notice from
any federal, state or other governmental authority or agency having
jurisdiction over its, his or her properties or activities, or any insurance or
inspection body, that its, his or her operations or any of its, his or her
properties, facilities, equipment, or business practices fail to comply with
any applicable law, ordinance, regulation, building or zoning law, or
requirement of any public or quasi-public authority or body, except where
failure to so comply would not, individually or in the aggregate, have a
Material Adverse Effect.
3.20. Finder's Fee. Except as set forth on Schedule
3.20, the Company has not incurred any obligation for any finder's, brokers or
agent's fee in connection with the transactions contemplated hereby.
3.21. Litigation. Except as described on Section 3.21
or otherwise disclosed pursuant to this Agreement, there are no legal actions
or administrative proceedings or investigations instituted, to the actual
knowledge of the Company or the Optometrist, which affect or could affect the
outstanding shares of Company Common Stock, the Non-optometric Assets or the
operation, business, condition (financial or otherwise), or results of
operations of the Company which (i) if successful could, individually or in the
aggregate, have a Material Adverse Effect or (ii) could adversely affect the
ability of the Company or the Optometrist to effect the transactions
contemplated hereby. Neither the Company nor the Optometrist is (a) subject to
any continuing court or administrative order, judgment, writ, injunction or
decree applicable specifically to the Non-optometric Assets, the Company or to
its business, assets, operations or employees or (b) in default with respect to
any such order, judgment, writ, injunction or decree. The Company has no
knowledge of any valid basis for any such action, proceeding or investigation.
Except as set forth on Schedule 3.21, all optometric malpractice claims
asserted, general liability incidents and incident reports have been submitted
to the Company's insurer therefor. All claims made or threatened against the
Company in excess of its deductible are covered under its Insurance Policies.
24
<PAGE> 28
3.22. Condition of Fixed Assets. All of the fixtures,
structures and equipment reflected in the Financial Statements and used by the
Company in its business, are in good condition and repair, subject to normal
wear and tear, and conform in all material respects with all applicable
ordinances, regulations and other laws, and the Company has no actual knowledge
of any latent defects therein.
3.23. Distributions and Repurchases. No distribution,
payment or dividend of any kind has been declared or paid by the Company on any
of its capital stock since the Company Balance Sheet Date. No repurchase of
any of the Company's capital stock has been approved, effected or is pending,
or is contemplated by the Board of Directors of the Company.
3.24. Banking Relations. Set forth on Schedule 3.24 is
a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the
person or persons authorized in respect thereof.
3.25. Ownership Interests of Interested Persons;
Affiliations. Except as set forth on Schedule 3.25, no officer, supervisory
employee or director of the Company, or their respective spouses, children or
Affiliates, owns directly or indirectly, on an individual or joint basis, any
interest in, has a compensation or other financial arrangement with, or serves
as an officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the Company.
Except as may be disclosed pursuant to this Agreement, neither the Company, nor
any of its directors, officers, employees or consultants, nor any Affiliate of
such person is, or within the last three (3) years was, a party to any
contract, lease, agreement or arrangement, including, but not limited to, any
joint venture or consulting agreement with any optometrist, hospital, pharmacy,
home health agency or other person which is in a position to make or influence
referrals to, or otherwise generate business for, the Company.
3.26. Investments in Competitors. Except as disclosed
on Schedule 3.26, neither the Company nor the Optometrist owns directly or
indirectly any interests or has any investment in any person that is a
Competitor of the Company.
3.27. Environmental Matters.
a. Environmental Laws. To the best
knowledge of the Company and the Optometrist, neither the Company nor any of
the Non-optometric assets (including the leased real property described on
Schedule 3.14(c)) are currently in violation of, or subject to any existing,
pending or, to the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations under, any
federal, state or local laws or regulations pertaining to health or the
environment ("Environmental Laws"), except for any such violations,
investigations or inquiries that would not, individually or in the aggregate,
result in a Material Adverse Effect.
25
<PAGE> 29
b. Permits. The Company is not required
to obtain, and has no knowledge of any reason Vision 21 or the Surviving
Corporation will be required to obtain, any permits, licenses or similar
authorizations to occupy, operate or use any buildings, improvements, fixtures
and equipment owned or leased by the Company by reason of any Environmental
Laws.
c. Superfund List. To the best knowledge
of the Company, none of the Non- optometric Assets (including the Company's
leased real property described on Schedule 3.14(c)) are on any federal or state
"Superfund" list or subject to any environmentally related liens, except such
liens as would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.28. Certain Payments. Neither the Company nor any
director, officer or employee of the Company acting for or on behalf of the
Company, has paid or caused to be paid, directly or indirectly, in connection
with the business of the Company:
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds of directors, officers or
employees not reimbursed by their respective employers or as otherwise
permitted by applicable law).
3.29. Medical Waste. With respect to the generation,
transportation, treatment, storage, and disposal, or other handling of medical
waste, to the best knowledge of the Company and the Optometrist, the Company
has complied with all material federal, state or local laws or regulations
pertaining to medical waste.
3.30. Medicare and Medicaid Programs. The Company, the
Optometrist and each Professional Employee is qualified for participation in
the Medicare and Medicare programs and is party to provider agreements for such
programs which are in full force and effect with no events of default having
occurred thereunder. The Company, the Optometrist and each Professional
Employee has timely filed all claims or other reports required to be filed
prior to the Closing Date with respect to the purchase of services by
third-party payors ("Payors"), including but not limited to Medicare and
Medicaid programs, except where the failure to file would not, individually or
in the aggregate, result in a Material Adverse Effect. All such claims or
reports are complete and accurate in all material respects. The Company, the
Optometrist and each Professional Employee has paid or has properly recorded on
the Financial Statements all actually known and undisputed refunds, discounts
or adjustments which have become due pursuant to such claims, and neither the
Company, the Optometrist nor any Professional Employee has any material
liability to any Payor with respect thereto, except as has been reserved for in
the Company Balance Sheet. There are no pending appeals, overpayment
determinations, adjustments, challenges, audits, litigation, or notices of
intent to reopen Medicare and/or Medicaid claims determinations or other
reports required to be filed by the
26
<PAGE> 30
Company, the Optometrist or any Professional Employee in order to be paid by a
Payor for services rendered. Neither the Company, nor any of its directors,
officers, employees, consultants or the Optometrist has been convicted of, or
pled guilty or nolo contendere to, patient abuse or neglect, or any other
Medicare or Medicaid program-related offense. Neither the Company, nor its
directors, officers, the Optometrist, or to the best of the Company's
knowledge, its employees or consultants, has committed any offense which may
serve as the basis for suspension or exclusion from the Medicare and Medicaid
programs, including but not limited to, defrauding a government program, loss
of a license to provide health services, and failure to provide quality care.
3.31. Fraud and Abuse. To the best knowledge of the
Company and the Optometrist, the Company, its officers and directors, the
Professional Employees, and the other persons and entities providing
professional services for the Company, have not engaged in any activities which
are prohibited under 42 U.S.C. Section Section 1320- 7, 7a or 7b or 42 U.S.C.
Section 1395nn (subject to the exceptions set forth in such legislation), or
the regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including but not limited to the following:
a. knowingly and willfully making or
causing to be made a false statement or representation of a material fact in
any application for any benefit or payment;
b. knowingly and willfully making or
causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment;
c. failure to disclose knowledge by a
Medicare or Medicaid claimant of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with intent to fraudulently secure such benefit or payment;
d. knowingly and willfully offering,
paying, soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind (i) in return for referring an individual to a person for the furnishing
or arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part by Medicare or Medicaid; and
e. referring a patient for designated
health services (as defined in 42 U.S.C. Section 1395nn) to or providing
designated health services to a patient upon a referral from an entity or
person with which the Optometrist or the Professional Employee or an immediate
family member has a financial relationship, and to which no exception under 42
U.S.C. Section 1395nn applies.
27
<PAGE> 31
3.32. Payors. Schedule 3.32 sets forth a true, correct
and complete list of the names and addresses of each Payor, including any
private pay patient as a single payor, of the Company's services which
accounted for more than 10% of the revenues of the Company in the three (3)
previous fiscal years. Except as set forth on Schedule 3.32, the Company has
good relations with such Payors and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any claims submitted to such Payor for payment.
3.33. Prohibitions on the Corporate Practice of
Optometry. To the best of the Company's and the Optometrist's knowledge, the
actions, transactions or relationships arising from, and contemplated by this
Agreement, do not violate any law, rule or regulation relating to the corporate
practice of optometry. The Company and the Optometrist accordingly agree that
the Company, the Optometrist and New P.C. will not, in an attempt to void or
nullify any document contemplated herein or any relationship involving Vision
21 or the Company or the Optometrist or New P.C., sue, claim, aver, allege or
assert that any such document contemplated herein or any such relationship
violates any law, rule or regulation relating to the corporate practice of
optometry and expressly warrant that this Section is valid and enforceable by
Vision 21, and recognize that Vision 21 has relied upon the statements herein
in closing the transaction.
3.34. Acquisition Proposals. Except for the
negotiations, offers and agreements with Vision 21 and its representatives, the
Company has not received during the twelve (12) month period preceding the date
of this Agreement any proposal or offer (including, without limitation, any
proposal or offer of its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") nor has the Company or any of its employees, agents, representatives
or stockholders engaged in any negotiations concerning, or provided any
confidential information or data to, or had any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitated any effort or
attempted to make or implement an Acquisition Proposal.
3.35. Investment Company Status. The Company is not
currently, nor has it ever been, an "investment company" as that term is
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.36. Equal Exchange; Consistent Treatment of Expenses.
Optometrist and the Company believe that the fair market value of all the
Company Common Stock shall be approximately equal to the fair market value of
the Merger Consideration at the Effective Time. The Company has, in presenting
information concerning the Company's and New P.C.'s expenses to Vision 21 for
the purpose of determining the Company's value, separated out those expenses
which shall be borne by New P.C. in a manner which is consistent with the
treatment of expenses which shall be the responsibility of New P.C. pursuant to
the Business Management Agreement.
28
<PAGE> 32
3.37. Insolvency Proceedings. The Company is not
currently under the jurisdiction of a Federal or state court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
3.38. Positive Net Worth. On the Closing Date the fair
market value of the assets of the Company will equal or exceed the sum of the
liabilities of the Company plus the amount of any other liabilities to which
the assets of the Company are subject.
3.39. Accounts Receivable/Payable. The accounts
receivable of the Company relating to the ownership and operation of the
Practice reflected on the Company Balance Sheet, to the extent uncollected on
the date hereof, are, and the accounts receivable of the Company relating to
the ownership and operation of the Practice to be reflected on the books of the
Company on the Closing Date (the "Accounts Receivable") will be, valid,
existing and collectible within six months from the Closing Date (taking into
consideration the allowance for doubtful accounts set forth in the Financial
Statements) using reasonably diligent collection methods taking into account
the size and nature of the receivable, and represent amounts due for goods sold
and delivered or services performed. There are not, and on the date of Closing
there will not be, any refunds, discounts, set-offs, defenses, counterclaims or
other adjustments payable or assessable with respect to the Accounts
Receivable. The Company has collected Accounts Receivable only in the ordinary
course and has not changed collection procedures or methods nor accelerated the
pace of such collection efforts in anticipation of the transactions
contemplated in this Agreement. The Company has paid accounts payable in the
ordinary course and has not changed payment procedures or methods nor delayed
the timing of such payments in anticipation of the transactions contemplated in
this Agreement.
3.40. Projections. There is no fact, development or
threatened development with respect to the markets, products, services,
clients, patients, facilities, personnel, vendors, suppliers, operations,
assets or prospects of the Practice which are known to the Company or the
Optometrist which would materially adversely affect the projected fiscal year
1997 earnings of New P.C. disclosed to Vision 21 by Optometrist, other than
such conditions as may affect as a whole the economy or the practice of
optometry generally.
3.41. Disclosure. To the best of the Company's and the
Optometrist's knowledge, no representation, warranty or statement made by the
Company or the Optometrist in this Agreement or any of the exhibits or
schedules hereto, or any agreements, certificates, documents or instruments
delivered or to be delivered to Vision 21 in accordance with this Agreement or
the other documents contemplated herein, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company and the
Optometrist do not know of any fact or condition (other than general economic
conditions or legislative or administrative changes in health-care delivery)
which materially adversely affects, or in the future may materially affect, the
condition, properties, assets, liabilities, business, operations or prospects
of the Practice which has not been set forth herein or in the Schedules
provided herewith.
29
<PAGE> 33
4. REPRESENTATIONS AND WARRANTIES OF THE OPTOMETRIST. The
Optometrist represents and warrants to Vision 21 that the following are true
and correct as of the date hereof, and shall be true and correct through the
Closing Date as if made on that date:
4.1. Validity; Optometrist Capacity. This Agreement,
the Optometrist Employment Agreement, and each other agreement contemplated
hereby or thereby have been, or will be as of the Closing Date, duly executed
and delivered by the Optometrist and constitute or will constitute legal, valid
and binding obligations of the Optometrist, enforceable against the Optometrist
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. The Optometrist has legal
capacity to enter into and perform this Agreement and his Optometrist
Employment Agreement.
4.2. No Violation. Except as set forth on Schedule
4.2, neither the execution, delivery or performance of this Agreement, other
agreements of the Optometrist contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby or thereby, will (a)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture or other
instrument under which the Optometrist is bound or to which any of his property
or the shares of Company Common Stock are subject, or result in the creation or
imposition of any security interest, lien, charge or encumbrance upon any of
his property or the shares of Company Common Stock or (b) to the best knowledge
of the Optometrist, violate or conflict with any judgment, decree, order,
statute, rule or regulation of any court or any public, governmental or
regulatory agency or body.
4.3. Personal Holding Company. The Optometrist does
not own the shares of Company Common Stock, directly or indirectly,
beneficially or of record, through a personal holding company.
4.4. Transfers of the Company Common Stock. Set forth
on Schedule 4.4 is a list of all transfers or other transactions involving
capital stock of the Company since January 1, 1994. All transfers of Company
Common Stock by the Optometrist have been made for valid business reasons and
not in anticipation or contemplation of the consummation of the transactions
contemplated by this Agreement.
4.5. Consents. Except as may be required under the
Exchange Act, the Securities Act, the Corporation Law and state securities
laws, or otherwise disclosed pursuant to this Agreement, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, or any other person is required to authorize, or
is required in connection with, the execution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the Optometrist.
4.6. Certain Payments. The Optometrist has not paid
or caused to be paid, directly or indirectly, in connection with the business
of the Company:
30
<PAGE> 34
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds not reimbursed by the
Company or as otherwise permitted by applicable law).
4.7. Finder's Fee. Except as set forth on Schedule
4.7, the Optometrist has not incurred any obligation for any finder's, broker's
or agent's fee in connection with the transactions contemplated hereby.
4.8. Ownership of Interested Persons; Affiliations.
Except as set forth on Schedule 4.8, neither the Optometrist nor his spouse,
children or Affiliates, owns directly or indirectly, on an individual or joint
basis, any interest in, has a compensation or other financial arrangement with,
or serves as an officer or director of, any customer or supplier of the Company
or any organization that has a material contact or arrangement with the
Company. Neither the Optometrist nor any of his Affiliates is, or with the
last three (3) years was, a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or consulting
agreement with any optometrist, hospital, pharmacy, home health agency or other
person which is in a position to make or influence referrals to, or otherwise
generate business for, the Company.
4.9. Investments in Competitors. Except as disclosed
on Schedule 4.9, the Optometrist does not own directly or indirectly any
interests or have any investment in any person that is a Competitor of the
Company.
4.10. Litigation. Except as disclosed on Schedule
4.10, there are no claims, actions, suits, proceedings (arbitration or
otherwise) or investigations pending or, to the Optometrist's knowledge,
threatened against the Optometrist at law or at equity in any court or before
or by any Governmental Authority, and, to the Optometrist's knowledge, there
are no, and have not been any, facts, conditions or incidents that may result
in any such actions, suits, proceedings (arbitration or otherwise) or
investigations. Except as set forth on Schedule 4.10, there have been no
disciplinary , revocation or suspension proceedings or similar types of claims,
actions or proceedings, hearings or investigations against the Optometrist or
the Company.
4.11. Permits. To the best of the Optometrist's
knowledge, the Optometrist has all permits, licenses, orders and approvals of
all Governmental Authorities necessary to perform the services performed by the
Optometrist in connection with the conduct of the Practice. All such permits,
licenses, orders and approvals are in full force and effect and no suspension
or cancellation of any of them is pending or threatened. To the best of the
Optometrist's knowledge, none of such permits, licenses, orders or approvals
will be adversely affected by the consummation of the transactions contemplated
herein. The Optometrist is a participating optometrist, as such term is
defined by the Medicare and Medicaid programs, and
31
<PAGE> 35
the Optometrist has not been disciplined, sanctioned or excluded from either
the Medicare or Medicaid programs and has not been subject to any plan of
correction imposed by any professional review body.
4.12. Staff Privileges. Schedule 4.12 lists all
hospitals at which the Optometrist has full staff privileges. Such staff
privileges have not been revoked, surrendered, suspended or terminated, and to
the Optometrist's knowledge, there are no, and have not been any, facts,
conditions or incidents that may result in any such revocation, surrender,
suspension or termination.
4.13. Intentions. Except as set forth on Schedule
4.13, the Optometrist intends to continue practicing optometry on a full-time
basis for at least the next five (5) years with the Company and does not know
of any fact or condition that materially adversely affects, or in the future
may materially adversely affect, his ability or intention to practice optometry
on a full-time basis for the next five (5) years with the Company.
5. REPRESENTATIONS AND WARRANTIES OF VISION 21. Vision 21
represents and warrants to the Company and the Optometrist that the following
are true and correct as of the date hereof and shall be true and correct as of
the Closing Date; when used in this Section 5, the term "best knowledge" shall
mean the best knowledge of those individuals listed on Schedule 5:
5.1. Organization and Good Standing. Vision 21 is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Florida, with all requisite corporation power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. At or prior to Closing, Vision 21 will be
qualified to do business as a foreign corporation in the jurisdictions listed
on Schedule 5.1.
5.2. Capitalization. The authorized capital stock of
Vision 21 consists of 50,000,000 shares of Vision 21 Common Stock, of which
5,465,673 shares are issued and outstanding. Immediately prior to the Closing,
the authorized capital stock of Vision 21 will consist of 50,000,000 shares of
Vision 21 Common Stock, of which 5,465,673 shares will be issued and
outstanding.
5.3. Corporate Records. The copies of the Articles of
Incorporation and Bylaws, and all amendments thereto, of Vision 21 that have
been delivered or made available to the Company and the Optometrist are true,
correct and complete copies thereof, as in effect on the date hereof. The
minute books of Vision 21, copies of which have been delivered or made
available to the Company and the Optometrist, contain accurate minutes of all
meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the stockholders of
Vision 21, since its formation.
5.4. Authorization and Validity. The execution,
delivery and performance by Vision 21 of this Agreement and the other
agreements contemplated hereby, and the
32
<PAGE> 36
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by Vision 21. This Agreement and each other agreement
contemplated hereby to be executed by Vision 21 have been or will be as of the
Closing Date duly executed and delivered by Vision 21 and constitute or will
constitute legal, valid and binding obligations of Vision 21, enforceable
against Vision 21 in accordance with their respective terms, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies.
5.5. Compliance. The execution and delivery of the
documents contemplated hereunder and the consummation of the transactions
contemplated thereby by Vision 21 shall not (i) violate any provision of Vision
21's organizational documents, (ii) violate any material provision of or result
in the breach of or entitle any party to accelerate (whether after the giving
of notice or lapse of time or both) any material obligation under, any
mortgage, lien, lease, contract, license, instrument or any other agreement to
which Vision 21 is a party, (iii) result in the creation or imposition of any
material lien, charge, pledge, security interest or other material encumbrance
upon any property of Vision 21 or (iv) violate or conflict with any order,
award, judgment or decree or other material restriction or to the best of
Vision 21's knowledge violate or conflict with any law, ordinance or regulation
to which Vision 21 or its property is subject.
5.6. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by Vision 21 or the consummation
by such party of the transactions contemplated thereby, except for those
consents or approvals set forth on Schedule 5.6.
5.7. Finder's Fee. Except as disclosed on Schedule
5.7, Vision 21 has not incurred any obligation for any finder's, broker's or
agent's fee in connection with the transactions contemplated hereby.
5.8. Capital Stock. The issuance and delivery by
Vision 21 of shares of Vision 21 Common Stock in connection with the Merger
have been duly and validly authorized by all necessary corporate action on the
part of Vision 21. The shares of Vision 21 Common Stock to be issued in
connection with the Merger, when issued in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable and will not
have been issued in violation of any preemptive rights, rights of first refusal
or similar rights of any of Vision 21's stockholders, or any federal or state
law, including, without limitation, the registration requirements of applicable
federal and state securities laws.
5.9. Continuity of Business Enterprise. It is the
present intention of Vision 21 to continue at least one significant historic
business line of the Company, or to use at least a significant portion of the
Company's historic business assets in a business, in each case within the
meaning of Treasury Regulation Section 1.368-1(d).
33
<PAGE> 37
5.10. Vision 21 Financial Statements; Confidential
Information Memorandum. The balance sheet of Vision 21 as of September 30,
1996 and the related statements of income of Vision 21 for the first nine (9)
months of Vision 21's 1996 fiscal year, without giving effect to the Related
Acquisitions, including the costs incurred during such fiscal year associated
with any Registration Statement, shall be contained in the Confidential
Information Memorandum to be provided to the Optometrist and the Company by
Vision 21 prior to the Closing (collectively, with the related notes thereto,
the "Vision 21 Financial Statements"). The Vision 21 Financial Statements (a)
fairly present the financial condition and results of operations of Vision 21,
without giving effect to the Related Acquisitions, as of the dates and for the
periods indicated; and (b) have been prepared in conformity with GAAP (subject
to normal year-end adjustments and the absence of notes for any unaudited
interim financial statement), except as otherwise indicated in the Vision 21
Financial Statements. Subject to the foregoing and the other qualifications
contained elsewhere in this Agreement, to the best knowledge of Vision 21, the
Confidential Information Memorandum, as amended on December, 1996, is true and
correct in all material respects.
5.11. Liabilities and Obligations. Except as disclosed
on Schedule 5.19, the Vision 21 Financial Statements shall reflect all material
liabilities of Vision 21, accrued, contingent or otherwise, that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with GAAP. Except as set forth on Schedule 5.19 or in the Vision
21 Financial Statements, Vision 21 is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity,
and Vision 21 does not know of any valid basis for the assertion of any other
claims or liabilities of any nature or in any amount.
5.12. Compliance with Laws. Vision 21 has not failed
to comply with any applicable laws, regulations and licensing requirements or
failed to file with the proper authorities any necessary statements and reports
except where the failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Vision 21 of any federal, state or local law or regulation that
could, individually or in the aggregate, result in a Material Adverse Effect.
Vision 21 possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of Vision 21's business as now
conducted and after the Closing, as contemplated by this Agreement. The
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government
authorizations, except for any such default, breach or violation that would
not, individually or in the aggregate, have a Material Adverse Effect. Since
January 1, 1993, Vision 21 has not received any notice from any federal, state
or other governmental authority or agency having jurisdiction over its
properties or activities, or any insurance or inspection body, that its
operations or any of its properties, facilities, equipment, or business
practices fail to comply with any applicable law, ordinance, regulation,
building or zoning law, or requirement of any public or quasi-public authority
or body, except where failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect.
34
<PAGE> 38
5.13. Insolvency Proceedings. Vision 21 is not
currently under the jurisdiction of a Federal or state court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
5.14. Equal Exchange. Vision 21 believes that the fair
market value of all the Company Common Stock shall be approximately equal to
the fair market value of the Merger Consideration at the Effective Time.
5.15. Employment of Company's Employees. Vision 21
does not currently intend to change the existing composition or employment
terms of any of the non-professional personnel which have employment
arrangements with the Company on the effective date of this Agreement (except
as is necessary for Vision 21 to employ such individuals pursuant to the
Business Management Agreement). Vision 21 reserves the right, however, to
change the number, composition or employment terms of such non-professional
personnel in the future.
6. {INTENTIONALLY OMITTED}.
7. CLOSING DATE REPRESENTATIONS AND WARRANTIES OF THE
OPTOMETRIST. The Optometrist represents and warrants that, except as disclosed
in the Schedules, the following will be true and correct on the Closing Date as
if made on that date:
7.1. Organization and Good Standing; Qualification.
New P.C. is a professional corporation duly organized, validly existing and in
good standing under the laws of the State, with all requisite corporate power
and authority to carry on the business in which it intends to engage, to own
the properties it intends to own, and to execute and deliver the Business
Management Agreement and the Optometrist Employment Agreements and consummate
the transactions and perform the services contemplated thereby. New P.C. is
duly qualified and licensed to do business and is in good standing in all
jurisdictions where the nature of its intended business makes such
qualification necessary.
7.2. Capitalization. The authorized capital stock of
New P.C. consists of __________ shares of New P.C. Common Stock, of which
__________ shares are issued and outstanding, and no shares of capital stock of
New P.C. are held in treasury. The Optometrist owns all of the issued and
outstanding shares of New P.C.'s common stock, free and clear of all security
interests, liens, adverse claims, encumbrances, equities, proxies and
shareholders' agreements. Each outstanding share of New P.C.'s common stock
has been legally and validly issued and is fully paid and nonassessable. There
exists no options, warrants, subscriptions or other rights to purchase, or
securities convertible into or exchangeable for, any of the authorized or
outstanding securities of New P.C. No shares of capital stock of New P.C. have
been issued or disposed of in violation of the preemptive rights, rights of
first refusal or similar rights of any of New P.C.'s stockholders.
7.3. Corporate Records. The copies of the Articles or
Certificate of Incorporation and Bylaws, and all amendments thereto, of New
P.C. that have been delivered
35
<PAGE> 39
or made available to Vision 21 are true, correct and complete copies thereof,
as in effect on the Closing Date. The minute books of New P.C., copies of
which have been delivered or made available to Vision 21, contain accurate
minutes of all meetings of, and accurate consents to all actions taken without
meetings by, the Board of Directors (and any committees thereof) and the
stockholders of New P.C. since its formation.
7.4. Authorization and Validity. The execution,
delivery and performance by New P.C. of the Business Management Agreement, the
Optometrist Employment Agreements, the Optometrist Employment Agreements and
the other agreements contemplated thereby, and the consummation of the
transactions and provisions of services contemplated thereby, have been duly
authorized by New P.C. The Business Management Agreement, the Optometrist
Employment Agreements, the Optometrist Employment Agreements and each other
agreement contemplated thereby will be as of the Closing Date duly executed and
delivered by New P.C. and will constitute legal, valid and binding obligations
of New P.C. enforceable against New P.C. in accordance with their respective
terms, except as may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally or the availability of equitable
remedies.
7.5. No Violation. Neither the execution, delivery or
performance of the Business Management Agreement, the Optometrist Employment
Agreements, the Optometrist Employment Agreements or the other agreements
contemplated thereby nor the consummation of the transactions or provision of
services contemplated thereby will (a) conflict with, or result in a violation
or breach of the terms, conditions or provisions of, or constitute a default
under, the Articles or Certificate of Incorporation or Bylaws of New P.C., or
(b) to the actual knowledge of the Optometrist, violate or conflict with any
judgment, decree, order, statute, rule or regulation of any court or any
public, governmental or regulatory agency or body.
7.6. No Business, Agreements, Assets or Liabilities.
New P.C. has not commenced business since its incorporation. Other than its
Articles or Certificate of Incorporation and Bylaws, and as of the Closing
Date, the Business Management Agreement, the Optometrist Employment Agreements,
the Optometrist Employment Agreements, the Employee Benefit Plans and the other
contracts or agreements listed on Schedule 7.6, New P.C. is not a party to or
subject to any agreement, indenture or other instrument. New P.C. does not own
any assets (tangible or intangible) other than the consideration received upon
the issuance of shares of capital stock and New P.C. does not have any
liabilities, accrued, contingent or otherwise (known or unknown and asserted or
unasserted).
7.7. Compliance with Laws. New P.C. has complied with
all applicable laws, regulations and licensing requirements and has filed with
the proper authorities all necessary statements and reports, except where
failure to so comply or file would not, individually or in the aggregate, have
a material adverse effect on the business, operations or financial condition of
New P.C.
36
<PAGE> 40
8. SECURITIES LAW MATTERS.
8.1. Investment Representations and Covenants of
Optometrist.
a. Optometrist understands that the
Securities will not be registered under the Securities Act or any state
securities laws on the grounds that the issuance of the Securities is exempt
from registration pursuant to Section 4(2) of the Securities Act under the
Securities Act and applicable state securities laws, and that the reliance of
Vision 21 on such exemptions is predicated in part on the Optometrist's
representations, warranties, covenants and acknowledgements set forth in this
Section.
b. Except as disclosed on Schedule 8.1(b)
attached hereto, Optometrist represents and warrants that Optometrist is an
"accredited investor" or "sophisticated investor" as defined under the
Securities Act and state "Blue Sky" laws, or that Optometrist has utilized, to
the extent necessary to be deemed a sophisticated investor under the Securities
Act and State "Blue Sky" laws, the assistance of a professional advisor.
c. Optometrist represents and warrants
that the Securities to be acquired by Optometrist upon consummation of the
transactions described in this Agreement will be acquired by Optometrist for
Optometrist's own account, not as a nominee or agent, and without a view to
resale or other distribution within the meaning of the Securities Act and the
rules and regulations thereunder, except as contemplated in this Agreement, and
that Optometrist will not distribute any of the Securities in violation of the
Securities Act. All Securities shall bear a restrictive legend in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAWS."
In addition, the Securities shall bear any legend required by the
securities or "Blue Sky" laws of any state where Optometrist resides as well as
any other legend deemed appropriate by Vision 21 or its counsel.
d. Optometrist represents and warrants
that the address set forth below Optometrist's name on Schedule 8.1(d) is
Optometrist's principal residence.
e. Optometrist (i) acknowledges that the
Securities issued to Optometrist at the Closing must be held indefinitely by
Optometrist unless subsequently registered under the Securities Act or an
exemption from registration is available, (ii) is aware that any routine sales
of Securities made pursuant to Rule 144 under the Securities Act may be made
only in limited amounts and in accordance with the terms and conditions of that
Rule and that in such cases where the Rule is not applicable, compliance with
some other registration
37
<PAGE> 41
exemption will be required, (iii) is aware that Rule 144 is not currently
available for use by Optometrist for resale of any of the Securities to be
acquired by Optometrist upon consummation of the transactions described in this
Agreement, and (iv) acknowledges and agrees that the transfer of the Securities
shall be further restricted by the "lock-up" provisions contained in the
Registration Rights Agreement in the form of Exhibit 14.(o), whereby
Optometrist shall be treated as an "affiliate" of Vision 21 under Rule 144.
f. Optometrist represents and warrants to
Vision 21 that Optometrist, either alone or together with the assistance of
Optometrist's own professional advisor, has such knowledge and experience in
financial and business matters such that Optometrist is capable of evaluating
the merits and risks of Optometrist's investment in any of the Securities to be
acquired by Optometrist upon consummation of the transactions described in this
Agreement.
g. Optometrist confirms that Optometrist
has received and read the Confidential Information Memorandum of Vision 21
dated September 27, 1996 and the December, 1996 Supplement thereto.
Optometrist also confirms that Optometrist has had the opportunity to ask
questions of and receive answers from Vision 21 concerning the terms and
conditions of Optometrist's investment in the Securities, and the Optometrist
has received to Optometrist's satisfaction, such additional information, in
addition to that set forth herein, about Vision 21's operations and the terms
and conditions of the offering as Optometrist has requested.
h. In order to ensure compliance with the
provisions of paragraph (c) hereof, Optometrist agrees that after the Closing
Optometrist will not sell or otherwise transfer or dispose of Securities or any
interest therein (unless such shares have been registered under the Securities
Act) without first complying with either of the following conditions, the
expenses and costs of satisfaction of which shall be fully borne and paid for
by Optometrist:
i) Vision 21 shall have
received a written legal opinion from legal counsel, which opinion and counsel
shall be satisfactory to Vision 21 in the exercise of its reasonable judgment,
or a copy of a "no-action" or interpretive letter of the Securities and
Exchange Commission specifying the nature and circumstances of the proposed
transfer and indicating that the proposed transfer will not be in violation of
any of the registration provisions of the Securities Act and the rules and
regulations promulgated thereunder; or
h. Vision 21 shall have received an
opinion from its own counsel to the effect that the proposed transfer will not
be in violation of any of the registration provisions of the Securities Act and
the rules and regulations promulgated thereunder.
Optometrist also agrees that the certificates or instruments representing the
Securities to be issued to Optometrist pursuant to this Agreement may contain a
restrictive legend noting the restrictions on transfer described in this
Section and required by federal and applicable state securities laws, and that
appropriate "stop-transfer" instructions will be given to Vision 21's
38
<PAGE> 42
transfer agent, if any, provided that this Section 8.1(h) shall no longer be
applicable to any Securities following their transfer pursuant to a
registration statement effective under the Securities Act or in compliance with
Rule 144 or if the opinion of counsel referred to above is to the further
effect that transfer restrictions and the legend referred to herein are no
longer required in order to establish compliance with any provisions of the
Securities Act.
i. Optometrist understands that although
an Initial Public Offering is contemplated by Vision 21, there are no
assurances that an Initial Public Offering will occur or if it does occur that
it will be successful.
j. Optometrist agrees that he shall be
considered an "affiliate" of Vision 21 for purposes of Rule 144 and agrees to
the restrictions and limitations imposed by Rule 144 on affiliates.
Optometrist further agrees that he shall be considered an affiliate of Vision
21 for Rule 144 purposes even if he does not meet the technical definition of
"affiliate" under Rule 144.
8.2. Current Public Information. At all times
following the registration of any of Vision 21's securities under the
Securities Act or Exchange Act pursuant to which Vision 21 becomes subject to
the reporting requirements of the Exchange Act, Vision 21 shall use
commercially reasonable efforts to comply with the requirements of Rule 144
under the Securities Act, as such Rule may be amended from time to time (or any
similar rule or regulation hereafter adopted by the SEC) regarding the
availability of current public information to the extent required to enable any
holder of shares of Common Stock to sell such shares without registration under
the Securities Act pursuant to Rule 144 (or any similar rule or regulation).
9. COVENANTS OF THE COMPANY AND THE OPTOMETRIST. The Company
and the Optometrist, jointly and severally, agree that between the date hereof
and the Closing (with respect to the Company's covenants, the Optometrist
agrees to use his best efforts to cause the Company to perform):
9.1. Consummation of Agreement. The Company and the
Optometrist shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or the
Optometrist to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
9.2. Business Operations. The Company shall operate
its business in the ordinary course. The Company and the Optometrist shall use
their best efforts to preserve the business of the Company intact. Neither the
Company nor the Optometrist shall take any action that would, individually or
in the aggregate, result in a Material Adverse Effect.
9.3. Access. The Company and the Optometrist shall,
at reasonable times during normal business hours and on reasonable notice,
permit Vision 21 and its authorized
39
<PAGE> 43
representatives, including without limitation, the Accountants, reasonable
access to, and make available for inspection, all of the assets and business of
the Company, including its employees, customers and suppliers, and permit
Vision 21 and its authorized representatives to inspect and, at Vision 21's
sole cost and expense, make copies of all documents, records (other than
patient optometric records) and information with respect to the affairs of the
Company, including, without limitation, the Financial Statements, as Vision 21
and its representatives may request, all for the sole purpose of permitting
Vision 21 to become familiar with the business and assets and liabilities of
the Company.
9.4. Notification of Certain Matters. The Company and
the Optometrist shall promptly inform Vision 21 in writing of (a) any notice
of, or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company or the
Optometrist subsequent to the date of this Agreement and prior to the Effective
Time under any Commitment material to the Company's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in the Company's condition
(financial or otherwise), operations, assets, liabilities or business.
9.5. Approvals of Third Parties. As soon as
practicable after the date hereof, the Company and the Optometrist shall secure
all necessary approvals and consents of landlords to the consummation of the
transactions contemplated hereby and shall use their best efforts to secure all
necessary approvals and consents of other third parties to the consummation of
the transactions contemplated hereby; provided, however, that this covenant
shall not require the Company or the Optometrist to make any material
expenditures that are not expressly set forth in this Agreement or otherwise
contemplated herein.
9.6. Employee Matters. Except as set forth in
Schedule 3.13 or as otherwise contemplated by this Agreement, the Company shall
not, without the prior written approval of Vision 21, except as required by
law:
a. increase the cash compensation of the
Optometrist or any other employees of the Company (other than in the ordinary
course of business and consistent with past practice);
b. adopt, amend or terminate any
Compensation Plan;
c. adopt, amend or terminate any
Employment Agreement;
d. adopt, amend or terminate any Employee
Policies and Procedures;
e. adopt, amend or terminate any Employee
Benefit Plan;
40
<PAGE> 44
f. take any action that could deplete the
assets of any Employee Benefit Plan, other than payment of benefits in the
ordinary course to participants and beneficiaries;
g. fail to pay any premium or
contribution due or with respect to any Employee Benefit Plan;
h. fail to file any return or report with
respect to any Employee Benefit Plan;
i. institute, settle or dismiss any
employment litigation except as could not, individually or in the aggregate,
result in a Material Adverse Effect;
j. enter into, modify, amend or terminate
any agreement with any union, labor organization or collective bargaining unit;
or
k. take or fail to take any action with
respect to any past or present employee of the Company that would, individually
or in the aggregate, result in a Material Adverse Effect.
9.7. Contracts. Except with Vision 21's prior written
consent, the Company shall not assume or enter into any contract, lease,
license, obligation, indebtedness, commitment, purchase or sale except in the
ordinary course of business that is material to the Company's business, nor
will it waive any material right or cancel any material contract, debt or
claim.
9.8. Capital Assets; Payments of Liabilities. The
Company shall not, without the prior written approval of Vision 21 (a) acquire
or dispose of any capital asset having a fair market value of $5,000 or more,
or acquire or dispose of any capital asset outside of the ordinary course of
business or (b) discharge or satisfy any lien or encumbrance or pay or perform
any obligation or liability other than (i) liabilities and obligations
reflected in the Financial Statements or (ii) current liabilities and
obligations incurred in the usual and ordinary course of business since the
Company Balance Sheet Date and, in either case (i) or (ii) above, only as
required by the express terms of the agreement or other instrument pursuant to
which the liability or obligation was incurred.
9.9. Mortgages, Liens and Guaranties. The Company
shall not, without the prior written approval of Vision 21, enter into or
assume any mortgage, pledge, conditional sale or other title retention
agreement, permit any security interest, lien, encumbrance or claim of any kind
to attach to any of its assets (other than statutory liens arising in the
ordinary course of business and other liens that do not materially detract from
the value or interfere with the use of such assets), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently liable for
any obligation of another, except obligations arising by reason of
41
<PAGE> 45
endorsement for collection and other similar transactions in the ordinary
course of business, or make any capital contribution or investment in any
person.
9.10. Acquisition Proposals. The Company and the
Optometrist agree that from the date of this Agreement through the earlier of
the Closing Date or January 1, 1997, (a) neither the Optometrist nor the
Company nor any of its officers and directors shall, and the Optometrist and
the Company shall direct and use their best efforts to cause the Company's
employees, agents, and representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
Acquisition Proposal or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) the Optometrist and
the Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and each will take the necessary steps to
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 9.10; and (c) the Optometrist and
the Company will notify Vision 21 immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, the
Company or the Optometrist.
9.11. Distributions and Repurchases. Except as
contemplated in this Agreement, no distribution, payment or dividend of any
kind will be declared or paid by the Company with respect of its capital stock,
nor will any repurchase of any of the Company's capital stock be approved or
effected.
9.12. Requirements to Effect the Merger. The Company
and the Optometrist shall use their best efforts to take, or cause to be taken,
all actions necessary to effect the Merger under applicable law, including
without limitation the filing with the appropriate government officials of all
necessary documents in form approved by counsel for the parties to this
Agreement.
9.13. Optometrist Accounts Payable and Optometrist
Retained Equity. The Company shall, and the Optometrist shall cause the
Company, to pay in a timely manner the accounts payable of the Optometrist.
Except as contemplated in this Agreement, the Company shall not, and the
Optometrist shall not permit the Company to, make payment of all or any portion
of any retained equity of the Company at any time prior to Closing.
9.14. New P.C. Spinoff. The Company shall form,
organize and incorporate New P.C. in the State and the Articles or Certificate
of Incorporation and Bylaws of New P.C. shall be in form and substance
reasonably satisfactory to Vision 21. The Company shall not permit New P.C. to
commence business until the Closing Date. On or prior to the Closing, Company
shall take all actions and execute all documents, agreements or instruments
necessary to transfer to New P.C. the Company's optometric business and to
transfer good, valuable, and marketable title to all of the Company's
Optometric Assets in exchange for the issuance by the
42
<PAGE> 46
New P.C. to the Company of all of the issued and outstanding shares of New P.C.
common stock. Prior to the Closing, the Company shall declare and make a
distribution to Optometrist of all of the issued and outstanding shares of New
P.C. common stock.
9.15. Licenses and Permits. The Company and the
Optometrist shall cooperate fully with Vision 21 to obtain all licenses,
permits, approvals or other authorizations required under any law, statute,
rule, regulation or ordinance, or otherwise necessary or desirable to provide
the services of New P.C., the Optometrist and the Professional Employees
contemplated by the Business Management Agreement and the Optometrist
Employment Agreements, and to conduct the intended business of New P.C.
9.16. Optometrist Employment Agreements. The Company
and the Optometrist shall cause, at or immediately prior to Closing, each
Optometrist Employee (except for those non-shareholder Optometrist Employees
identified on Schedule 9.16) who is then an employee of the Company and
Optometrist agrees at or immediately prior to Closing (i) to terminate his
employment agreement, if any, with the Company by mutual consent without any
liability therefor on the part of the Company and (ii) to enter into a new
Optometrist Employment Agreement with New P.C. in accordance with the terms of
the Business Management Agreement.
9.17. Termination of Retirement Plans. Prior to
Closing, the Optometrist shall cause the Company to take all steps necessary to
discontinue benefits accruals under any Employee Benefit Plan that is intended
to be a qualified employee retirement plan under Section 401(a) of the Code (a
"Retirement Plan") effective as of Closing or as soon thereafter as may be
practical. Effective at the time of Closing, the Company shall cause New P.C.
to assume all of the obligations of the Company as the sponsoring employer
and/or plan administrator of the Retirement Plan in compliance with applicable
law.
Subsequent to Closing, New P.C. and Vision 21 shall review
the extent to which New P.C. can resume contributions to the Retirement Plan
without violating the qualification requirements of Sections 410(b) and
401(a)(4) of the Code taking into account any employees of Vision 21 who would
be "leased employees" of New P.C. under Section 414(n) of the Code. If Vision
21 and New P.C. mutually agree that such qualification requirements can be
satisfied, New P.C. may elect to continue the Retirement Plan and make
contributions in accordance with its terms, provided that New P.C. shall agree
to cover at its own expense any Vision 21 employees who are leased employees if
such coverage is required to maintain the tax-qualified status of the
Retirement Plan.
9.18. Delivery of Schedules. The Company and the
Optometrist shall deliver to Vision 21 all Schedules required to be delivered
by them prior to the Closing.
9.19. Conversion of Company. After the transfer of the
Optometric Assets of the Company to New P.C. and prior to Closing, Optometrist
shall cause the Company to take
43
<PAGE> 47
such action and file such documents or instruments as may be necessary to
convert the Company into a general business corporation in accordance with
applicable law.
9.20. Assignment of Fees for Optometry Services. On or
prior to the Closing Date, the Company shall obtain an irrevocable assignment
from all Professional Employees of any and all of their rights to receive
payment for the provision of optometry services which are part of the Accounts
Receivable to the Company existing on the Closing Date, except for those fees
specified and set forth on Schedule 9.20. Each Professional Employee shall
undertake to endorse any payments received on account of such services to the
order of the Company and to take such other action as may be necessary to
confirm to the Company the rights to collect and retain for its own account
such Accounts Receivable. The Company shall cause its Professional Employees
to agree that such security interest of such lender(s) is intended to be a
first priority security interest and is superior to any right, title or
interest which may be asserted by such Professional Employees with respect to
the Accounts Receivable or the proceeds thereof. In the event that the
assignment of rights described in this Section shall be deemed, for any reason,
to be ineffective as an outright assignment, the Company shall cause each
Professional Employee to agree that such Professional Employee shall be deemed,
effective as of the Closing Date, to have granted to the Company a first
priority lien on and security interest in and to any and all interests of such
Professional Employee in any of the Accounts Receivable, and all proceeds with
respect thereto, to secure the collection by the Company of all Accounts
Receivable, and this Agreement shall be deemed to be a security agreement to
the extent necessary to give effect to the foregoing. The Company shall cause
each Professional Employee to execute and deliver, all such financing
statements as the Company or Vision 21 may request in order to perfect such
security interest. The Company shall not suffer any Professional Employee to
grant any other lien on or security interest in or to such Accounts Receivable
or any proceeds thereof.
10. COVENANTS OF VISION 21. Vision 21 agrees that between the
date hereof and the Closing:
10.1. Consummation of Agreement. Vision 21 shall use
its best efforts to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other actions necessary to approve the Merger; provided, however, that this
covenant shall not require Vision 21 to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
10.2. Efforts to Effect. Vision 21 will use its best
efforts to take, or cause to be taken, all actions necessary to effect the
Merger under applicable law, including without limitation the filing with the
appropriate government officials of all necessary documents in form approved by
counsel for the parties to this Agreement.
10.3. Notification of Certain Matters. Vision 21 shall
promptly inform the Company and the Optometrist in writing of (a) any notice
of, or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default,
44
<PAGE> 48
received by Vision 21 subsequent to the date of this Agreement and prior to the
Effective Time under any Vision 21 Commitment material to Vision 21's condition
(financial or otherwise), operations, assets, liabilities or business and to
which it is subject; or (b) any material adverse change in Vision 21's
condition (financial or otherwise), operations, assets, liabilities or
business.
10.4. Approvals of Third Parties. Vision 21 shall use
its best efforts to secure, as soon as practicable after the date hereof, all
necessary approvals and consents of third parties to the consummation of the
transactions contemplated hereby.
10.5. Licenses and Permits. Vision 21 shall use its
best efforts to obtain all licenses, permits, approvals or other authorizations
required under any law, statute, rule, regulation or ordinance, or otherwise
necessary or desirable to consummate the transactions or provide the services
contemplated by the Business Management Agreement and to conduct the intended
business of Vision 21.
10.6. Release of Optometrist From Practice Liabilities.
Vision 21 shall use its best efforts to obtain from third party creditors the
release of Optometrist from any personal liabilities relating to the Practice
which are identified on Schedule 10.6 and assumed by Vision 21 pursuant to the
terms of this Agreement.
11. COVENANTS OF VISION 21, THE COMPANY AND THE OPTOMETRIST.
Vision 21, the Company and the Optometrist agree as follows (with respect to
New P.C.'s covenants, the Optometrist agrees to cause New P.C. to perform):
11.1. Filings; Other Action.
a. Vision 21 and the Optometrist shall
cooperate to promptly prepare and file at Vision 21's expense with the SEC, a
Registration Statement on Form S-1 (or other appropriate form) to be filed by
Vision 21 in connection with any Initial Public Offering of Vision 21
(including the prospectus constituting a part thereof, the "Registration
Statement"). Vision 21 shall obtain all necessary state securities law or
"Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement, and the Company and the Optometrist shall
furnish all information concerning the Company, the New P.C., the
Non-optometric Assets and the Optometrist as may be reasonably requested in
connection with any such action.
b. Each of the Company, the Optometrist
and Vision 21 represents and warrants that none of the information or documents
supplied or to be supplied by it specifically for inclusion in a Registration
Statement, by exhibit or otherwise, will, at the time the Registration
Statement and each amendment and supplement thereof, if any, becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company, the
45
<PAGE> 49
Optometrist, and Vision 21 shall agree as to the information and documents
supplied by the Company and the Optometrist for inclusion in the Registration
Statement and shall indicate such information and documents in a letter to be
delivered at least ten (10) days prior to the initial filing of the
Registration Statement with the SEC. The Company and the Optometrist shall be
entitled to review the Registration Statement and each amendment thereto, if
any, prior to the time each becomes effective under the Securities Act.
c. The Optometrist and the Company shall,
upon request, furnish Vision 21 with all information concerning himself,
itself, their respective partners, the Company's subsidiaries, directors,
officers, and stockholders, and including financial statements with respect to
the same, any consents (and information necessary to obtain such consents) and
such other matters as may be reasonably requested by Vision 21 in connection
with the preparation of the Registration Statement and each amendment or
supplement thereto, or any other statement, filing, notice or application made
by or on behalf of each such party or any of the Company's subsidiaries to any
governmental entity in connection with the Merger, any Initial Public Offering
and the other transactions contemplated by this Agreement.
11.2. Amendment of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to attach, supplement or amend promptly the Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to the Company or the Non-optometric Assets may be made
unless Vision 21 consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a material adverse change
to Vision 21 may be made unless the Company and the Optometrist consent to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 12.1 and 13.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
11.2. In the event that the Company is required to amend or supplement a
Schedule in accordance with this Section 11.2 and Vision 21 does not consent to
such amendment or supplement, or Vision 21 is required to amend or supplement a
Schedule in accordance with this Section 11.2 and the Company and the
Optometrist do not consent, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 17.1(d) or Section 17.1(e) as appropriate.
11.3. Business Management Agreement. The Company and
the Optometrist shall use their best efforts to cause the Business Management
Agreement to be executed and delivered by New P.C. on or prior to the Closing
Date, which shall be considered a Non-optometric Asset of the Company and shall
be acquired by Vision 21 in the Merger.
46
<PAGE> 50
11.4. Fees and Expenses.
a. Vision 21 shall pay all costs of the
Audit of the Company's Financial Statements and financial records by Vision
21's auditors (or auditors designated by Vision 21's auditors). All items
prepared by Vision 21's auditors in connection with the Audit ("Prepared Audit
Materials") shall be for use solely by Vision 21; provided, however, that the
Company may utilize the Prepared Audit Materials solely in connection with its
review of Vision 21's calculation of the Merger Consideration. The Prepared
Audit Materials shall not be deemed to include those items which customarily
remain the property of auditors such as their working papers and memos.
b. In the event the Merger is not
consummated, the Company and Optometrist shall not be entitled to copies or
originals of the Prepared Audit Materials unless the Company or Optometrist
pays for or reimburses Vision 21 for all expenses of the auditor in connection
with the Audit in advance of receiving the Prepared Audit Materials (either
from Vision 21 or its auditor). For purposes of this Agreement, Audit expenses
shall include all expenses related to the Audit as well as expenses incurred to
present the financial statements in accordance with GAAP and all schedules
related thereto.
c. Each of the Company and Vision 21
shall pay the costs and expenses of their own legal counsel with respect to
legal services rendered in connection with the preparation and negotiation of
this Agreement and the Merger contemplated hereby.
d. In the event that an Initial Public
Offering does not take place for any reason whatsoever, Vision 21 (but not the
Company or the Optometrist) shall have sole responsibility for the payment of
all legal fees (except as set forth in Section 11.4(c)), accounting fees
(except as set forth in Section 11.4(a)), underwriters' expenses and other
fees, costs and expenses associated solely in connection with the preparation
of any Registration Statement relating to such Initial Public Offering.
e. If any Initial Public Offering is
consummated as contemplated by this Agreement, all legal fees, audit fees,
printing costs, filing fees, blue sky fees and underwriters' discounts and fees
associated solely with the Initial Public Offering shall be paid by Vision 21
from the proceeds of the Initial Public Offering, except for those expenses,
fees and underwriters' discounts related to any shares sold by the Optometrist.
11.5. Release of Optometrist From Practice Liabilities.
Vision 21 shall use its best efforts to obtain the release of the Optometrist
from any liabilities relating to the Practice of which the Optometrist and the
Company are jointly obligated which are set forth on Schedule 11.5.
12. CONDITIONS PRECEDENT OF VISION 21. Except as may be waived
in writing by Vision 21, the obligations of Vision 21 hereunder are subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions precedent:
47
<PAGE> 51
12.1. Representations and Warranties. The
representations and warranties of the Company and the Optometrist contained
herein shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Closing
Date.
12.2. Covenants. The Company and the Optometrist shall
have performed and complied in all material respects with all covenants
required by this Agreement to be performed and complied with by the Company or
the Optometrist prior to the Closing Date.
12.3. Legal Opinion. Counsel to the Company and the
Optometrist shall have delivered to Vision 21 their opinions, dated as of the
Closing Date, in form and substance substantially similar to Exhibit 12.3 which
Vision 21, Vision 21's counsel, the underwriters of the Initial Public Offering
and their counsel shall be permitted to rely upon.
12.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened orally or
in writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
12.5. No Material Adverse Change. No material adverse
change in the condition (financial or otherwise), operations, assets,
liabilities or business of the Company shall have occurred since the Company
Balance Sheet Date, whether or not such change shall have been caused by the
deliberate act or omission of the Company or the Optometrist.
12.6. Government Approvals and Required Consents. The
Company, the Optometrist, New P.C. and Vision 21 shall have obtained all
necessary government and other third-party approvals and consents (other than
consents technically required as a result of the transactions contemplated
hereby under the terms of managed care contracts to which the Company or any of
its employees are a party).
12.7. Certification. None of the Company, the
Optometrist or New P.C. shall have received any notice of or been made a party
to any judicial or administrative proceeding, or threatened to so be made a
party, in any action or proceeding that seeks to deny the continued use or
receipt of any necessary permit, license, authorization, certification or
approval under the Medicare and Medicaid programs to provide optometry or
optometry services.
12.8. Closing Deliveries. Vision 21 shall have
received all documents and agreements, duly executed and delivered in form
reasonably satisfactory to Vision 21, referred to in Section 14.1.
12.9. Due Diligence. Vision 21 shall have completed to
its satisfaction a due diligence review of the Company and the Optometrist.
48
<PAGE> 52
12.10. Financial Audit. Vision 21 shall have approved
in Vision 21's sole discretion an audit of the Company and the Practice which
audit shall have been performed by an accounting firm designated by Vision 21
at the sole expense of Vision 21.
12.11. Medicare Audit. Vision 21 shall have approved in
Vision 21's sole discretion a Medicare audit of the Company and the Practice
which audit shall be at the sole expense of Vision 21.
12.12. Exemption Under State Securities Laws. The
transfer of Vision 21's Securities to the Optometrist as contemplated in this
Agreement shall qualify for one or more exemptions from registration under the
State's securities laws. Vision 21 shall pay all filing fees in connection
with any filing required to qualify the transfer of the Securities for such
exemption(s).
12.13. Assignment of Professional Employees' Rights in
Accounts Receivable. The Company shall have caused the Professional Employees
to assign any and all of their rights with respect to Accounts Receivable to
the Company and shall cause such Professional Employees to execute such other
agreements and instruments as contemplated in Section 9.21.
13. CONDITIONS PRECEDENT OF THE COMPANY AND THE OPTOMETRIST.
Except as may be waived in writing by the Company and the Optometrist, the
obligations of the Company and the Optometrist hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions
precedent:
13.1. Representations and Warranties. The
representations and warranties of Vision 21 contained herein shall be true and
correct in all respects when initially made and shall be true and correct in
all material respects as of the Closing Date.
13.2. Covenants. Vision 21 shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Closing
Date.
13.3. Legal Opinions. Counsel to Vision 21 shall have
delivered to the Company and the Optometrist their opinion, dated as of the
Closing Date, in form and substance substantially similar to Exhibit 13.3.
13.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
13.5. Government Approvals and Required Consents. The
Company, the Optometrist, New P.C. and Vision 21 shall have obtained all
necessary government and other third-party approvals and consents (other than
consents technically required as a result of the
49
<PAGE> 53
transactions contemplated hereby under the terms of managed care contracts to
which the Company or any of its employees are a party).
13.6. Closing Deliveries. The Company, New P.C. and
the Optometrist shall have received all documents, instruments and agreements,
duly executed and delivered in form reasonably satisfactory to the Company,
referred to in Section 14.2.
13.7. No Change in Voting or Ownership Control. There
shall have been no changes in the voting or ownership control of Vision 21 from
the date first above written to the Closing Date.
13.8. No Material Adverse Change; Delivery of Amended
Confidential Information Memorandum. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities or business
of Vision 21 shall have occurred since the end of the last fiscal period
reported in the Vision 21 Financial Statements, whether or not such change
shall have been caused by the deliberate act or omission of Vision 21. Vision
21 shall deliver an amended Confidential Information Memorandum updating the
information contained in the initial Confidential Information Memorandum on or
before December, 1996, and the Company and the Optometrist shall have the right
not to close the transactions contemplated in this Agreement if they determine,
based upon their review of the amended Confidential Information Memorandum,
that a material adverse change has occurred with respect to the condition
(financial or otherwise), operations, assets, liabilities or business of Vision
21.
14. CLOSING DELIVERIES; ESCROW OF DOCUMENTS.
14.1. Deliveries of the Company, New P.C. and the
Optometrist. At or prior to December 1, 1996, the Company, New P.C. and the
Optometrist shall deliver to Vision 21, c/o Shumaker, Loop & Kendrick, LLP,
counsel to Vision 21, the following, all of which shall be in a form reasonably
satisfactory to Vision 21 and shall be held by Shumaker, Loop & Kendrick, LLP
in escrow pending Closing, pursuant to an escrow agreement or letter in form
and substance mutually acceptable to the parties hereto:
a. a copy of resolutions of the Board of
Directors of the Company authorizing (i) the execution, delivery and
performance of this Agreement and all related documents and agreements, and
(ii) the consummation of the Merger, certified by the Secretary of the Company
as being true and correct copies of the originals thereof subject to no
modifications or amendments;
b. a copy of resolutions of the Board of
Directors of New P.C. authorizing the execution, delivery and performance of
the Business Management Agreement, the Optometrist Employment Agreements, and
all other documents to be executed and delivered by New P.C. as contemplated by
this Agreement, certified by the Secretary of New P.C. as being true and
correct copies of the originals thereof subject to no modifications or
amendments;
50
<PAGE> 54
c. a certificate of the President of the
Company, and of the Optometrist, dated the Closing Date, as to the truth and
correctness of the representations and warranties of the Company and the
Optometrist contained herein, on and as of the Closing Date;
d. a certificate of the President of the
Company, and of the Optometrist, dated the Closing Date, (i) as to the
performance of and compliance in all material respects by the Company and the
Optometrist with all covenants contained herein on and as of the Closing Date
and (ii) certifying that all conditions precedent of the Company and the
Optometrist to the Closing have been satisfied;
e. a certificate of the Secretary of the
Company and the Secretary of New P.C. certifying as to the incumbency of the
directors and officers of each such corporation and as to the signatures of
such directors and officers who have executed documents delivered pursuant to
the Agreement on behalf of each such corporation;
f. a certificate, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the respective
states of incorporation for the Company and New P.C. establishing that each
such corporation is in existence, has paid all franchise or similar taxes, if
any, and, if applicable, otherwise is in good standing to transact business in
its state of organization;
g. certificates, dated within ten (10)
days prior to the Closing Date, of the Secretaries of State of the states in
which the Company and New P.C. are qualified to do business, to the effect that
each such corporation is qualified to do business and, if applicable, is in
good standing as a foreign corporation in each of such states;
h. an opinion of counsel to the Company
and Optometrists dated as of the Closing Date, in form and substance
satisfactory to Vision 21, which Vision 21, Vision 21's counsel and the
underwriters of any Initial Public Offering and their counsel are permitted to
rely upon and which shall include an opinion, subject to normal and customary
exceptions that to the best of their knowledge the transactions and
arrangements contemplated by this Agreement are in conformity with State laws,
rules and regulations governing the practice of optometry.
i. all authorizations, consents, permits
and licenses referenced in Section 3.8;
j. the resignations of the directors and
officers of the Company as requested by Vision 21;
k. the executed Business Management
Agreement in substantially the form attached hereto as Exhibit 14.1 (k), as
revised in accordance with changes reasonably deemed necessary or advisable by
legal counsel retained by Vision 21 in the State to address regulatory and
compliance issues;
51
<PAGE> 55
l. an executed Optometrist Employment
Agreement between New P.C. and the Optometrist in substantially the form
attached hereto as Exhibit 14.1 (l);
m. an executed Optometrist Employment
Agreement between New P.C. and each Optometrist Employee who is then an
employee of the Company in substantially the form attached hereto as Exhibit
14.1 (m);
n. an executed Optometrist Employment
Agreement between New P.C. and each Optometrist Employee who is then an
employee of the Company in substantially the form attached hereto as Exhibit
14.1 (n);
o. an executed Registration Rights
Agreement between Vision 21 and the Optometrist in substantially the form
attached hereto as Exhibit 14.1 (o) (the "Registration Rights Agreement");
p. an executed Certificate of Merger
necessary to effect the Merger;
q. a non-foreign affidavit, as such
affidavit is referred to in Section 1445 (b) (2) of the Code, of the
Optometrist, signed under a penalty of perjury and dated as of the Closing
Date, to the effect that the Optometrist is a United States citizen or a
resident alien (and thus not a foreign person) and providing the Optometrist's
United States taxpayer identification number;
r. if desired by Vision 21, a new lease
or leases between the landlords under each lease for real property described on
Schedule 3.14(c) and Vision 21 in form and substance reasonably satisfactory to
Vision 21;
s. an executed Agreement to Continue
Practice After Transfer Event and Stock Pledge substantially in the form of
Exhibit 14.1(s); and
t. the Shares of Company Common Stock to
be delivered pursuant to Section 2.9(b);
u. such other instrument or instruments
of transfer prepared by Vision 21 as shall be necessary or appropriate, as
Vision 21 or its counsel shall reasonably request, to carry out and effect the
purpose and intent of this Agreement.
14.2. Deliveries of Vision 21. At or prior to December
___, 1996, Vision 21 shall deliver to the Company and the Optometrist, c/o
Shumaker, Loop & Kendrick, LLP counsel to Vision 21, the following, all of
which shall be in a form reasonably satisfactory to the Company and the
Optometrist and shall be held by Shumaker, Loop & Kendrick, LLP in escrow
pending Closing, pursuant to an escrow agreement or letter in form and
substance mutually acceptable to the parties hereto:
52
<PAGE> 56
a. a copy of the resolutions of the Board
of Directors of Vision 21 authorizing (i) the execution, delivery and
performance of this Agreement, and all related documents and agreements, and
(ii) the consummation of the Transaction, certified by Vision 21's Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
b. a certificate of an officer of Vision
21 dated the Closing Date as to the truth and correctness of the
representations and warranties of Vision 21 contained herein, on and as of the
Closing Date;
c. a certificate of an officer of Vision
21 dated the Closing Date, (i) as to the performance and compliance of Vision
21 with all covenants contained herein on and as of the Closing Date and (ii)
certifying that all conditions precedent of Vision 21 to the Closing have been
satisfied;
d. a certificate, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the State of
Florida establishing that Vision 21 is in existence, has paid all franchise or
similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in such state;
e. certificates (or photocopies thereof),
dated within ten (10) days prior to the Closing Date, of the Secretary of State
of each state in which Vision 21 is qualified to do business, to the effect
that Vision 21 is qualified to do business and, if applicable, is in good
standing as a foreign corporation in each of such states;
f. an opinion of Shumaker, Loop &
Kendrick, LLP, counsel to Vision 21, dated as of the Closing Date, pursuant to
Section 13.3;
g. the executed Registration Rights
Agreement;
h. the executed Lease Assignments;
i. the Shares of Vision 21 Common Stock
to be delivered pursuant to Section 2.9(a);
j. the Agreement to Continue Practice
After Transfer Event and Stock Pledge; and
k. such other instrument or instruments
of transfer, prepared by the Company or the Optometrist as shall be necessary
or appropriate, as the Company, the Optometrist or their counsel shall
reasonable request, to carry out and effect the purpose and intent of this
Agreement.
53
<PAGE> 57
14.3. Release of Escrow Materials. Shumaker, Loop &
Kendrick, LLP shall release the agreements, certificates, instruments,
documents and other materials described in Sections 14.1 and 14.2 to the
appropriate parties to effectuate the transactions contemplated in this
Agreement only after all such materials have been delivered by all applicable
parties (or the parties receiving such documents have waived in writing such
delivery requirement) and after counsel for the Optometrist and the Company
have sent written notice to Shumaker, Loop & Kendrick, LLP stating that the
Optometrist and the Company have reviewed the amended Confidential Information
Memorandum and have decided, based upon such review, to consummate the
transactions contemplated in this Agreement. In the event that the Optometrist
and the Company elect not to consummate the transactions contemplated in this
Agreement based upon their review of the amended Confidential Information
Memorandum, and counsel for the Optometrist and the Company informs Shumaker,
Loop & Kendrick, LLP in writing as to such decision, Shumaker, Loop & Kendrick,
LLP shall promptly return the foregoing materials to the parties sending such
materials.
15. POST CLOSING MATTERS.
15.1. Further Instruments of Transfer. From and after
the Closing Date, at the request of Vision 21 and at Vision 21's sole cost and
expense, the Optometrist and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate
to carry out the purpose and intent of this Agreement.
15.2. Practice Advisory Council; Local Advisory
Council; National Appeals Council. Vision 21 and New P.A. shall establish a
practice advisory council composed of delegates from Vision 21 and New P.A.
which shall advise Vision 21 and New P.A. and determine certain issues as more
fully described in the Business Management Agreement. Vision 21 shall also
establish a local advisory council composed of delegates from certain practice
groups acquired by Vision 21 in connection with the Related Acquisitions. Such
delegates shall be appointed from practice groups which are located in a market
area to be identified by Vision 21 and in which New P.A. is located. The local
advisory council board shall advise Vision 21 and the practice groups within
the market area as to policy and strategy issues and shall determine certain
types of issues and disputes between Vision 21 and such practice groups which
issues and disputes are identified in the Business Management Agreement and
other management agreements entered into between Vision 21 and practice groups.
New P.A. shall have the right to appoint one (1) member to a local advisory
council who shall serve an initial two (2) year term. After the initial
two-year term, election of members to the local advisory council shall be in
accordance with by-laws which shall be adopted and amended by the local
advisory council. Vision 21 shall also establish a national appeals council
which shall have, among other duties and responsibilities, the power to adopt
and amend its by-laws, to review and approve as limited herein certain
decisions of the local advisory councils, and to resolve deadlocks among the
members of such local advisory councils.
54
<PAGE> 58
16. REMEDIES.
16.1. Indemnification by the Optometrist. Subject to
the terms and conditions of this Agreement, the Optometrist agrees to
indemnify, defend and hold Vision 21, the Surviving Corporation and their
respective directors, officers, members, managers, employees, agents, attorneys
and affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (collectively, "Damages") asserted against or
incurred by such entities and individuals (including, but not limited to, any
reduction in payments to or revenues of New P.C.), arising out of or resulting
from:
a. a breach of any representation,
warranty or covenant of the Company or the Optometrist contained herein or in
any schedule or certificate delivered hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, (i) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact relating to
the Optometrist, the Company (including its subsidiaries, if any) or New P.C.,
and provided to Vision 21 or its counsel by the Company or the Optometrist,
specifically for inclusion in a Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (ii)
arising out of or based upon any omission or alleged omission to state therein
a material fact relating to the Optometrist, the Company (including its
subsidiaries, if any) or New P.C. required to be stated therein or necessary to
make the statements therein not misleading, and not provided to Vision 21 or
its counsel by the Company or the Optometrist, provided, however, that such
indemnity shall not inure to the benefit of Vision 21 to the extent that such
untrue statement (or alleged untrue statement) was made, in, or omission (or
alleged omission) occurred in, any preliminary prospectus, and such information
was not so included by Vision 21 and properly delivered to shareholders of
Vision 21 who acquire Vision 21 Common Stock in any Initial Public Offering;
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable;
d. any failure of the Merger to qualify
as a reorganization within the meaning of Section 368(a)(1)(A) of the Code or
any failure of the spin off of Company's optometric business and Optometric
Assets to qualify as a tax free spin off under Section 355 of the Code; and
e. any liability arising from any alleged
unlawful sale or offer to sell or transfer any of the Common Stock by
Optometrist.
16.2. Indemnification by Vision 21. Subject to the
terms and conditions of this Agreement, Vision 21 hereby agrees to indemnify,
defend and hold the Optometrist harmless
55
<PAGE> 59
from and against all damages asserted against or incurred by him arising out of
or resulting from:
a. a breach by Vision 21 of any
representation, warranty or covenant of Vision 21 contained therein or in any
schedule or certificate delivered hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to
Vision 21, contained in any preliminary prospectus, Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, arising out of or based upon any omission or alleged omission to state
therein a material fact relating to Vision 21 (including its subsidiaries),
required to be stated therein or necessary to make the statements therein not
misleading; and
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable.
Notwithstanding anything in this Section 16.2, Vision 21 shall not be
liable for any Damages resulting from any matter not disclosed to Vision 21 by
any of the third parties to be acquired by Vision 21 in connection with the
Related Acquisitions.
16.3. Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
a. A party claiming indemnification under
this Agreement (an "Indemnified Party") shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify the party from whom indemnification is sought
(the "Indemnifying Party") of any third-party claim or claims asserted against
the Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. Except as set forth in Section 16.6, the
failure to promptly deliver a Claim Notice shall not relieve the Indemnifying
Party of its obligations to the Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article 16 with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
56
<PAGE> 60
If the Indemnifying Party notifies the
Indemnified Party within the Election Period that the Indemnifying Party elects
to assume the defense of the Third Party Claim, then the Indemnifying Party
shall have the right to defend, at its sole cost and expense, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Party to a final conclusion or settled at the
discretion of the Indemnifying Party in accordance with this Section 16.3(b).
The Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof. The Indemnified Party is
hereby authorized, at the sole cost and expense of the Indemnifying Party (but
only if the Indemnified Party is entitled to indemnification hereunder), to
file, during the Election Period, any motion, answer or other pleadings that
the Indemnified Party shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Party and not prejudicial to the
Indemnifying Party (it being understood and agreed that if an Indemnified Party
takes any such action that is prejudicial and causes a final adjudication that
is adverse to the Indemnifying Party, the Indemnifying Party shall be relieved
of its obligations hereunder with respect to such Third Party Claim). If
requested by the Indemnifying Party, the Indemnified Party agrees, at the sole
cost and expense of the Indemnifying Party, to cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, including, without limitation, the making of any
related counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to Section 16.3(b) and shall bear its own
costs and expenses with respect to such participation; provided, however, that
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for the Indemnified Party, which firm shall be designated
in writing by the Indemnified Party.
b. If the Indemnifying Party fails to
notify the Indemnified Party within the Election Period that the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section 16.3(b), or if
the Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 16.3(b) but fails diligently and promptly to prosecute or settle the
Third Party Claim, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party (if the Indemnified
Party is entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's
57
<PAGE> 61
consent, which shall not be unreasonably withheld, any compromise or settlement
of such Third Party Claim. Notwithstanding the foregoing, if the Indemnifying
Party has delivered a written notice to the Indemnified Party to the effect
that the Indemnifying Party disputes its potential liability to the Indemnified
Party under this Article 16 and if such dispute is resolved in favor of the
Indemnifying Party, the Indemnifying Party shall not be required to bear the
costs and expenses of the Indemnifying Party's defense pursuant to this Section
or of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all costs and expenses of such litigation. The Indemnifying Party may
participate in, but not control any defense or settlement controlled by the
Indemnified Party pursuant to this Section 16.3(c), and the Indemnifying Party
shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnifying Party has been advised by counsel that there may be
one or more legal defenses available to the Indemnified Party, then the
Indemnifying Party may employ separate counsel and upon written notification
thereof, the Indemnified Party shall not have the right to assume the defense
of such action on behalf of the Indemnifying Party.
c. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder that does not
involve a Third Party Claim, the Indemnified Party shall transmit to the
Indemnifying Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not
notify the Indemnified Party within sixty (60) days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim, the claim
specified by the Indemnified Party in the Indemnity Notice shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed such claim, as provided above, such dispute shall be resolved
by mediation or arbitration as provided in Section 20.1 if the parties do not
reach a settlement of such dispute within thirty (30) days after notice of a
dispute is given.
d. Payments of all amounts owing by an
Indemnifying Party pursuant to this Article 16 relating to a Third Party Claim
shall be made within thirty (30) days after the latest of (i) the settlement of
such Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by an
Indemnifying Party pursuant to Section 16.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the sixty (60) day Indemnity
Notice period or (ii) the expiration of the period for appeal, if any, of a
final adjudication or arbitration of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
58
<PAGE> 62
16.4. Remedies Not Exclusive. The remedies provided in
this Agreement shall not be exclusive of any other rights or remedies available
to one party against the other, either at law or in equity. This Article 16
regarding indemnification shall survive Closing.
16.5. Costs, Expenses and Legal Fees. Each party
hereto agrees to pay the costs and expenses (including attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of
the terms of this Agreement, or (b) proving that another party breached any of
the terms of this Agreement.
16.6. Indemnification Limitations. Notwithstanding the
provisions of Sections 16.1 and 16.2, (a) no party shall be required to
indemnify another party with respect to a breach of a representation, warranty
or covenant unless the claim for indemnification is brought within two (2)
years after the Closing Date, except that a claim for indemnification for a
breach of the representations and warranties contained in Sections 3.1, 3.2,
3.3., 3.4, 3.5, 3.6, 3.14, 3.17, 3.20, 3.23, 4.1, 4.3, 4.4, 4.8, 5.1, 5.2, 5.3,
5.4, 5.6, 5.7, 7.1, 7.2, 7.3 and 7.4 may be made at any time, and a claim for
indemnification for a breach of the representations and warranties contained in
Sections 3.12, 3.18, 3.21, 3.27, 3.28, 3.29, 3.30, 3.31, 3.33, 4.5, 4.7, 4.11,
5.8 and 8.1 may be made at any time within the applicable statute of
limitations; (b) indemnification based upon Sections 16.1(b) through (e) and
16.2(b) may be made at any time within the applicable statute of limitations;
and (c) the Optometrist shall not be required to indemnify Vision 21 pursuant
to Section 16.1 unless, and to the extent that, the aggregate amount of Damages
incurred by Vision 21 shall exceed an amount equal to two percent (2%) of the
total Merger Consideration; and (d) the Optometrist shall not be required to
indemnify Vision 21 with respect to a breach of a representation, warranty or
covenant for Damages in excess of the aggregate Merger Consideration received
by the Optometrist (other than pursuant to a requirement to indemnify Vision 21
under Sections 3.30 and 3.31, or unless the breach involves an intentional
breach or fraud by the Optometrist or the Company, which shall be unlimited).
16.7. Tax Benefits; Insurance Proceeds. The total
amount of any indemnity payments owed by one party to another party to this
Agreement shall be reduced by any correlative tax benefit received by the party
to be indemnified or the net proceeds received by the party to be indemnified
with respect to recovery from third parties or insurance proceeds and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
16.8. Payment of Indemnification Obligation. In the
event that the Optometrist has an indemnification obligation to Vision 21
hereunder, subject to Vision 21's approval as set forth below, the Optometrist
may satisfy such obligation by transferring to Vision 21 such number of shares
of Vision 21 Common Stock owned by the Optometrist having an aggregate fair
market value (which is prior to any Initial Public Offering based upon the
valuation given at Closing hereof or after an Initial Public Offering the fair
market value at such time based on the last reported sale price of Vision 21
Common Stock on a principal national securities exchange or other exchange on
which the Vision 21 Common Stock is then listed or
59
<PAGE> 63
the last quoted ask price on any over-the-counter market through which the
Vision 21 Common Stock is then quoted on the last trading day immediately
preceding the day on which the Optometrist transfers shares of Vision 21 Common
Stock to Vision 21 hereunder) equal to the indemnification obligation, provided
that each of the following conditions are satisfied:
a. The Optometrist shall transfer to
Vision 21 good, valid and marketable title to the shares of Vision 21 Common
Stock, free and clear of all adverse claims, security interests, liens, claims,
proxies, options, stockholders' agreements and encumbrances;
b. The Optometrist shall make such
representation and warranties as to title to the stock, absences of security
interests, liens, claims, proxies, stockholders' agreements and other
encumbrances and other matters as reasonably requested by Vision 21; and
c. The other terms and conditions of any
transaction contemplated pursuant to this Section and the effects thereof,
including any legal or tax consequences, shall be reasonably satisfactory to
Vision 21.
17. TERMINATION.
17.1. Termination. This Agreement may be terminated
and the Merger may be abandoned:
a. at any time prior to the Closing Date
by mutual agreement of all parties;
b. at any time prior to the Closing Date
by Vision 21 if any representation or warranty of the Company or the
Optometrist contained in this Agreement or in any certificate or other document
executed and delivered by the Company or the Optometrist pursuant to this
Agreement is or becomes untrue or breached in any material respect or if the
Company or the Optometrist fails to comply in any material respect with any
covenant or agreement contained herein, and any such misrepresentation,
noncompliance or breach is not cured, waived or eliminated within twenty (20)
days after receipt of written notice thereof;
c. at any time prior to the Closing Date
by the Company if any representation or warranty of Vision 21 contained in this
Agreement is or becomes untrue in any material respect or if Vision 21 fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within twenty (20) days after receipt or written notice thereof;
d. at any time prior to the Closing Date
by the Company in the event of the failure of any of the conditions precedent
set forth in Article 13 of this Agreement;
60
<PAGE> 64
e. at any time prior to the Closing Date
by Vision 21 in the event of the failure of any of the conditions precedent set
forth in Article 12 of this Agreement;
f. by Vision 21 if at any time prior to
the Closing Date, Vision 21 deems termination to be advisable, provided,
however, that if Vision 21 exercises its right to terminate this Agreement
under this subsection, Vision 21 shall reimburse the Company and the
Optometrist for all reasonable attorneys' and accountants' fees incurred by the
Company and the Optometrist in connection with this Agreement; provided that
Vision 21 shall only reimburse the Company and the Optometrist up to an
aggregate maximum amount of One Hundred Thousand and No/100 Dollars
($100,000.00) for such fees; or
g. by Vision 21 or the Company if the
Merger shall not have been consummated by December 5, 1996.
17.2. Effect of Termination. In the event this
Agreement is terminated pursuant to Section 17.1, Vision 21, the Company and
the Optometrist, shall each be entitled to pursue, exercise and enforce any and
all remedies, rights, powers and privileges available at law or in equity,
subject to the limitations set forth in Section 16.1. In the event of a
termination of this Agreement under the provisions of this Article 17, a party
not then in material breach of this Agreement shall stand fully released and
discharged of any and all obligations under this Agreement.
18. OPTOMETRIST EMPLOYMENT AGREEMENT.
18.1. Optometrist Employment Agreement. The parties
acknowledge that in accordance with the terms of this Agreement, Optometrist,
as employee, and New P.C., as employer, have entered into the Optometrist
Employment Agreement and that Vision 21 is entitled to enforce such Optometrist
Employment Agreement as an intended third party beneficiary. Optometrist and
Vision 21 further acknowledge that Vision 21 would suffer severe harm in the
event of Optometrist's resignation from New P.C.'s practice prior to the
expiration of the five (5) year term of the Optometrist Employment Agreement
(without first obtaining the written consent of Vision 21) or a breach or
default of Optometrist's obligations under such Optometrist Employment
Agreement, and Optometrist, New P.C. and Vision 21 agree that Vision 21 shall
be entitled to recover from Optometrist any and all damages incurred by Vision
21 caused by such resignation, breach or default. Notwithstanding the
foregoing, Vision 21 shall not be entitled to recover its damages caused by
such resignation, breach or default if such resignation, breach or default was
caused by: (i) the death or disability of Optometrist, (ii) circumstances not
caused by an act or omission of Optometrist and which circumstances are beyond
his control, or (iii) the loss of Optometrist's license to practice as an
optometrist, unless such loss of license is due to an act or omission of
Optometrist. Notwithstanding the foregoing, Optometrist shall have no
obligation to pay the damages contemplated in this Section 18.1 if the Business
Management Agreement has been terminated pursuant to a material breach by
Vision 21.
61
<PAGE> 65
18.2. Survival. The parties acknowledge and agree that
this Article 18 shall survive the Closing of the transactions contemplated
herein.
19. NON-COMPETITION AND CONFIDENTIALITY COVENANTS.
19.1. Optometrist Non-Competition Covenant.
a. The Optometrist recognizes that the
covenants of the Optometrist contained in this Section 19.1 are an essential
part of this Agreement and that, but for the agreement of the Optometrist to
comply with such covenants, Vision 21 would not have entered into this
Agreement. The Optometrist acknowledges and agrees that the Optometrist's
covenant not to compete is necessary to ensure the continuation of the
Management Business (as defined below) and is necessary to protect the
reputation of Vision 21, and that irreparable and irrevocable harm and damage
will be done to Vision 21 if the Optometrist competes with the Management
Business or Vision 21. The Optometrist accordingly agrees that for the periods
set forth in the Business Management Agreement, the Optometrist shall not:
i) directly or indirectly,
either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Optometrist's
own benefit or for the benefit of any other person or entity knowingly (A)
hire, attempt to hire, contact or solicit with respect to hiring any employee
of Vision 21 (or of any of its direct or indirect subsidiaries) or (B) induce
or otherwise counsel, advise or encourage any employee of Vision 21 (or of any
of its direct or indirect subsidiaries) to leave the employment of Vision 21;
ii) act or serve, directly or
indirectly, as a principal, agent, independent contractor, consultant,
director, officer, employee, employer or advisor or in any other position or
capacity with or for, or acquire a direct or indirect ownership interest in or
otherwise conduct (whether as stockholder, partner, investor, joint venturer,
or as owner of any other type of interest), any Competing Management Business
as such term is defined herein; provided, however, that this clause (ii) shall
not prohibit the Optometrist from being the owner of up to 1% of any class of
outstanding securities of any company or entity if such class of securities is
publicly traded; or
iii) directly or indirectly,
either as principal, agent, independent, contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Optometrist's
own benefit or for the benefit of any other person or entity, call upon or
solicit any customers or clients of the Management Business; provided however,
that the Optometrist may send out a general notice to the customers or clients
of the Management Business announcing the termination of his arrangement with
Vision 21 and may advertise in a general manner without violating this
covenant. The parties hereto acknowledge and agree that for purposes of this
Section, patients which have in the past received optometric care from the
62
<PAGE> 66
Company and/or shall in the future receive optometric care from the New P.C.
are not deemed to be customers or clients of the Management Business.
b. For the purposes of this Section 19.1,
the following terms shall have the meaning set forth below:
i) "Management Business" shall
mean management and administration of the non-optometric aspects of optometry
practices.
ii) "Competing Management
Business" shall mean an individual, business, corporation, association, firm,
undertaking, company, partnership, joint venture, organization or other entity
that either (A) conducts a business substantially similar to the Management
Business within the State, or (B) provides or sells a service which is the same
or substantially similar to, or otherwise competitive with the services
provided by the Management Business within the State; provided, however, that
"Competing Management Business" shall not include Vision 21, or the
Optometrist's internal management and administration of the Optometrist's
optometric practice or participation in the management and administration of a
optometrist group in which the Optometrist devotes a significant amount of time
to the practice of optometry.
c. Should any portion of this Section
19.1 be deemed unenforceable because of the scope, duration or territory
encompassed by the undertakings of the Optometrist hereunder, and only in such
event, then the Optometrist and Vision 21 consent and agree to such limitation
on scope, duration or territory as may be finally adjudicated as enforceable by
a court of competent jurisdiction after the exhaustion of all appeals.
d. This covenant shall be construed as an
agreement ancillary to the other provisions of this Agreement, and the
existence of any claim or cause of action of the Optometrist against Vision 21,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by Vision 21 of this covenant; provided, however,
that the Optometrist shall not be bound by this covenant and shall not be
obligated to pay the liquidated damages contemplated in this Section 19.1 if at
the time of a breach of this covenant the Business Management Agreement has
already been terminated pursuant to Section 6.2(a) thereof. Without limiting
other possible remedies to Vision 21 for breach of this covenant, the
Optometrist agrees that injunctive or other equitable relief will be available
to enforce the covenants of this provision, such relief to be without the
necessity of posting a bond, cash or otherwise. The Optometrist and Vision 21
further expressly acknowledge that the damages that would result from a
violation of this non-competition covenant would be impossible to predict with
any degree of certainty, and agree that liquidated damages in the amount of the
aggregate consideration received by the Optometrist pursuant to this Agreement
is reasonable in light of the severe harm to the Management Business and Vision
21 which would result in the event that a violation of this non-competition
covenant were to occur. For purposes of calculation of the liquidated damages
contemplated in this Section and for purposes of calculation of the liquidated
damages contemplated in the Business Management Agreement and the Optometrist
Employment
63
<PAGE> 67
Agreement between the Optometrist and New P.C., the aggregate consideration
received by Optometrist pursuant to this Agreement shall be in those amounts
and in such form as set forth in Schedule 19.1. If the Optometrist violates
this non-competition covenant, Vision 21 shall, in addition to all other rights
and remedies available at law or equity, be entitled to (a) cancel the number
of shares of Common Stock held by the Optometrist or, with respect to shares of
Common Stock entitled to be received by the Optometrist, terminate its
obligation to deliver such number of shares of Common Stock, valued as set
forth in Section 6.6(a) of the Business Management Agreement, and (b) repayment
by Optometrist to Vision 21 of any and all sums received in connection with any
shares of Vision 21 Common Stock sold by Optometrist; but in no event shall
Vision 21 be entitled to offset amounts in excess of the liquidated damages sum
pursuant to this Section 19.1. The Optometrist agrees to deliver to Vision 21
the certificates representing any such shares canceled by Vision 21. Payment
and satisfaction by Optometrist shall be made within sixty (60) days of
notification to Optometrist by Vision 21 that Optometrist has violated this
non-competition covenant.
e. Notwithstanding anything contained
herein, this Section 19.1 shall not be construed to (i) limit the freedom of
any patient of the Optometrist to choose the facility or optometrist from whom
such patient shall receive health-care services or (ii) limit or interfere with
the Optometrist's ability to exercise his professional optometric judgment in
treating his patients or his ability to provide optometric services to his
patients.
19.2. Optometrist Confidentiality Covenant. From the
date hereof, the Optometrist shall not, directly or indirectly, use for any
purpose, other than in connection with the performance of the Optometrist's
duties under the Optometrist Employment Agreement with New P.C., or disclose to
any third party, any information of Vision 21 or the Company, as appropriate
(whether written or oral), including any business management or economic
studies, patient lists, proprietary forms, proprietary business or management
methods, marketing data, fee schedules, or trade secrets of Vision 21 or of the
Company, as applicable, and including the terms and provisions of this
Agreement and any transaction or document executed by the parties pursuant to
this Agreement. Notwithstanding the foregoing, the Optometrist may disclose
information that the Optometrist can establish (a) is or becomes generally
available to and known by the public or optometric community (other than as a
result of an unpermitted disclosure directly or indirectly by the Optometrist
or his Affiliates, advisors, or representatives); (b) is or becomes available
to the Optometrist on a nonconfidential basis from a source other than Vision
21, the Company or their respective Affiliates, advisors or representatives,
provided that such source is not and was not bound by a confidentiality
agreement with or other obligation of secrecy to Vision 21, the Company or
their respective Affiliates, advisors or representatives of which the
Optometrist has knowledge; or (c) has already been or is hereafter
independently acquired or developed by the Optometrist without violating any
confidentiality agreement with or other obligation of secrecy to Vision 21, the
Company or their respective Affiliates, advisors or representatives. Without
limiting the other possible remedies to Vision 21 for the breach of this
covenant, the Optometrist agrees that injunctive or other equitable relief
shall be available to enforce this covenant, such relief to be without the
necessity of posting a bond, cash or otherwise. The Optometrist further agrees
that if any restriction contained in this Section 19.2
64
<PAGE> 68
is held by any court to be unenforceable or unreasonable, a lesser restriction
shall be enforced in its place and the remaining restrictions contained herein
shall be enforced independently of each other.
19.3. Survival. The parties acknowledge and agree that
this Article 19 shall survive the Closing of the transactions contemplated
herein.
20. DISPUTES.
20.1. Mediation and Arbitration. Any dispute,
controversy or claim (excluding claims arising out of an alleged breach of
Article 19 of this Agreement) arising out of this Agreement, or the breach
thereof, that cannot be settled through negotiation shall be settled (a) first,
by the parties trying in good faith to settle the dispute by mediation under
the Commercial Mediation Rules of the AAA (such mediation session to be held in
Tampa, Florida, if the amount in dispute is equal to or in excess of $200,000
or if the dispute is solely of a non-monetary nature, and in Scottsdale,
Arizona if the amount in dispute is lower than $200,000, and in either case to
commence within 15 days of the appointment of the mediator by the AAA), and (b)
if the controversy, claim or dispute cannot be settled by mediation, then by
arbitration administered by the AAA under its Commercial Arbitration Rules
(such arbitration to be held in Tampa, Florida, if the amount in dispute is
equal to or in excess of $200,000 or if the dispute is solely of a non-monetary
nature, and in Scottsdale, Arizona if the amount in dispute is lower than
$200,000, and in either case before a single arbitrator and to commence within
15 days of the appointment of the arbitrator by the AAA), and judgment on the
award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
21. MISCELLANEOUS
21.1. Taxes. Optometrist shall pay all transfer taxes,
sales and other taxes and charges imposed by the State, if any, which may
become payable in connection with the transactions and documents contemplated
hereunder (excluding any of such taxes which may be attributable to services to
be provided by Vision 21 under the Business Management Agreement). Vision 21
shall pay all transfer taxes, sales and other taxes and charges imposed by the
State of Florida, if any, which may become payable in connection with the
transactions and documents contemplated hereunder (excluding any of such taxes
which may be attributable to services to be provided by Vision 21 under the
Business Management Agreement).
21.2. Remedies Not Exclusive. No remedy conferred by
any of the specific provisions of this Agreement or any document contemplated
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise. The election of any one or more remedies by any party hereto
shall not constitute a waiver of the right to pursue other available remedies.
65
<PAGE> 69
21.3. Parties Bound. Except to the extent otherwise
expressly provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
administrators, guardians, successors and assigns; and no other person shall
have any right, benefit or obligation hereunder.
21.4. Notices. All notices, reports, records or other
communications that are required or permitted to be given to the parties under
this Agreement shall be sufficient in all respects if given in writing and
delivered in person, by telecopy, by overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, to the receiving
party at the following address:
If to Vision 21 addressed to:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34777
Attn: Richard T. Welch, Chief Financial Officer
With copies to:
Shumaker, Loop & Kendrick
Post Office Box 172609
101 E. Kennedy Boulevard, Suite 2800
Tampa, Florida 33672-0609
Facsimile No. (813) 229-1660
Attn: Darrell C. Smith, Esquire
If to the Company and the Optometrist addressed to:
Dr. Smith & Associates, P.A.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Paul Smith, O.D.
With copies to:
MacFarlane, Ausley, Ferguson & McMullen
400 North Cleveland Street
9th Floor
Clearwater, Florida 34617-1669
Attn: Paul J. Raymond, Esquire
66
<PAGE> 70
or to such other address as such party may have given to the other parties by
notice pursuant to this Section 21.4. Notice shall be deemed given on the date
of delivery, in the case of personal delivery or telecopy, or on the delivery
or refusal date, as specified on the return receipt, in the case of overnight
courier or registered or certified mail.
21.5. Choice of Law. This Agreement shall be
construed, interpreted, and the rights of the parties determined in accordance
with, the laws of the State of Florida except with respect to matters of law
concerning the internal affairs of any corporate or partnership entity which is
a party to or the subject of this Agreement, and as to those matters the law of
the state of incorporation or organization of the respective entity shall
govern.
21.6. Entire Agreement; Amendments and Waivers. This
Agreement, together with the documents contemplated by this Agreement and all
Exhibits and Schedules hereto and thereto, constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof. No supplement, modification or
waiver of any of the provisions of this Agreement shall be binding unless it
shall be specifically designated to be a supplement, modification or waiver of
this Agreement and shall be executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
21.7. Confidentiality Agreements. The provisions of
any prior confidentiality agreements and letters of intent between or among
Vision 21, the Company and the Optometrist, as amended, shall terminate and
cease to be of any force or effect at and upon the Closing.
21.8. Reformation Clause. It is the intention of the
parties hereto to conform strictly to applicable laws regarding the practice
and regulation of optometry, whether such laws are now or hereafter in effect,
including the laws of the United States of America, the State or any other
applicable jurisdiction, and including any subsequent revisions to, or judicial
interpretations of, those laws, in each case to the extent they are applicable
to this Agreement (the "Applicable Laws"). Accordingly, if the ownership of
any Non-optometric Asset by Vision 21 violates any Applicable Law, then the
parties hereto agree as follows: (a) the provisions of this section 21.8 shall
govern and control; (b) if none of the parties hereto are materially
economically disadvantaged, then any Non-optometric Asset, the ownership of
which violates any Applicable Law, shall be deemed to have never been owned by
Vision 21; (c) if one or more of the parties hereto is materially economically
disadvantaged, then the parties hereto agree to negotiate in good faith such
changes to the structure and terms of the transactions provided for in this
Agreement as may be necessary to make these transactions, as restructured,
lawful under applicable laws and regulations, without materially disadvantaging
either party; (d) this Agreement shall be deemed reformed; and (e) the parties
to this Agreement shall execute
67
<PAGE> 71
and deliver all documents or instruments necessary to effect or evidence the
provisions of this Section 21.8.
21.9. Assignment. The Agreement may not be assigned by
operation of law or otherwise except that Vision 21 shall have the right to
assign this Agreement, at any time, to any Affiliate or direct or indirect
wholly-owned subsidiary. In the event of such assignment, Vision 21 shall
remain liable hereunder.
21.10. Attorneys' Fees. Except as otherwise
specifically provided herein, if any action or proceeding is brought by any
party with respect to this Agreement or the other documents contemplated with
respect to the interpretation, enforcement or breach hereof, the prevailing
party in such action shall be entitled to an award of all reasonable costs of
litigation or arbitration, including, without limitation, attorneys' fees, to
be paid by the losing party, in such amounts as may be determined by the court
having jurisdiction of such action or proceeding or by the arbitrators deciding
such action or proceeding.
21.11. Further Assurances. From time to time hereafter
and without further consideration, each of the parties hereto shall execute and
deliver such additional or further instruments of conveyance, assignment and
transfer and take such other actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the transactions
contemplated hereunder or as shall be reasonably necessary or appropriate in
connection with the carrying out of the parties' respective obligations
hereunder for the purposes of this Agreement.
21.12. Announcements and Press Releases. Any press
releases or any other public announcements concerning this Agreement or the
transactions contemplated hereunder shall be approved in advance by Vision 21,
New P.C. and the Company; provided, however, that such approval shall not be
unreasonably withheld and if any party reasonably believes that it has a legal
obligation to make a press release and the consent of the other party cannot be
obtained, then the release may be made without such approval.
21.13. No Tax Representations. Each party acknowledges
that it is relying solely on its advisors to determine the tax consequences of
the transactions contemplated hereunder and that no representation or warranty
has been made by any party as to the tax consequences of such transactions
except as otherwise specifically set forth in this Agreement.
21.14. No Rights as Stockholder. The Optometrist shall
have no rights as a stockholder with respect to any shares of Common Stock
until the issuance of a stock certificate evidencing such shares. Except as
otherwise provided in the Agreement, no adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to such
date any stock certificate is issued.
68
<PAGE> 72
21.15. Multiple Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
21.16. Headings. The headings of the several articles
and sections herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
21.17. Severability. Each article, section and
subsection of this Agreement constitutes a separate and distinct undertaking,
covenant or provision of this Agreement. If any such provision shall finally
be determined to be unlawful, such provision shall be deemed severed from this
Agreement, but every other provision of this Agreement shall remain in full
force and effect.
21.18. Form of Transaction. If after the execution
hereof, Vision 21 determines that the ownership of the Non-optometric Assets of
the Company can be better achieved through a different form of transaction
without economic injury to the Company or the Optometrist, or delay of the
consummation of the transaction, the Company and the Optometrist shall
cooperate in revising the structure of the transaction and shall negotiate in
good faith to so amend this Agreement; provided, that Vision 21 shall reimburse
the Company and the Optometrist at Closing for all reasonable additional
expenses incurred by the Company and the Optometrist as a result of such change
in form.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
69
<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
<TABLE>
<S> <C> <C>
"COMPANY"
DR. SMITH & ASSOCIATES #6950, P.A.,
a Florida professional association,
/s/ By: /s/ Paul Smith Witness
- -------------------------------------- -----------------------------------------------
Paul Smith, O.D., President
/s/
- --------------------------------------
Witness
"OPTOMETRIST"
/s/ /s/ Paul Smith
- -------------------------------------- --------------------------------------------------
Witness Paul Smith, O.D.
/s/
- --------------------------------------
Witness
"VISION 21"
VISION 21, INC.
/s/ By: /s/ Theodore N. Gillette Witness
- -------------------------------------- -----------------------------------------------
Theodore N. Gillette, President
/s/
- --------------------------------------
Witness
</TABLE>
70
<PAGE> 74
Schedule 1.47
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometric Assets of the Company
The following constitute the Optometric Assets:
Optometric records;
Patient lists;
Third-party payer contracts (except for rights to purchased accounts
receivable);
Licenses, certificates of need, Medicare/Medicaid certifications and
other governmental authorizations necessary to provide Professional
Eye Care Services and to be paid therefor by applicable third-party
payers; and
Any other asset that legally cannot be owned by a party that is not
optometrist-owned.
<PAGE> 75
Schedule 3
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Individuals - Best knowledge
representations and warranties of the Company
1. Paul R. Smith, O.D.
2. April K. Smith
<PAGE> 76
Schedule 3.1
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Capital Stock or other interest owned by the Company,
the Optometrist or any Professional Employee in any Competitor
None.
<PAGE> 77
Schedule 3.2
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Security interests, liens, adverse claims,
encumbrances, equities, proxies or
shareholders agreements affecting Company Common Stock
None.
<PAGE> 78
Schedule 3.3
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Options, warrants, subscriptions or other rights to
purchase stock in the Company or Company's obligation
to purchase, redeem or otherwise acquire any of its
equity securities, pay dividends or make distributions
None.
<PAGE> 79
Schedule 3.4
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Sale, distribution, or spin-off of
significant assets of the Company or
its Affiliates within the last two years
None.
<PAGE> 80
Schedule 3.7
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Violations or conflicts resulting from
execution, delivery and consummation
of transaction by the Company
None.
<PAGE> 81
Schedule 3.8
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Consents required for Company from
Governmental Authority or any other persons
None.
<PAGE> 82
Schedule 3.10
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Liabilities of the Company not
reflected in Financial Statements
None.
<PAGE> 83
Schedule 3.11(a)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Compensation of all Employees of the Company
See attached.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 84
Schedule 3.11(b)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Compensation plans, arrangements or practices
sponsored by the Company or to which the Company
contributes on behalf of its employees (other
than Employment Agreements and Employee Benefit Plans)
None.
<PAGE> 85
Schedule 3.11(c)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employment Agreements
Arsenio Arabitg, O.D. (full-time)
All part-time Optometrists work on an independent contractor basis.
<PAGE> 86
Schedule 3.11(d)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Policies and Procedures
The Employee Policies and Procedures for Dr. Smith & Associates #6950,
#6958 and #6966 are identical to those for Vision 21 and Dr. Gillette's O.D.
practices. We do not have our own individual Policies and Procedures Manual.
The manuals in each office say Vision 21 Policies and Procedures.
<PAGE> 87
Schedule 3.11(f)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to Labor Compliance
None.
<PAGE> 88
Schedule 3.11(g)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Union participation of Company Employees
None.
<PAGE> 89
Schedule 3.12(a)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plans sponsored
by the Company or to which the
Company contributes on behalf of
its Employees in the past three years
Group medical and life insurance plans
<PAGE> 90
Schedule 3.12(c)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan audits,
investigations or enforcement actions
None.
<PAGE> 91
Schedule 3.12(f)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan
determination letter or IRS ruling
Not applicable.
<PAGE> 92
Schedule 3.13
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Changes to Company
since Balance Sheet Date
None.
<PAGE> 93
Schedule 3.14(b)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Permitted Encumbrances
on Personal Property
None. Any liens or security interests are to be released within thirty (30)
days.
<PAGE> 94
Schedule 3.14(c)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Real Property Leases and
Personal Property Leases
1. Real Property Lease with Visionworks.
<PAGE> 95
Schedule 3.15
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Commitments of the Company
None.
<PAGE> 96
Schedule 3.16
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Insurance Policies; Cancellations;
Outstanding Claims, Settlements or
Premiums Owed; Professional Liability
Insurance Denials since January 1, 1994;
and All Claims since January 1, 1994
See chart attached hereto and made a part hereof.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 97
SMITH & ASSOCIATES - SCHEDULE 3.16 RE: INSURANCE
<TABLE>
<CAPTION>
Insured Paul Smith Laurie Lesser Arsenio Arabitg
Optometrist Optometrist Optometrist
<S> <C> <C> <C>
Liability limits $5 million / $5 million $2 million / $4 million $1 million / $3 million
Professional liability Professional liability Professional liability
Expiration date 2-2-97 10-29-97 12-18-96
Retroactive N/A N/A N/A
date
Occurrence vs. Occurrence Occurrence Occurrence
Claims Made
Claims Same as Dr. Smith & Laurie Lesser, along with None
Associates a primary care physician
and an opthamologist, is
being sued for failure to
diagnose a condition that
left an 80 year old man
blind. The opthamologist
testified that Lesser
would not have been able
to diagnose the problem at
the time that she saw the
patient.
<CAPTION>
Insured Jose Macedo Smith & Associates
Optometrist (Policy issued in name of
Paul R. Smith, O.D.)
<S> <S> <C>
Liability limits $1 million / $3 million $5 million / $5 million
Professional Liability Commercial general
Expiration date 10-2-97 2-2-97
Retroactive N/A N/A
date
Occurrence vs. Occurrence Occurrence
Claims Made
Claims None Named as defendant
through vicarious
liability claim in the
Lesser suit. The
insurance company
believes that Laurie
Lesser is an independent
contractor, and believes
that no recovery against
the professional
association will occur.
</TABLE>
<PAGE> 98
Schedule 3.17
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Description of Proprietary Rights; Consents
None.
<PAGE> 99
Schedule 3.18
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Good faith disputes over payment
of Taxes; Tax deficiency or delinquency
None.
<PAGE> 100
Schedule 3.19
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
List of licenses, franchises, permits and
governmental authorizations for conduct of
the Company's business; Notices of Noncompliance
1. State Board License for Paul Smith, O.D.
2. State Board License for Laurie Lesser, O.D.
3. State Board License for Arsenio Arabitg, O.D.
4. State Board License for Jose Santiago Macedo, O.D.
5. Dade County Occupational License Tax for Paul Smith, O.D.
6. Dade County Occupational License Tax for Laurie Lesser, O.D.
7. Dade County Occupational License Tax for Dr. Smith &
Associates.
8. N. Miami Beach Occupational License for Paul Smith, O.D.
9. N. Miami Beach Occupational License for Laurie Lesser, O.D.
<PAGE> 101
Schedule 3.20
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Finder's, broker's or
agent's fee owed by the Company
None.
<PAGE> 102
Schedule 3.21
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Company Litigation
None.
<PAGE> 103
Schedule 3.24
to Agreement and Plan of Reorganization among Dr. Smith & Associates,
#6950, P.A. (the "Company"), Paul Smith, O.D. (the "Optometrist") and
Vision 21, Inc. ("Vision 21")
List of Company borrowing and investing arrangements
1. Promissory Note made by the Company and other companies in
1991 to Jack Eckerd Corporation in the original principal
amount of $387,692.00. Payable with interest at prime plus 1%
per annum in sixty (60) consecutive monthly installments
commencing February 2, 1993. This is an unsecured note. The
Optometrist shall with thirty (30) days obtain a release of
the Company and Vision 21 from any and all liability under
this note. An agreed upon amount of Vision 21 stock will be
escrowed to assure compliance with this obligation.
<PAGE> 104
Schedule 3.25
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Ownership Interests of
Interested Persons and Material
Affiliations in the last three years
None.
<PAGE> 105
Schedule 3.26
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Company Investments in Competitors
None.
<PAGE> 106
Schedule 3.32
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Description of and relationship with Payors
None.
<PAGE> 107
Schedule 4.2
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Violations or conflicts
resulting from execution, delivery or
consummation of transaction by the Optometrist
None.
<PAGE> 108
Schedule 4.4
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
List of transfers or other
transactions involving Company
capital stock since January 1, 1994
None.
<PAGE> 109
Schedule 4.7
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Finder's, broker's or
agent's fees owed by the Optometrist
None.
<PAGE> 110
Schedule 4.8
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Ownership of Interested
Persons and Material Affiliations
None.
<PAGE> 111
Schedule 4.9
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Investments in Competitors
None.
<PAGE> 112
Schedule 4.10
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Litigation
None.
<PAGE> 113
Schedule 4.12
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
List of hospitals at which
Optometrist has full staff privileges
None.
<PAGE> 114
Schedule 4.13
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to continued Optometrist
intent to practice optometry
Consistent with activity of Optometrist in prior twelve (12) months.
<PAGE> 115
Schedule 5
to Agreement and Plan of Reorganization among Dr. Smith
& Associates, #6950, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Individuals - Best knowledge
representations and warranties of Vision 21
1. Theodore N. Gillette
2. Richard L. Sanchez
3. Richard T. Welch
4. Nicholas M. Arfaras
<PAGE> 116
Schedule 5.1
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Jurisdictions where Vision 21
is qualified to do business
1. Florida
2. Arizona
3. Minnesota
4. New York
<PAGE> 117
Schedule 5.6
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Consents required for Vision 21
from Governmental Authority or other persons
None.
<PAGE> 118
Schedule 5.7
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Finder's, brokers or
agent's fees owed by Vision 21
None.
<PAGE> 119
Schedule 5.11
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Liabilities of Vision 21
not reflected in Financial Statements
None.
<PAGE> 120
Schedule 7.6
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Other Contracts or
Agreements of New, P.C.
None.
<PAGE> 121
Schedule 8.1(b)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exception to Optometrist "accredited investor"
or "sophisticated investor" representation
None.
<PAGE> 122
Schedule 8.1(d)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist's principal residence
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 123
Schedule 9.16
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Non-Shareholder Optometrist
Employees not required to enter into
Optometrist Employment Agreement with New, P.C.
Part-time O.D.'s
<PAGE> 124
Schedule 9.17
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Employees not
required to enter into Optometrist
Employment Agreement with New, P.C.
None
<PAGE> 125
Schedule 9.21
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to Assignment of Fees
for Optometric and Optometry Services
from all Professional Employees of Company
None.
<PAGE> 126
Schedule 10.6
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Personal liabilities of
Optometrist for which Vision 21 will
use best efforts to obtain release
None.
<PAGE> 127
Schedule 11.5
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Joint personal liabilities of Optometrist
and Company to which Vision 21
will use best efforts to obtain release
None.
<PAGE> 128
Schedule 18.1
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Liquidated damages for Optometrist
breaching Optometrist Employment Agreement
Liquidated damages for Paul Smith, O.D., shall equal $2.77 per share
of Vision 21 common stock times 49,212 shares of Vision 21 common
stock granted to Paul Smith, O.D., in connection with the Acquisition,
which total equals $136,317.
<PAGE> 129
Exhibit 2.8(a)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Share Exchange
A total of 49,212 shares of Vision 21 common stock for all of the
issued and outstanding common stock of Dr. Smith & Associates, #6950, P.A.
<PAGE> 130
Exhibit 14.1(o)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of
____________, 19__, is by and between Vision 21, Inc., a Florida corporation
and any successor ("Vision 21"), and ______________, O.D. with a business
address at 7209 Bryan Dairy Road, Largo, Florida 34647 ("Shareholder").
1. Registration Rights.
(a) In the event that Vision 21 proposes to file a
registration statement under the Securities Act for purposes of effecting an
underwritten public offering of shares of Vision 21 common stock for cash
(including, but not limited to, a registration statement relating to a
secondary offering of Vision 21 common stock, but excluding registration
statements relating to any employee benefit plan or a corporate
reorganization), Vision 21 shall give written notice of such proposed filing to
the Shareholder at least fifteen (15) days before the anticipated filing date,
and such notice shall offer Shareholder the opportunity to register such number
of the Shareholder's shares of common stock as Shareholder may request in
writing within ten (10) days after receipt of such notice; provided, however,
that the maximum number of shares of common stock that such Shareholder may
request to include in any registration statement shall be limited as provided
in Section 1(c).
(b) In the event that (i) one (1) year has elapsed from
the date of effectiveness of the registration statement filed in connection
with an underwritten initial public offering of shares of Vision 21 common
stock, and (ii) Vision 21 receives a written request from holders holding in
the aggregate a minimum of 300,000 shares of Vision 21 common stock issued to
the founding practices described in Vision 21's Confidential Information
Memorandum dated September 27, 1996, as amended, and issued to certain
professionals owning equity interests in such founding practices (the founding
practices and professionals of such practices holding share's of common stock
of Vision 21 are collectively referred to as the "Founding Shareholders"), that
Vision 21 file a registration statement under the Securities Act effecting an
offering of shares of Vision 21 common stock; then Vision 21 shall as soon as
practicable file a registration statement at its own expense effecting a public
offering of shares of Vision 21 common stock held by Founding Shareholders, as
well as any other Vision 21 shares owned by any other shareholders which Vision
21 wishes to include in the offering (which offering may be an underwritten
offering at Vision 21's sole discretion); provided however that Vision 21 shall
be obligated to effect only one registration statement containing each
Shareholder, and Vision 21 shall be obligated to file only two (2) registration
statements in the aggregate, pursuant to this Section 1(b).
(c) The maximum aggregate number of shares of common
stock that Shareholder may request to be registered under this Agreement shall
be fifty percent (50%) of Shareholder's original shares of Vision 21 common
stock. In no event shall the total number of Shareholder's shares of common
stock that Vision 21 is obligated to register under this Agreement exceed fifty
percent (50%) of Shareholder's original shares of Vision 21 common stock, and
in no event shall Vision 21 be obligated to register more than (i) in an
initial offering, twenty-five percent (25%) of Shareholder's
<PAGE> 131
original shares of Vision 21 common stock or (ii) in a second offering, fifty
percent (50%) of the Shareholder's original shares minus the percent of the
Shareholder's original shares that the Shareholder registered in the first
offering. The "original shares" of Vision 21 as described herein shall be
deemed to be the ___________ shares of common stock received by the Shareholder
on the date of this Agreement.
(d) Vision 21 shall have the sole and exclusive right to
select the underwriters of any public offering of shares of Vision 21 common
stock, including any public offering conducted pursuant to the demand
registration right set forth in Section 1(b) above. The use of underwriters in
any demand registration right set forth in Section 1(b) above is subject to
Vision 21's ability to engage underwriters under terms and conditions deemed
reasonable by Vision 21.
(e) If the managing underwriter of any offering advises
Vision 21 that the total number of shares of Vision 21's common stock which
Vision 21, the Shareholder and any other persons intend to include in such
offering would adversely affect the success of such offering, then the amount
of shares of common stock to be offered for the account of Shareholder shall be
reduced to the extent necessary to reduce the total number of shares of common
stock to be included in such offering to the amount recommended by such
managing underwriter.
(f) Vision 21 shall not be required to (i) reduce the
amount of shares of common stock to be offered by Vision 21 in such offering
for any reason or (ii) include any shares of common stock of Shareholder in any
public offering for which a registration statement is or is proposed to be
filed if such shares of common stock are, at the time of effectiveness of such
registration statement, eligible to be sold under Rule 144 under the Securities
Act or otherwise eligible for sale to the public without registration.
(g) Vision 21 shall have the right to extend or delay the
effectiveness of any registration statement for a period of up to ninety (90)
days if, upon the advice of counsel, such delay is advisable and in the best
interests of Vision 21 because of the existence of non-public material
information, or to allow Vision 21 to complete any pending audit of its
financial statements, any public financing plan, any pending acquisition, or to
release audited financial statements for any pending acquisition as required by
the Securities and Exchange Commission.
(h) Shareholder agrees to cooperate with Vision 21 in all
respects in connection with registration of the common stock, including timely
supplying all information and executing and returning all documents requested
by Vision 21 and its managing underwriter.
(i) Vision 21 shall not be required to include any of
Shareholder's shares of common stock in any registration statement unless
Shareholder accepts the terms of the underwriting as agreed upon between Vision
21 and its underwriters.
(j) Vision 21 shall have the right to defer the filing of
any registration statement if the Board of Directors of Vision 21 determines in
good faith that it would be seriously detrimental to Vision 21 and its
shareholders for such registration statement to be filed.
Exhibit 14.1(o) - Page 2
<PAGE> 132
(k) This Agreement shall expire two (2) years from the
date of an initial public offering of Vision 21 common stock.
2. Covenants of Vision 21. Vision 21 hereby covenants and
agrees:
(a) To take such steps as may be necessary to comply with
the Blue Sky laws of such states as the managing underwriter may reasonably
request; provided that in no event shall Vision 21 be obligated to qualify to
do business in any state where it is not so qualified or to take any action
which would subject it to unlimited service of process in any state where it is
not at such time so subject;
(b) To use reasonable efforts to cause the registration
statement to become effective and to keep the registration statement effective
for such period as may be required under the terms of the underwriting
agreement relating thereto but no longer than for a period of forty-five (45)
days, to file such post-effective amendments as may be necessary to keep any
prospectus contained in such registration statement true and complete during
such period as the registration statement shall be effective, and to furnish
and file such other amendments, supplements, and other documents the managing
underwriter may reasonably request;
(c) To supply such numbers of prospectuses as may be
reasonably required by the managing underwriter;
(d) To pay the reasonable costs and expenses of the
registration statement including without limitation all registration and Blue
Sky filing fees, all fees and expenses of Vision 21's counsel (but not the fees
and expenses of counsel for Shareholder), all accounting costs (including costs
associated with the preparation of interim period financial statements), NASD
fees, printing costs, experts' fees, expenses, costs of post-effective
amendments, and all other usual and customary expenses in connection with the
registration statement, except for Shareholder's pro rata share of underwriting
discounts, fees, and selling commissions (calculated in the manner set forth in
Section 3(a)(ii) of this Agreement); and
(e) With respect to any registration statement filed
pursuant to this Agreement, where underwriters are utilized, to cooperate with
the underwriters to the best of its abilities and to enter into an underwriting
agreement with such underwriters containing such representations, warranties,
and covenants on the part of Vision 21 as are usual and customary in an
underwritten public sale of common stock.
3. Covenants of Shareholder.
(a) Shareholder hereby covenants and agrees:
(i) To cooperate with Vision 21 in its compliance
with all federal and state securities laws, including without limitation
providing such information and signing such documents as are necessary to
effect a registration or reasonably requested by underwriters pursuant to this
Agreement;
(ii) To pay his pro rata portion (calculated on
the basis of the ratio of the aggregate offering price attributable to the
shares of Shareholder being registered and sold in relation to the aggregate
Exhibit 14.1(o) - Page 3
<PAGE> 133
offering price attributable to the total number of securities being registered
and sold, including securities being registered and sold by other selling
stockholders) of the underwriting discounts and selling commissions and to pay
all the fees and disbursements of his counsel; and
(iii) To the entry of stop transfer
instructions with the Company's transfer agent against the transfer of any
shares of Shareholder's Vision 21 common stock except in compliance with the
restrictions as set forth in this Section 3.
(b) Shareholder shall be considered an "affiliate" of
Vision 21 for purposes of Rule 144 under the Securities Act, even in the event
Shareholder is not technically an affiliate of Vision 21 as defined in Rule
144, and the Vision 21 common stock owned by Shareholder shall be subject to
the restrictions and limitations on resale imposed by Rule 144 on affiliates of
Vision 21. Shareholder shall not sell any of his shares of Vision 21 common
stock under Rule 144 unless Shareholder would be eligible to do so under the
provisions applicable to affiliates.
(c) In addition to the transfer restrictions otherwise
provided for herein, Shareholder shall not, whether or not Shareholder elects
to cause the registration of his shares pursuant to this Agreement, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise dispose of any shares of Vision 21 common stock
(other than the shares covered by such registration, which may be sold in
accordance with the plan or plans of distribution described in the registration
statement) owned by Shareholder for a period of one hundred eighty (180) days
or such shorter period as negotiated by the Company following the effective
date of such registration statement without the prior written consent of Vision
21. In the event that Shareholder is a corporation, professional corporation
or professional limited liability company, Shareholder may after receiving the
written approval of Vision 21 (which approval shall not be unreasonably
withheld) transfer its shares of Vision 21 Common Stock to any of the
individuals and/or trusts described in Sections 7(a), (b) and (c) hereof. Such
transferee shall, for purposes of the transfer restrictions contained in this
Agreement, be deemed to have held such transferred shares for the same period
as Shareholder.
4. Indemnification of Shareholder.
Whenever registration with respect to any shares of Shareholder's
common stock is effected under the Securities Act pursuant hereto, Vision 21
will indemnify and hold harmless Shareholder, each underwriter, the directors,
officers, employees and agents of each underwriter, and each person, if any,
who controls each underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, (including any securities law
violations) insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged omission to state
in such document a material fact required to be stated in it or necessary to
make the statements in it not misleading, provided that Vision 21 will not be
liable to Shareholder to the extent that such loss, claim, liability, expense
or damage is based on an untrue statement or omission made in reliance on and
in conformity with information furnished to Vision 21 by
Exhibit 14.1(o) - Page 4
<PAGE> 134
Shareholder, or by Shareholder through any attorney-in-fact, expressly for
inclusion in the registration statement or any prospectus included in such
registration statement.
5. Indemnification of Vision 21.
Whenever registration with respect to any shares of Shareholder's
common stock is effected under the Securities Act pursuant hereto, Shareholder
will indemnify and hold harmless Vision 21, each of Vision 21's directors and
officers, each person who controls Vision 21 within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, each underwriter, the
directors, officers, employees and agents of each underwriter, and each person,
if any, who controls each underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact required to be stated
in it or necessary to make the statements in it not misleading; provided that
Shareholder will not be liable except to the extent that such loss, claim,
liability, expense or damage arises from or is based upon an untrue statement
or omission or alleged untrue statement or omission made in reliance on and in
conformity with information furnished to Vision 21 by the Shareholder, or by
Shareholder through any attorney-in-fact, expressly for inclusion in the
registration statement or any prospectus included in such registration
statement.
6. Defense of Claim.
Promptly after receipt by an indemnified party of notice of the
commencement of any action, the indemnified party shall notify the indemnifying
party in writing of the commencement thereof if a claim in respect thereof is
to be made against an indemnifying party under this Agreement, but the omission
of such notice shall not relieve the indemnifying party from liability which it
may have to the indemnified party under this Agreement, except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice, and shall not relieve the indemnifying party from any liability which
it may have to any indemnified party otherwise than under this Agreement. In
case any action is brought against the indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and to the extent that it chooses, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party that it so chooses, the indemnifying party shall not be
liable for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof; provided however that (i) if the
indemnifying party fails to take reasonable steps necessary to defend
diligently the claim within twenty (20) days after receiving notice from the
indemnified party that the indemnified party believes the indemnifying party
has failed to diligently defend such claim, or (ii) if the indemnified party
who is a defendant in any action or proceeding which is also brought against
the indemnifying party reasonably shall have concluded that there are legal
defenses available to the indemnified party which conflict with the defense
strategy of the indemnifying party, or (iii) if representation under applicable
standards of professional conduct require separate representation of the
Exhibit 14.1(o) - Page 5
<PAGE> 135
indemnified party and the indemnifying party, then the indemnified party shall
have the right to assume or continue its own defense as set forth above and the
indemnifying party shall reimburse the indemnified party for the costs of such
defense as provided in Section 4 and 5. In no event shall the indemnifying
party be responsible for the fees of more than one firm for all indemnified
parties.
7. Non-Transferability.
The registration rights and benefits set forth herein, including
indemnification by Vision 21 are granted for the sole and personal benefit of
Shareholder and may not be transferred or assigned except for (a) gifts to
his/her family members (b) assignment to a trust controlled by the Shareholder,
(c) transfers to Shareholder;s heirs which occur by operation of law as a
result of the death of the Shareholder, or (d) if the Shareholder is a
corporation, professional corporation or professional limited liability
company, transfers or assignments to the individuals who are current equity
holders of Shareholder and by such equity holders to the individuals and/or
trusts described in subsection (i) and (ii) of this Section.
Exhibit 14.1(o) - Page 6
<PAGE> 136
8. Survival of Indemnity.
The indemnifications provided by this Agreement shall be a continuing
right to indemnification and shall survive the registration and sale of any
securities by any person entitled to indemnification hereunder and the
expiration or termination of this Agreement.
9. Delay of Registration.
Shareholder agrees that he shall have no right to obtain or seek an
injunction restraining or otherwise delaying any registration statement filed
by Vision 21.
10. Notices.
(a) All communications under this Agreement shall be in
writing and shall be sufficient in all respects if when personally delivered
or mailed by prepaid certified or registered mail, return receipt requested,
addressed as follows:
(i) If to Vision 21, at:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Theodore N. Gillette,
Chief Executive Officer
With a copy to:
Darrell C. Smith, Esquire
c/o Shumaker, Loop & Kendrick, LLP
101 E. Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
or at such other address as Vision 21 may have furnished in writing to
Shareholder at the time outstanding, or
(ii) If to Shareholder at:
_______________________
7209 Bryan Dairy Road
Largo, Florida 34647
Exhibit 14.1(o) - Page 7
<PAGE> 137
With a copy to:
Paul J. Raymond, Esquire
MacFarlane, Ausley, Ferguson & McMullen
400 North Cleveland Street, 9th Floor
Clearwater, Florida 34617-1669
(b) Any notice so addressed, when mailed by registered or
certified mail shall be deemed to be given three days after so mailed, and when
delivered by hand shall be deemed to be given immediately.
11. Counterparts.
One or more counterparts of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12. Governing Law.
This Agreement shall be construed in accordance with and governed by
the internal laws of the State of Florida, which shall prevail in all matters
arising under or in connection with this Agreement.
13. Headings.
The headings in this Agreement are for convenience of reference only
and shall not be deemed to alter or affect the meaning or interpretation of any
provisions hereof.
14. Stock Lettering.
The Company shall have the right to provide a legend on the shares of
stock covered hereunder reflecting the restriction described hereunder.
Exhibit 14.1(o) - Page 8
<PAGE> 138
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date and year first above written.
"VISION 21"
VISION 21, INC.
By:
------------------------------------
Theodore N. Gillette, Chief
Executive Officer
"SHAREHOLDER"
-------------------------------------
Exhibit 14.1(o) - Page 9
<PAGE> 139
Exhibit 14.1(s)
to Agreement and Plan of Reorganization among Dr. Smith &
Associates, #6950, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
AGREEMENT TO CONTINUE PRACTICE AFTER
TRANSFER EVENT AND STOCK PLEDGE
This Agreement to Continue Practice after Transfer Event and Stock
Pledge (the "Agreement") is made as of _________________, 19__ by and between
________________________, O.D. ("Optometrist"), an individual licensed to
practice optometry in the State of Florida (the "State") whose mailing address
is 7209 Bryan Dairy Road, Largo, Florida 34647, and VISION 21, INC. ("Business
Manager"), a Florida corporation whose mailing address is 7209 Bryan Dairy
Road, Largo, Florida 34647.
R E C I T A L S
A. Dr. Smith & Associates, #6952, P.A. ("P.C.") is a Florida
professional association which employs optometrists.
B. Optometrist is the sole shareholder of P.C.
C. Pursuant to that certain Business Management Agreement (the
"Business Management Agreement") dated December 1, 1996, the Business Manager
provides certain services and support to the optometry practices of P.C.'s
employed optometrists.
D. Optometrist has agreed to sell all of P.C.'s shares owned by
him to the Business Manager's designee for value if certain events occur, and
the Business Manager desires its designee to purchase such shares if certain
events occur.
E. Optometrist desires to pledge all of P.C.'s shares owned by
him to secure the promise referenced in Paragraph D above and Business Manager
desires to accept such security interest.
NOW, THEREFORE, for and in consideration of the mutual agreements,
terms, covenants and conditions contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions.
1.1. "Collateral" means the _____ shares of P.C. stock
owned by Optometrist consisting of all of the validly issued and
outstanding shares of P.C.
1.2. "Transferee" means an optometrist chosen by the
Business Manager who is licensed to practice optometry in the State.
<PAGE> 140
2. Conditional Agreement to Transfer Stock. Optometrist shall
immediately transfer the Collateral to the Transferee for the Purchase Price
set forth in Section 5 below if any of the following occurs (collectively,
"Events of Transfer"):
(a) Optometrist dies,
(b) Optometrist loses his State license to practice
optometry for any reason, or
(c) Optometrist is adjudicated incompetent by any court
of law.
3. Grant of Security Interest. Optometrist grants to Business
Manager a security interest in the Collateral to secure the promise set forth
in Section 2 above.
4. Designation of Transferee. The Business Manager shall
designate the Transferee to purchase the Collateral upon an Event of Transfer.
5. Payment of Purchase Price. The purchase price for the
Collateral purchased by the Transferee (the "Purchase Price") shall be an
amount equal to the fair market value of the Collateral as of the date of the
transfer, determined by the accounting firm of Ernst & Young, LLP (or any
successor to Ernst & Young LLP) acting through the personnel at its office in
Tampa, Florida, if that firm is willing to make the determination; or, if not,
any nationally recognized firm of independent certified public accountants
agreed to by Business Manager and Optometrist (or by Optometrist's guardian or
personal representative, if an Event of Transfer occurs pursuant to Sections
2(a) or (c)). Any determination of the Collateral's fair market value by such
firm shall be deemed a final determination of the fair market value as of the
determination date and shall be conclusive upon all parties for purposes of
this Agreement as a commercially reasonable price. The Purchase Price shall be
payable by cashier's check to Optometrist or his guardian or personal
representative (as the case may be) within thirty (30) days after the Business
Manager's receipt of the accounting firm's Purchase Price determination.
6. Commercially Reasonable Disposition. The parties acknowledge
that it would be impossible to realize a commercially reasonable price in the
event of the disposition of the pledged stock by public sale and very difficult
to do so by private sale, except on the terms and conditions in Sections 4 and
5 hereto. Therefore, the parties acknowledge that a disposition of the
Collateral under Sections 4 and 5 hereto is a commercially reasonable
disposition, and agree that the determination of the Purchase Price under
Section 5 is commercially reasonable and that they will be bound by the
Purchase Price determination.
7. Term. This Agreement shall continue for as long as the
Business Management Agreement and any renewals thereof are in effect.
8. Representations and Warranties. Optometrist represents and
warrants the following:
8.1. Optometrist. There is no provision of any agreement
to which Optometrist is a party or of any law that would be
contravened by the execution, delivery, or performance of this
Agreement;
Exhibit 14.1(s) - Page 2
<PAGE> 141
Optometrist's name and the description of the legal status of the P.C.
in the Preamble and the information contained in the Recitals hereto
are correct.
8.2. Collateral. As to each item of Collateral,
Optometrist has good title, free and clear of all claims, charges,
liens, encumbrances, restrictions, options, calls and defects of any
kind or nature whatsoever, except for the security interest granted
hereby; no other person, entity, or governmental authority has or
claims any lien or other interest in the Collateral; no adverse
financing statements are on file; and there is no litigation nor
are there any proceedings by any public body, agency, or authority
presently pending or threatened against Optometrist, the outcome of
which might materially and adversely affect the Collateral.
8.3. P.C. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
P.C. to issue, sell, or otherwise cause to become outstanding any of
its capital stock; and there is no litigation nor are there any
proceedings by any public body, agency, or authority presently pending
or threatened against P.C. or Optometrist, the outcome of which might
materially and adversely affect the continued operations of P.C.
8.4. Survival of Warranties. All representations and
warranties shall survive the execution and delivery of this Agreement.
9. Affirmative Covenants.
9.1. No Agency and Defense Against Claims. Nothing in
this Agreement shall make Optometrist an agent of Business Manager for
any purpose whatsoever. Optometrist shall defend the Collateral
against all claims, demands, and defenses affecting Business Manager's
security interest, regardless of merit, and shall hold Business
Manager harmless therefrom, including, without limitation, holding
Business Manager harmless from all attorneys' fees and other
litigation expenses arising out of any such claims, demands, or
defenses.
9.2. Disposition and Issuances of P.C. Common Stock. P.C.
shall not, and during the term of this Agreement Optometrist shall not
cause the P.C. to issue, sell or otherwise cause to be outstanding any
additional capital stock, except for (a) sales of such stock made to
successor shareholders pursuant to Section 4.1 of the Business
Management Agreement, provided that if there shall be only one
shareholder holding the P.C.'s stock following such transfer, such
successor shareholder shall execute an agreement in substantially the
same form as this Agreement; (b) issuances of additional stock to
individuals licensed to practice optometry in the State who are
competent and capable and who are approved by Business Manager;
provided that Business Manager shall not unreasonably withhold its
approval to the sale of such additional stock to such individual, and
after the sale of such additional stock, this Agreement shall be
terminated and the Collateral pledged hereby shall be returned to
Optometrist free of the restrictions imposed by this Agreement; (c)
the transfer without consideration of such stock to a revocable trust
created by the Optometrist, provided that any and all trustees of such
trust first agrees in writing to hold such stock so transferred
subject to this Agreement; and (d) the transfer
Exhibit 14.1(s) - Page 3
<PAGE> 142
of such stock upon the occurrence of an Event of Transfer by
any other means as determined by Optometrist and agreed to in writing
by Business Manager, which agreement shall not be unreasonably
withheld.
10. Custody and Handling of Collateral and Records.
10.1. Protection of Secured Party's Security Interest. Upon
execution of this Agreement, Optometrist shall give the Business
Manager the share certificate(s) representing the Collateral, duly
endorsed in blank or, if not endorsed in blank, Optometrist shall give
the Business Manager a duly executed stock power in blank.
10.2. No Authority to Sell. Optometrist shall not sell,
assign, pledge, hypothecate, encumber, or otherwise transfer any item
of Collateral except as expressly provided in this Agreement.
If any item of Collateral or any right therein is transferred contrary
to this Agreement, Business Manager retains a security interest in
such item and in the proceeds of such disposition.
11. Default and Remedies.
11.1. Remedies Upon Default. Upon the occurrence of any
breach of any covenant or warranty contained in this Agreement by
Optometrist and continuously thereafter until waived in writing,
Business Manager shall have the right and option to immediately sell
the Collateral to Transferee subject to a subsequent determination of
the Purchase Price to be paid later or to exercise any other remedy
available to Business Manager as a secured party under law or equity.
Optometrist acknowledges that Business Manager shall be entitled upon
any breach or threatened breach of this Agreement to the granting of a
temporary restraining order, a temporary or permanent injunction, or
any other equitable remedy which may then be available.
11.2. Construction of Rights and Remedies and Waiver of
Notice and Consent.
(a) This Section 11 applies to all rights and
remedies provided by this Agreement or at law or in equity.
(b) Unless otherwise expressly provided herein,
any right or remedy may be pursued without notice to or
further consent of Optometrist, both of which Optometrist
waives.
(c) No forbearance in exercising any right or
remedy shall operate as a waiver thereof; no forbearance in
exercising any right or remedy on any one or more occasions
shall operate as a waiver thereof on any future occasion; and
no single or partial exercise of any right or remedy shall
preclude any other exercise thereof or the exercise of any
other right or remedy.
Exhibit 14.1(s) - Page 4
<PAGE> 143
12. Miscellaneous.
12.1. Notices. Any notices, statements, requests, demands,
consents, or other documents ("notices") shall be in writing and shall
be delivered personally, by certified mail, postage prepaid, return
receipt requested, or by overnight courier (prepaid) to the addresses
set forth in the Preamble hereof. When personally delivered, all
notices shall be deemed given when actually received. When mailed,
all notices shall be deemed given three (3) days after mailing by
certified mail and one (1) day after mailing by overnight courier.
12.2. Governing Law. This Agreement shall be construed and
interpreted under the laws of the State of Florida.
12.3. Binding Effect. This Agreement shall be binding upon
Optometrist, Optometrist's personal representatives, heirs,
successors, and assigns, as the case may be, and shall be binding upon
and inure to the benefit of Business Manager and its successors and
assigns. Optometrist may not assign this Agreement.
12.4. Amendment. This Agreement may be amended, but only
by a written amendment signed by Business Manager and Optometrist.
12.5. Severability. If any provision of this Agreement or
the application of any provision to any party or circumstance shall be
adjudged invalid or unenforceable to any extent, the remainder of this
Agreement shall not be affected thereby. Each provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
12.6. Headings. The headings in this Agreement are for
convenience of reference only and shall not be used in interpreting
this Agreement.
12.7. Number; Gender. Where appropriate, the number of all
words in this Agreement shall be both singular and plural and the
gender of all pronouns shall be masculine, feminine, neuter, or any
combination thereof.
"OPTOMETRIST"
-----------------------------------
O.D.
-----------------------
"BUSINESS MANAGER"
VISION 21, INC.
Exhibit 14.1(s) - Page 5
<PAGE> 144
By:
------------------------------------
Theodore N. Gillette
Its:Chief Executive Officer
Exhibit 14.1(s) - Page 6
<PAGE> 1
EXHIBIT 10.30
"CONFIDENTIAL TREATMENT REQUESTED
BY VISION TWENTY-ONE, INC."
ASSET PURCHASE AGREEMENT
DATED: DECEMBER 1, 1996
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. AAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. ACQUISITION PROPOSAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5. AFFILIATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6. APPLICABLE LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7. ASSUMED CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8. ASSUMED OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9. AUDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11. BUSINESS MANAGEMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12. BUSINESS RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13. CASH COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14. CLAIM NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.16. CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.17. CODE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.18. COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.19. COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20. COMPANY BALANCE SHEET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21. COMPANY BALANCE SHEET DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
1.22. COMPENSATION PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23. COMPETING BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.24. COMPETITOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25. CONFIDENTIAL INFORMATION MEMORANDUM. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26. CONTROLLED GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.27. CORPORATION LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.28. DAMAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.29. ELECTION PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.30. EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.31. EMPLOYEE POLICIES AND PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32. EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33. ENVIRONMENTAL LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.35. EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.36. FBCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.37. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.38. GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.39. GOVERNMENTAL AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.40. INDEMNIFIED PARTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.41. INDEMNIFYING PARTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.42. INDEMNITY NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.43. INITIAL PUBLIC OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
1.44. INSURANCE POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.45. INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.46. LEASE ASSIGNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.47. LEASED PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.48. IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.49. MATERIAL ADVERSE EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.50. OPTOMETRIC ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.51. NON-OPTOMETRIC ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.52. NOTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.53. OPTOMETRIST EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.54. OPTOMETRIST EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.55. PAYORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.56. PERMITTED ENCUMBRANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.57. PERSONAL PROPERTY LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.58. OPTOMETRIST EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.59. OPTOMETRIST EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.60. PRACTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.61. PREPAID ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.62. PROFESSIONAL EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.63. PROPOSED PURCHASE PRICE ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.64. PROPRIETARY RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.65. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
1.66. REAL PROPERTY LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.67. REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.68. RELATED ACQUISITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.69. SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.70. SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.71. SECURITIES ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.72. STATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.73. TANGIBLE PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.74. TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.75. THIRD PARTY CLAIM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.76. TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.77. VISION 21 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. PURCHASE AND SALE OF NON-OPTOMETRIC ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1. PURCHASE AND SALE OF NON-OPTOMETRIC ASSETS. . . . . . . . . . . . . . . . . . . . . . 7
2.2. NO SALE OF OPTOMETRIC ASSETS; OTHER EXCLUDED ASSETS . . . . . . . . . . . . . . . . . 9
2.3. ASSUMPTION OF OBLIGATIONS AND LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 9
2.4. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5. THE CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6. PURCHASE PRICE ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7. SUBSEQUENT ACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.8. ALLOCATION OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE OPTOMETRIST . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
3.1. ORGANIZATION AND GOOD STANDING; QUALIFICATION. . . . . . . . . . . . . . . . . . . . . 11
3.2. CONTINUITY OF BUSINESS ENTERPRISE. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3. AUTHORIZATION AND VALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4. COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5. CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7. LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8. EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. CASH COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . 13
B. COMPENSATION PLANS. . . . . . . . . . . . . . . . . . . . . . . 13
C. EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . 14
D. EMPLOYEE POLICIES AND PROCEDURES. . . . . . . . . . . . . . . . 14
E. UNWRITTEN AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . 14
F. LABOR COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . 14
G. UNIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
H. ALIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.9. EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A. IDENTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 15
B. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . 15
C. EXAMINATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
D. PROHIBITED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . 15
E. CLAIMS AND LITIGATION. . . . . . . . . . . . . . . . . . . . . . 16
F. QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 16
G. FUNDING STATUS. . . . . . . . . . . . . . . . . . . . . . . . . 16
H. EXCISE TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 16
I. MULTIEMPLOYER PLANS. . . . . . . . . . . . . . . . . . . . . . . 16
J. PENSION BENEFIT GUARANTY CORPORATION. . . . . . . . . . . . . . 16
K. RETIREES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
L. OTHER COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 16
3.10. ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.11. TITLE; LEASED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
A. REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . 18
B. PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . 18
C. LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
3.12. COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A. COMMITMENTS; DEFAULTS. . . . . . . . . . . . . . . . . . . . . . 19
B. NO CANCELLATION OR TERMINATION OF COMMITMENT. . . . . . . . . . 20
3.13. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.14. PROPRIETARY RIGHTS AND INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.15. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
A. FILING OF TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . 22
B. PAYMENT OF TAXES. . . . . . . . . . . . . . . . . . . . . . . . 22
C. NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
D. NO EXTENSION OF LIMITATION PERIOD. . . . . . . . . . . . . . . . 22
E. ALL WITHHOLDING REQUIREMENTS SATISFIED. . . . . . . . . . . . . 23
F. FOREIGN PERSON. . . . . . . . . . . . . . . . . . . . . . . . . 23
3.16. COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.17. FINDER'S FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.18. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.19. CONDITION OF FIXED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.20. DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.21. BANKING RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.22. OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. . . . . . . . . . . . . . . . 24
3.23. INVESTMENTS IN COMPETITORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.24. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
A. ENVIRONMENTAL LAWS. . . . . . . . . . . . . . . . . . . . . . . 25
B. PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
C. SUPERFUND LIST. . . . . . . . . . . . . . . . . . . . . . . . . 25
3.25. CERTAIN PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.26. MEDICAL WASTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
3.27. MEDICARE AND MEDICAID PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.28. FRAUD AND ABUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.29. PAYORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.30. PROHIBITIONS ON THE CORPORATE PRACTICE OF OPTOMETRY. . . . . . . . . . . . . . . . . . 27
3.31. ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.32. CONSISTENT TREATMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.33. ACCOUNTS RECEIVABLE/PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.34 PROJECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.35. INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.36. TANGIBLE PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.37. LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.38. CONTRACT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.39. PREPAID ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.40. COMPLETENESS OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.41. DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. REPRESENTATIONS AND WARRANTIES OF THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.1. VALIDITY; OPTOMETRIST CAPACITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2. NO VIOLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3. CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4. CERTAIN PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.5. FINDER'S FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.6. OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. . . . . . . . . . . . . . . . . . . . . 31
4.7. INVESTMENTS IN COMPETITORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
vii
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
4.8. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.9. PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.10. STAFF PRIVILEGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.11. INTENTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5. REPRESENTATIONS AND WARRANTIES OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.1. ORGANIZATION AND GOOD STANDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.2. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3. CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4. AUTHORIZATION AND VALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.5. COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.6 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.7. FINDER'S FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8. CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9. VISION 21 FINANCIAL STATEMENTS; . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10. LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.11. COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12. INSOLVENCY PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.13. EMPLOYMENT OF COMPANY'S EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6. SECURITIES LAW MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.1. INVESTMENT REPRESENTATIONS AND COVENANTS OF OPTOMETRIST. . . . . . . . . . . . . . . . 35
6.2. CURRENT PUBLIC INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7. COVENANTS OF THE COMPANY AND THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1. CONSUMMATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
viii
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
7.2. BUSINESS OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.3. ACCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.4. NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.5. APPROVALS OF THIRD PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6. EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.7. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.8. CAPITAL ASSETS; PAYMENTS OF LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . 39
7.9. MORTGAGES, LIENS AND GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.10. ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11. DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12. REQUIREMENTS TO EFFECT THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . 40
7.13. OPTOMETRIST ACCOUNTS PAYABLE AND OPTOMETRIST RETAINED EQUITY. . . . . . . . . . . . . 40
7.14. OPTOMETRIST EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.15. OPTOMETRIST EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.16 TERMINATION OF RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.17. DELIVERY OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.18. ASSIGNMENT OF FEES FOR OPTOMETRY SERVICES. . . . . . . . . . . . . . . . . . . . . . . 41
8. COVENANTS OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.1. CONSUMMATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2. NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.3. LICENSES AND PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.4. RELEASE OF OPTOMETRIST FROM PRACTICE LIABILITIES. . . . . . . . . . . . . . . . . . . 42
9. COVENANTS OF VISION 21, THE COMPANY AND THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
ix
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
9.1. FILINGS; OTHER ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.2. AMENDMENT OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3. FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.4. RELEASE OF OPTOMETRIST FROM PRACTICE LIABILITIES. . . . . . . . . . . . . . . . . . . 44
10. CONDITIONS PRECEDENT OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.2. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.3. LEGAL OPINION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.4. PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.5. NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.6. GOVERNMENT APPROVALS AND REQUIRED CONSENTS. . . . . . . . . . . . . . . . . . . . . . 45
10.7. CERTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.8. CLOSING DELIVERIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.9. DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.10. FINANCIAL AUDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.11. MEDICARE AUDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.12. EXEMPTION UNDER STATE SECURITIES LAWS. . . . . . . . . . . . . . . . . . . . . . . . . 46
10.13. ASSIGNMENT OF PROFESSIONAL EMPLOYEES' RIGHTS IN ACCOUNTS RECEIVABLE. . . . . . . . . . 46
11. CONDITIONS PRECEDENT OF THE COMPANY AND THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.1. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.2. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3. LEGAL OPINIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
x
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
11.4. PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.5. GOVERNMENT APPROVALS AND REQUIRED CONSENTS. . . . . . . . . . . . . . . . . . . . . . 47
11.6. CLOSING DELIVERIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.7. NO CHANGE IN VOTING OR OWNERSHIP CONTROL. . . . . . . . . . . . . . . . . . . . . . . 47
11.8. NO MATERIAL ADVERSE CHANGE; DELIVERY OF AMENDED CONFIDENTIAL INFORMATION
MEMORANDUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12. CLOSING DELIVERIES; ESCROW OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.1. DELIVERIES OF THE COMPANY AND THE OPTOMETRIST. . . . . . . . . . . . . . . . . . . . . 47
12.2. DELIVERIES OF VISION 21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.3. RELEASE OF ESCROW MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13. POST CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.1. FURTHER INSTRUMENTS OF TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.2. PRACTICE ADVISORY COUNCIL; LOCAL ADVISORY COUNCIL; NATIONAL APPEALS COUNCIL. . . . . . 51
14. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.1. INDEMNIFICATION BY THE COMPANY AND OPTOMETRIST. . . . . . . . . . . . . . . . . . . . 52
14.2. INDEMNIFICATION BY VISION 21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.3. CONDITIONS OF INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.4. REMEDIES NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.5. COSTS, EXPENSES AND LEGAL FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
14.6. INDEMNIFICATION LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
14.7. TAX BENEFITS; INSURANCE PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
14.8. PAYMENT OF INDEMNIFICATION OBLIGATION. . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
xi
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
15. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
15.1. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
15.2. EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16. OPTOMETRIST EMPLOYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16.1. OPTOMETRIST EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16.2. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17. NON-COMPETITION AND CONFIDENTIALITY COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
17.1. OPTOMETRIST AND COMPANY NON-COMPETITION COVENANT. . . . . . . . . . . . . . . . . . . 59
17.2. OPTOMETRIST AND COMPANY CONFIDENTIALITY COVENANT. . . . . . . . . . . . . . . . . . . 61
17.3. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18. DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18.1. MEDIATION AND ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.1. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.2. REMEDIES NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.3. PARTIES BOUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
19.4. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
19.5. CHOICE OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.6. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . 64
19.7. CONFIDENTIALITY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.8. REFORMATION CLAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.9. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
xii
<PAGE> 14
<TABLE>
<S> <C> <C>
19.10. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.11. FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.12. ANNOUNCEMENTS AND PRESS RELEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.13. NO TAX REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.14. NO RIGHTS AS STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.15. MULTIPLE COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.16. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.17. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.18. FORM OF TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
xiii
<PAGE> 15
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement"), dated as of December
1, 1996, is by and among Dr. Smith & Associates, #6958, P.A., a Florida
professional association (the "Company"), Paul Smith, O.D., (the
"Optometrist"), and VISION 21, INC., a Florida corporation ("Vision 21").
R E C I T A L S
A. Optometrist is an optometrist licensed to practice
optometry in the State (as defined herein) and currently conducts an optometry
practice through the Company and through optometrist employees currently
conducts an optometry practice through the Company.
B. Optometrist owns all of the issued and outstanding shares
of capital stock of the Company.
C. Vision 21 provides business management services and
facilities for eye care professionals and related businesses.
D. The Company desires to sell, assign and transfer all of its
assets to the extent permitted by law and Vision 21 desires to purchase, assume
and acquire such assets and assume certain liabilities of the Company in
exchange for capital stock of Vision 21 and other consideration, all as more
specifically provided herein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
1.1. AAA. The term "AAA" shall mean the American
Arbitration Association.
1.2. Accountants. The term "Accountants" shall mean
the accounting firm for Vision 21.
1.3. Accounts Receivable. The term "Accounts
Receivable" shall have the meaning set forth in Section 2.1(b).
1.4. Acquisition Proposal. The term "Acquisition
Proposal" shall have the meaning set forth in Section 3.31.
1
<PAGE> 16
1.5. Affiliate. The term "Affiliate" with respect to
any person or entity shall mean a person or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, such person or entity.
1.6. Applicable Laws. The term "Applicable Laws"
shall have the meaning set forth in Section 19.8.
1.7. Assumed Contracts. The term "Assumed Contracts"
shall have the meaning set forth in Section 2.1(e).
1.8. Assumed Obligations. The term "Assumed
Obligations" shall have the meaning set forth in Section 2.3.
1.9. Audit. The term "Audit" shall have the meaning
set forth in Section 3.6.
1.10. Business. The term "Business" shall have the
meaning set forth in Section 19.1(b)(i).
1.11. Business Management Agreement. The term
"Business Management Agreement" shall mean the Business Management Agreement
entered into between the Company and Vision 21 at the Closing.
1.12. Business Records. The term "Business Records"
shall have the meaning set forth in Section 2.1(g).
1.13. Cash Compensation. The term "Cash Compensation"
shall have the meaning set forth in Section 3.8(a).
1.14. Claim Notice. The term "Claim Notice" shall have
the meaning set forth in Section 14.3(a).
1.15. Closing. The term "Closing" shall mean the
consummation of the transactions contemplated by this Agreement.
1.16. Closing Date. The term "Closing Date" shall mean
December ___, 1996, or such other date as mutually agreed upon by the parties.
1.17. Code. The term "Code" shall mean the Internal
Revenue Code of 1986, as amended.
1.18. Commitments. The term "Commitments" shall have
the meaning set forth in Section 3.12(a).
2
<PAGE> 17
1.19. Common Stock. The term "Common Stock" or "Vision
21 Common Stock" shall mean the common stock, par value $.01 per share, of
Vision 21.
1.20. Company Balance Sheet. The term "Company Balance
Sheet" shall have the meaning set forth in Section 3.6.
1.21. Company Balance Sheet Date. The term "Company
Balance Sheet Date" shall have the meaning set forth in Section 3.6.
1.22. Compensation Plans. The term "Compensation
Plans" shall have the meaning set forth in Section 3.8(b).
1.23. Competing Business. The term "Competing
Business" shall have the meaning set forth in Section 17.1(b).
1.24. Competitor. The term "Competitor" shall mean any
person or entity which, individually or jointly with others, whether for its
own account or for that of any other person or entity, owns, or holds any
ownership or voting interest in any person or entity engaged in, the practice
of optometry, the operation of out patient eye surgical facilities, the
operation of refractive surgery centers and the operation of optical shops;
provided, however, that such term shall not include any Affiliate of Vision 21
or any entity with which Vision 21 has an agreement similar to the Business
Management Agreement in effect.
1.25. Confidential Information Memorandum. The term
"Confidential Information Memorandum" shall mean that certain disclosure
memorandum distributed by Vision 21 to the Company and Optometrist dated as of
September 27, 1996, and any amendments or revisions thereto.
1.26. Controlled Group. The term "Controlled Group"
shall have the meaning set forth in Section 3.9(f).
1.27. Corporation Law. The term "Corporation Law"
shall mean the statutes, regulations and laws governing business corporations
and professional corporations in the State.
1.28. Damages. The term "Damages" shall have the
meaning set forth in Section 14.1.
1.29. Election Period. The term "Election Period"
shall have the meaning set forth in Section 16.3(a).
1.30. Employee Benefit Plans. The term "Employee
Benefit Plans" shall have the meaning set forth in Section 3.9(a).
3
<PAGE> 18
1.31. Employee Policies and Procedures. The term
"Employee Policies and Procedures" shall have the meaning set forth in Section
3.8(d).
1.32. Employment Agreements. The term "Employment
Agreements" shall have the meaning set forth in Section 3.8(c).
1.33. Environmental Laws. The term "Environmental
Laws" shall have the meaning set forth in Section 3.24(a).
1.34. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
1.35. Exchange Act. The term "Exchange Act" shall mean
the Securities Exchange Act of 1934, as amended.
1.36. FBCA. The term "FBCA" shall mean the Florida
Business Corporation Act.
1.37. Financial Statements. The term "Financial
Statements" shall have the meaning set forth in Section 3.6.
1.38. GAAP. The term "GAAP" shall mean generally
accepted accounting principles, applied on a consistent basis with prior
periods, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity or other practices and procedures as
may be approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of the determination.
1.39. Governmental Authority. The term "Governmental
Authority" shall mean any national, state, provincial, local or tribunal
governmental, judicial or administrative authority or agency.
1.40. Indemnified Party. The term "Indemnified Party"
shall have the meaning set forth in Section 14.3(a).
1.41. Indemnifying Party. The term "Indemnifying
Party" shall have the meaning set forth in Section 14.3(a).
1.42. Indemnity Notice. The term "Indemnity Notice"
shall have the meaning set forth in Section 14.3(d).
4
<PAGE> 19
1.43. Initial Public Offering. The term "Initial
Public Offering" shall mean the potential initial underwritten public offering
of Vision 21 Common Stock contemplated by Vision 21.
1.44. Insurance Policies. The term "Insurance
Policies" shall have the meaning set forth in Section 3.13.
1.45. Inventory. The term "Inventory" shall have the
meaning set forth in Section 2.1(a).
1.46. Lease Assignments. The term "Lease Assignments"
shall have the meaning set forth in Section 11.3(j).
1.47. Leased Property. The term "Leased Property"
shall have the meaning set forth in Section 2.1(d).
1.48. IRS. The term "IRS" shall mean the Internal
Revenue Service.
1.49. Material Adverse Effect. The term "Material
Adverse Effect" shall mean a material adverse effect on the Non-optometric
Assets and the Company's business, operations, condition (financial or
otherwise) or results of operations, taken as a whole, considering all relevant
facts and circumstances.
1.50. Optometric Assets. The term "Optometric Assets"
shall have the meaning set forth in Section 2.2.
1.51. Non-optometric Assets. The term "Non-optometric
Assets" shall mean all of the assets of the Company except for the Optometric
Assets, as such assets are more fully described in Section 2.1.
1.52. Note. The term "Note" shall mean the
subordinated promissory note, to be delivered to the Optometrist at the
Closing.
1.53. Optometrist Employee. The term "Optometrist
Employee" shall mean those licensed optometrists who are employees of the
Company, but are not shareholders.
1.54. Optometrist Employment Agreement. The term
"Optometrist Employment Agreement" shall mean the Optometrist Employment
Agreement to be executed between Optometrist and the Company, and between any
Optometrist Employee and the Company.
1.55. Payors. The term "Payors" shall have the meaning
set forth in Section 3.27.
5
<PAGE> 20
1.56. Permitted Encumbrances. The term "Permitted
Encumbrances" shall have the meaning set forth in Section 3.11(b).
1.57. Personal Property Leases. The term "Personal
Property Leases" shall have the meaning set forth in Section 2.1(c).
1.58. Practice. The term "Practice" shall mean the
optometry and all other vision related health-care practices conducted from
time to time by the Company prior to and after the Closing Date.
1.59. Prepaid Items. The term "Prepaid Items" shall
have the meaning set forth in Section 2.1(m).
1.60. Professional Employee. The term "Professional
Employee" shall mean any Optometrist Employee.
1.61. Proposed Purchase Price Adjustment. The term
"Proposed Purchase Price Adjustment" shall have the meaning set forth in
Section 2.6(b).
1.62. Proprietary Rights. The term "Proprietary
Rights" shall have the meaning set forth in Section 3.14.
1.63. Purchase Price. The term "Purchase Price" shall
mean the consideration set forth in Section 2.4 of this Agreement.
1.64. Real Property Leases. The term "Real Property
Leases" shall have the meaning set forth in Section 2.1(d).
1.65. Registration Statement. The term "Registration
Statement" shall have the meaning set forth in Section 9.1.
1.66. Related Acquisitions. The term "Related
Acquisitions" shall mean the pending acquisitions by Vision 21 with third
parties which are expected to be completed simultaneously with this
Transaction.
1.67. SEC. The term "SEC" shall mean the Securities
and Exchange Commission.
1.68. Securities. The term "Securities" shall mean the
Note and the shares of Vision 21 Common Stock which shall be delivered to the
Company under the terms of the Note.
6
<PAGE> 21
1.69. Securities Act. The term "Securities Act" shall
mean the Securities Act of 1933, as amended.
1.70. State. The term "State" shall mean the State in
which the Company is incorporated.
1.71. Tangible Personal Property. The term "Tangible
Personal Property" shall have the meaning set forth in Section 2.1(f).
1.72. Tax Returns. The term "Tax Returns" shall have
the meaning set forth in Section 3.15(a).
1.73. Third Party Claim. The term "Third Party Claim"
shall have the meaning set forth in Section 14.3(a).
1.74. Transaction. The term "Transaction" shall mean
the purchase and sale of the Non-optometric Assets and the assumption of the
Assumed Obligations pursuant to this Agreement.
1.75. Vision 21 Financial Statements. The term "Vision
21 Financial Statements" shall have the meaning set forth in Section 5.8.
2. PURCHASE AND SALE OF NON-OPTOMETRIC ASSETS.
2.1. Purchase and Sale of Non-optometric Assets.
Subject to the terms and conditions herein set forth, and in reliance upon the
representations and warranties set forth herein, the Company agrees to sell,
convey, assign, transfer and deliver to Vision 21, and Vision 21 agrees to
purchase, assume, accept and acquire, the assets consisting of all the assets
(other than the Optometric Assets specified in Section 2.2 hereof) owned by the
Company as of the Closing Date, of every kind, character and description,
whether tangible, real, personal, or mixed, and wheresoever located, whether
carried on the books of the Company or not carried on the books of the Company
due to having been expended, fully depreciated, or otherwise (the
"Non-optometric Assets"), including without limitation the following (except to
the extent that any of the following are specifically enumerated as Optometric
Assets in Section 2.2 hereof) to the extent permitted by applicable law:
(a) All of the inventory owned by the Company ("Inventory");
(b) All of the accounts receivable or other rights to receive
payment owing to the Company ("Accounts Receivable");
(c) All of the Company's rights in, to and under all leases of
supplies, instruments, equipment, furniture, machinery and other items of
tangible personal property ("Personal
7
<PAGE> 22
Property Leases"), including, without limitation, the Personal Property Leases
described on Schedule 2.1(c);
(d) All of the Company's rights as a lessee in, to and under
all real property lease agreements (such real property lease agreements are
hereinafter referred to as "Real Property Leases" and the parcels of real
property in which the Company has a leasehold interest and that are subject to
the Real Property Leases are hereinafter referred to as "Leased Property"),
including, without limitation, estates created by, and rights conferred under,
the Real Property Leases described on Schedule 2.1(d), and any and all estates,
rights, titles and interests in, to and under all warehouses, storage
facilities, buildings, works, structures, fixtures, landings, constructions in
progress, improvements, betterments, installations, and additions constructed
or located on or affixed to the Leased Property;
(e) All of the Company's rights in, to and under all contracts,
agreements, leases, insurance policies, purchase orders and commitments (the
"Assumed Contracts"), including, without limitation, the Assumed Contracts
described on Schedule 2.1(e);
(f) All tangible personal property (including supplies,
instruments, equipment, furniture and machinery) owned by the Company
("Tangible Personal Property"), including, without limitation, the Tangible
Personal Property described on Schedule 2.1(f);
(g) All books and records of the Company, including, without
limitation, all credit records, payroll records, computer records, computer
programs, contracts, agreements, operating manuals, schedules of assets,
correspondence, books of account, files, papers, books and all other public and
confidential business records (together the "Business Records"), whether such
Business Records are in hard copy form or are electronically or magnetically
stored;
(h) All franchises, licenses, permits, certificates, approvals
and other governmental authorizations necessary to own and operate any of the
other Non-optometric Assets, a complete and correct list of which is set forth
on Schedule 2.1(h);
(i) All (i) United States and foreign patents, patent
applications, trademarks, trademark applications and registrations, service
marks, service mark applications and registrations, copyrights, copyright
applications and registrations and trade names of the Company; (ii) proprietary
data and technical, manufacturing know-how and information (and all materials
embodying such information) of the Company; (iii) developments, discoveries,
inventions, ideas and trade secrets of the Company; and (iv) rights to sue for
past infringement;
(j) All of the Company's right, title and interest in, to and
under all telephone numbers used in connection with the Practice, including all
extensions thereto;
(k) All rights in, to and under all representations,
warranties, covenants and guaranties made or provided by third parties to or
for the benefit of the Company with respect to any of the other Non-optometric
Assets;
8
<PAGE> 23
(l) All cash in registers or petty cash drawers (which shall on
the Closing Date be at least ninety percent (90%) of the average daily cash
balance held in such locations in the twelve (12) month period preceding the
Closing Date); and
(m) All of the Company's prepaid expenses, prepaid insurance,
deposits and other similar items ("Prepaid Items").
If and to the extent the assignment of any personal property lease,
real property lease, contract, agreement, purchase order, work order,
commitment, license, permit, certificate or approval listed on the foregoing
Schedules shall require the consent of another party thereto, then (i) such
personal property lease, real property lease, contract, agreement, purchase
order, work order, commitment, license, permit, certificate or approval shall
constitute a Personal Property Lease, Real Property Lease, Assumed Contract or
License, as the case may be, only upon and subject to receipt of such consent;
(ii) such personal property lease, contract, agreement, purchase order, work
order, commitment, license, permit, certificate or approval shall not be a
Personal Property Lease, Real Property Lease, Assumed Contract or License, as
the case may be, if and for so long as the attempted assignment would
constitute a breach thereof; and (iii) the Company shall cooperate fully with
Vision 21 (or Vision 21's successor-in-interest) in seeking such consent or
reasonable arrangement designed to provide to Vision 21 (or such
successor-in-interest) the benefits, claim or rights arising thereunder.
2.2. No Sale of Optometric Assets; Other Excluded
Assets. The Company shall not sell, convey, assign, transfer or deliver to
Vision 21, and Vision 21 shall not be obligated to purchase, accept or acquire
(or make any payments or otherwise discharge any liability or obligation of the
Company with respect to), the Optometric Assets of the Company as set forth on
Schedule 2.2 and those other assets listed on the other Schedules attached
hereto which by law cannot be acquired by Vision 21 which shall also be deemed
to include (a) life insurance policies covering the life of any employee of the
Company, and (b) personal effects listed on Schedule 2.2(b); and (c) cash and
cash equivalents in banks, certificates of deposit, commercial paper and
securities owned by the Company (but excluding cash held in registers or petty
cash drawers on the Closing Date); and (d) those assets of which the entire
costs of maintenance are deemed to be "Practice Expenses" as defined in the
Business Management Agreement.
2.3. Assumption of Obligations and Liabilities. At
the Closing, Vision 21 shall assume and agree to pay or perform, promptly as
they become due, only those obligations and liabilities of the Company
expressly set forth on Schedule 2.3 (the "Assumed Obligations") which shall
exclude the Business Management Agreement. Except for the Assumed Obligations,
Vision 21 shall not assume or be deemed to have assumed and shall not be
responsible for any other obligation or liability of the Company, direct or
indirect, known or unknown, absolute or contingent, including without
limitation (i) any and all obligations regarding any foreign, Federal, state or
local income, sales, use, franchise or other tax liabilities, (ii) any and all
obligations or liabilities relating to any fees or expenses of the Company's or
Optometrists' counsel, accountants or other experts incident to the negotiation
and preparation of any of the
9
<PAGE> 24
documents contemplated herein and consummation of the transactions contemplated
thereby, and (iii) any and all liabilities relating to or arising from the
provision of optometric services (or failure to provide optometric services)
prior to the Closing Date.
2.4. Purchase Price. Vision 21 agrees that, subject
to the terms and conditions of this Agreement, and in full consideration for
the aforesaid sale, transfer, conveyance, assignment and delivery of the Non-
optometric Assets of the Company to Vision 21, and the acceptance by Vision 21
of such Non-optometric Assets and the assumption of the Assumed Obligations of
the Company by Vision 21, Vision 21 shall deliver to the Company at the Closing
the consideration (the "Purchase Price") set forth in Schedule 2.4A which shall
be paid pursuant to a Note in substantially the form attached hereto and made a
part hereof as Exhibit 2.4B.
2.5. The Closing. The Closing shall take place on the
Closing Date at the offices of Shumaker, Loop & Kendrick, LLP, 101 E. Kennedy
Boulevard, Suite 2800, Tampa, Florida 33602 or at such other location in the
State as the parties shall mutually agree.
2.6. Purchase Price Adjustments.
(a) The Purchase Price shall be subject to
adjustment to the extent that Current Assets (as defined herein) or Current
Liabilities Assumed (as defined herein) materially differ from the amounts
customarily arising in the ordinary course of business of the Company as of
November 30, 1996. The term "Current Assets" shall mean petty cash, Accounts
Receivable, prepaid expenses, Inventory, supplies and other current assets
(excluding cash in banks, certificates of deposit, other cash equivalents,
current portion of capital leases and prepaid Income Taxes). The term "Current
Liabilities Assumed" shall mean the audited balances as of November 30, 1996 of
trade accounts payable, accrued payroll, accrued payroll taxes, accrued
benefits, and other current liabilities (excluding notes payable, current
portion of capital leases and long-term debt and income and franchise taxes and
accrued shareholder expenses). The adjustment shall be settled in cash (which
shall be set-off from moneys due the Company pursuant to the Business
Management Agreement) or Vision 21 Common Stock at Vision 21's option. The
parties also agree that to the extent the adjustments materially impact the
goodwill created by the transaction, there shall be an adjustment for the
related impact of net income created by the change in amortization of such
goodwill and the Purchase Price shall be increased or reduced to reflect the
impact on net income settled in cash or Vision 21 Common Stock at Vision 21's
option.
(b) Within sixty (60) days following the Closing
Date, Vision 21 shall present to the Optometrist its Purchase Price adjustment
(the "Proposed Purchase Price Adjustment") calculated in accordance with
Section 2.6(a) hereof. The Optometrist shall, within thirty (30) days after
the delivery by Vision 21 of the Proposed Purchase Price Adjustment, complete
his review thereof. In the event that the Optometrist believes that the
Proposed Purchase Price Adjustment has not been prepared on the basis set forth
in Section 2.6(a) or otherwise contests any item set forth therein, the
Optometrist shall, on or before the last day of
10
<PAGE> 25
such 30 day period, so object to Vision 21 in writing, setting forth a specific
description of the nature of the objection and the corresponding adjustments
the Optometrist believes should be made. If no objection is received by Vision
21 on or before the last day of such 30 day period, then the Proposed Purchase
Price Adjustment delivered by Vision 21 shall be final. If an objection has
been made and Vision 21 and the Optometrist are unable to resolve all of their
disagreements with respect to the proposed adjustments within 15 days following
the delivery of the Optometrist's objection, the dispute shall be submitted to
arbitration as provided in Section 18.1 except that the arbitrator shall be
instructed to deliver his determination of the dispute to the parties no later
than 30 days after the arbitration hearing. Vision 21 shall provide to the
Optometrist and his accountants full access to all relevant books, records and
work papers utilized in preparing the Proposed Purchase Price Adjustment.
2.7. Subsequent Actions. If, at any time after the
Closing Date, Vision 21 shall determine or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in Vision 21 its
right, title or interest in, to or under any of the rights, properties or
assets of the Company acquired or to be acquired by Vision 21 as a result of,
or in connection with, the Transaction, or otherwise to carry out this
Agreement, the officers and directors of Vision 21 shall, at the sole cost and
expense of Vision 21, be authorized to execute and deliver, in the name and on
behalf of the Company, such deeds, bills of sale, assignments and assurances,
and to take and do, in the name and on behalf of the Company, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in Vision 21 or otherwise to carry out this Agreement.
2.8. Allocation of Purchase Price. The Purchase Price
shall be allocated among the Non-optometric Assets as set forth on Schedule
2.8. Each of Vision 21, the Company and the Optometrist covenants and agrees
that he or it shall not take a position that is in any way inconsistent with
the terms of this Section 2.8 on any income tax return, before any governmental
agency charged with the collection of any income tax or in any judicial
proceeding.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
OPTOMETRIST. The Company and the Optometrist, jointly and severally, represent
and warrant to Vision 21 that the following are true and correct as of the date
hereof, and shall be true and correct through the Closing Date as if made on
that date; when used in this Section 3, the term "best knowledge" shall mean in
the case of the Company the best knowledge of those individuals listed on
Schedule 3:
3.1. Organization and Good Standing; Qualification.
The Company is a professional corporation duly organized, validly existing and
in good standing under the laws of the State, with all requisite corporate
power and authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Company is not duly qualified and
11
<PAGE> 26
licensed to do business in any other jurisdiction. The Company does not have
any assets, employees or offices in any state other than the State. Except as
set forth on Schedule 3.1, neither the Company, the Optometrist nor any
Professional Employee owns, directly or indirectly, any of the capital stock of
any other corporation or any equity, profit sharing, participation or other
interest in any corporation, partnership, joint venture or other entity that is
engaged in a business that is a Competitor.
3.2. Continuity of Business Enterprise. Except as set
forth on Schedule 3.2, and except as contemplated by this Agreement, there has
not been any sale, distribution or spin-off of significant assets of the
Company or any of its Affiliates other than in the ordinary course of business
within the two (2) year period preceding the date of this Agreement.
3.3. Authorization and Validity. The execution,
delivery and performance by the Company of this Agreement and the other
agreements contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby to be performed by the Company, have been duly
authorized by the Company. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. The
Company has obtained, in accordance with applicable law and its Articles or
Certificate of Incorporation and Bylaws, the approval of its stockholders
necessary for the consummation of the transactions contemplated hereby.
3.4. Compliance. Except as disclosed on Schedule 3.4,
the execution and delivery of the documents contemplated hereunder and the
consummation of the transactions contemplated thereby by the Company will not
(i) violate any provision of the Company's organizational documents, (ii)
violate any material provision of or result in the breach of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any material obligation under, any mortgage, lien, lease, contract,
license, instrument or any other agreement to which the Company is a party,
(iii) result in the creation or imposition of any material lien, charge,
pledge, security interest or other material encumbrance upon any property of
the Company or (iv) violate or conflict with any order, award, judgment or
decree or other material restriction or to the best of the Company's knowledge
violate or conflict with any law, ordinance or regulation to which the Company
or its property is subject.
3.5. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by the Company or the
consummation by such party of the transactions contemplated thereby, except for
those consents or approvals set forth on Schedule 3.5.
3.6. Financial Statements. The Company has furnished
to Vision 21 its unaudited balance sheet and related unaudited statements of
income, retained earnings and cash
12
<PAGE> 27
flows for its prior three (3) full fiscal years, and its unaudited interim
balance sheet for the fiscal period ended September 30, 1996 (the "Company
Balance Sheet", and the date thereof shall be referred to as the "Company
Balance Sheet Date") and related unaudited statements of income, retained
earnings and cash flows for the twelve months then ended (all collectively,
with the related notes thereto, the "Financial Statements"). The Financial
Statements fairly present the financial condition and results of operations of
the Company as of the dates and for the periods indicated except as otherwise
indicated in the Financial Statements. The Company and the Optometrist
expressly warrant that they will have prior to the Closing fairly, accurately
and completely provided all necessary information requested in or relevant to
the preparation of the audit to be conducted by the Accountants or their
designees prior to Closing (the "Audit"). The cost of the Audit shall be paid
by Vision 21 and all materials prepared by Vision 21's Accountants in
connection with the Audit shall be solely the property of Vision 21.
3.7. Liabilities and Obligations. Except as set forth
on Schedule 3.7, the Financial Statements reflect all liabilities of the
Company, accrued, contingent or otherwise that would be required to be
reflected thereon, or in the notes thereto, prepared in accordance with GAAP,
except for liabilities and obligations incurred in the ordinary course of
business since the Company Balance Sheet Date. Except as set forth in the
Financial Statements or on Schedule 3.7, the Company is not liable upon or with
respect to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any valid basis for the assertion of
any other claims or liabilities of any nature or in any amount.
3.8. Employee Matters.
a. Cash Compensation. Schedule 3.8(a)
contains a complete and accurate list of the names, titles and annual cash
compensation as of the Closing Date, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, Schedule
3.8(a) contains a complete and accurate description of (i) all increases in
Cash Compensation of employees of the Company during the current fiscal year
and the immediately preceding fiscal year and (ii) any promised increases in
Cash Compensation of employees of the Company that have not yet been effected.
b. Compensation Plans. Schedule 3.8(b)
contains a complete and accurate list of all compensation plans, arrangements
or practices (the "Compensation Plans") sponsored by the Company or to which
the Company contributes on behalf of its employees, other than Employment
Agreements listed on Schedule 3.8(c) and Employee Benefit Plans listed on
Schedule 3.9(a). The Compensation Plans include without limitation plans,
arrangements or practices that provide for performance awards, and stock
ownership or stock options. The Company has provided or made available to
Vision 21 a copy of each written Compensation Plan and a written description
of each unwritten Compensation Plan. Except as
13
<PAGE> 28
set forth on Schedule 3.8(b), each of the Compensation Plans can be terminated
or amended at will by the Company.
c. Employment Agreements. Except as set
forth on Schedule 3.8(c), the Company is not a party to any employment
agreement ("Employment Agreements") with respect to any of its employees.
Employment Agreements include without limitation employee leasing agreements,
employee services agreements and non-competition agreements.
d. Employee Policies and Procedures.
Schedule 3.8(d) contains a complete and accurate list of all employee manuals
and all material policies, procedures and work-related rules (the "Employee
Policies and Procedures") that apply to employees of the Company. The Company
has provided or made available to Vision 21 a copy of all written Employee
Policies and Procedures and a written description of all material unwritten
Employee Policies and Procedures.
e. Unwritten Amendments. Except as
described on Schedule 3.8(b), 3.8(c), or 3.8(d), no material unwritten
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans or Employee Policies and
Procedures.
f. Labor Compliance. To the best
knowledge of the Company and the Optometrist, the Company has been and is in
compliance with all applicable laws, rules, regulations and ordinances
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except for any such failures to be in
compliance that, individually or in the aggregate, would not result in a
Material Adverse Effect, and the Company is not liable for any arrearages of
wages or penalties for failure to comply with any of the foregoing. The
Company has not, to the best of Optometrist's and the Company's knowledge,
engaged in any unfair labor practices or discriminated on the basis of race,
color, religion, sex, national origin, age, disability or handicap in its
employment conditions or practices that would, individually or in the
aggregate, result in a Material Adverse Effect. Except as set forth on
Schedule 3.10(f), there are no (i) unfair labor practice charges or complaints
or racial, color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company and the Optometrist, threatened against the Company before any federal,
state or local court, board, department, commission or agency (nor, to the best
knowledge of the Company and the Optometrist, does any valid basis therefor
exist) or (ii) existing or, to the actual knowledge of the Company, threatened
labor strikes, disputes, grievances, controversies or other labor troubles
affecting the Company (nor, to the best knowledge of the Company and the
Optometrist, does any valid basis therefor exist).
g. Unions. The Company has never been a
party to any agreement with any union, labor organization or collective
bargaining unit. No employees of the Company are represented by any union,
labor organization or collective bargaining unit.
14
<PAGE> 29
Except as set forth on Schedule 3.8(g), to the actual knowledge of the Company,
none of the employees of the Company has threatened to organize or join a
union, labor organization or collective bargaining unit.
h. Aliens. All employees of the Company
are, to the best knowledge of the Company, citizens of, or are authorized in
accordance with federal immigration laws to be employed in, the United States.
3.9. Employee Benefit Plans.
a. Identification. Schedule 3.9(a)
contains a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three (3) years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Vision 21 copies of all plan
documents, determination letters, pending determination letter applications,
trust instruments, insurance contracts, administrative services contracts,
annual reports, actuarial valuations, summary plan descriptions, summaries of
material modifications, administrative forms and other documents that
constitute a part of or are incident to the administration of the Employee
Benefit Plans. In addition, the Company has provided or made available to
Vision 21 a written description of all existing practices engaged in by the
Company that constitute Employee Benefit Plans. Except as set forth on
Schedule 3.9(a) and subject to the requirements of the Code and ERISA, each of
the Employee Benefit Plans can be terminated or amended at will by the Company.
Except as set forth on Schedule 3.9(a), no unwritten amendment exists with
respect to any Employee Benefit Plan. Except as set forth on Schedule
3.9(b)-(l), each of the following paragraphs is true and correct.
b. Administration. To the best knowledge
of the Company and the Optometrist, each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect. The
Company and the Optometrist have (i) made all necessary filings with respect to
such Employee Benefit Plans, including the timely filing of Form 5500 if
applicable, and (ii) made all necessary filings, reports and disclosures
pursuant to and have complied with all requirements of the IRS Voluntary
Compliance Resolution Program, if applicable, with respect to all profit
sharing retirement plans and pension plans in which employees of the Company
participate.
c. Examinations. Except as set forth on
Schedule 3.9(c), the Company has not received any notice that any Employee
Benefit Plan is currently the subject of an audit, investigation, enforcement
action or other similar proceeding conducted by any state or federal agency.
15
<PAGE> 30
d. Prohibited Transactions. To the best
knowledge of the Company and the Optometrist, no prohibited transactions
(within the meaning of Section 4975 of the Code or Sections 406 and 407 of
ERISA) have occurred with respect to any Employee Benefit Plans.
e. Claims and Litigation. No pending or,
to the actual knowledge of the Company and the Optometrist, threatened, claims,
suits, or other proceedings exist with respect to any Employee Benefit Plan
other than normal benefit claims filed by participants or beneficiaries.
f. Qualification. As set forth in more
detail on Schedule 3.9(f), the Company has received a favorable determination
letter or ruling from the IRS for each of the Employee Benefit Plans intended
to be qualified within the meaning of Section 401(a) of the Code and/or
tax-exempt within the meaning of Section 501(a) of the Code. Except as set
forth on Schedule 3.9(e), no proceedings exist or, to the actual knowledge of
the Company have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
g. Funding Status. To the best knowledge
of the Company and the Optometrist, no accumulated funding deficiency (within
the meaning of Section 412 of the Code), whether or not waived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member ("Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such
plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. The Company does not
sponsor any Employee Benefit Plan described in Section 501(c)(9) of the Code.
None of the Employee Benefit Plans are subject to actuarial assumptions.
h. Excise Taxes. Neither the Company nor
any member of a Controlled Group has any liability to pay excise taxes with
respect to any Employee Benefit Plan under applicable provisions of the Code or
ERISA.
i. Multiemployer Plans. Neither the
Company nor any member of a Controlled Group is or ever has been obligated to
contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
j. Pension Benefit Guaranty Corporation.
None of the Employee Benefit Plans are subject to the requirements of Title IV
of ERISA.
k. Retirees. The Company has no
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who may retire or any of its former
employees who have retired except as may be required pursuant to the
continuation of coverage provisions of Section 4980B of the Code and Sections
501 through 508 of ERISA.
16
<PAGE> 31
l. Other Compensation. Except as set
forth on Schedule 3.8(a), 3.8(b), 3.8(c), 3.8(d) and 3.9(a), neither the
Company, the Optometrist nor any Professional Employee is a party to any
compensation or debt arrangement with any person relating to the provision of
healthcare related services other than arrangements with the Company or the
Optometrist.
3.10. Absence of Certain Changes. Except as set forth
on Schedule 3.10 or as contemplated by this Agreement, since the Company
Balance Sheet Date, the Company has not:
a. suffered a Material Adverse Effect,
whether or not caused by any deliberate act or omission of the Company or the
Optometrist;
b. contracted for the purpose of
acquiring any capital asset having a cost in excess of $5,000 or made any
single expenditure in excess of $5,000;
c. incurred any indebtedness for borrowed
money (other than short-term borrowings in the ordinary course of business), or
issued or sold any debt securities;
d. incurred or discharged any material
liabilities or obligations except in the ordinary course of business;
e. paid any amount on any indebtedness
prior to the due date, forgiven or cancelled any claims or any debt in excess
of $5,000, or released or waived any rights or claims except in the ordinary
course of business;
f. mortgaged, pledged or subjected to any
security interest, lien, lease or other charge or encumbrance any of its
properties or assets (other than statutory liens arising in the ordinary course
of business or other liens that do not materially detract from the value or
interfere with the use of such properties or assets);
g. suffered any damage or destruction to
or loss of any assets (whether or not covered by insurance) that has,
individually or in the aggregate, resulted in a Material Adverse Effect;
h. acquired or disposed of any assets
having an aggregate value in excess of $5,000, except in the ordinary course of
business;
i. written up or written down the
carrying value of any of its assets, other than accounts receivable in the
ordinary course of business;
j. changed the costing system or
depreciation methods of accounting for its assets in any material respect;
17
<PAGE> 32
k. lost or terminated any employee,
patient, customer or supplier that has, individually or in the aggregate,
resulted in a Material Adverse Effect;
l. increased the compensation of any
director, officer, key employee or consultant, except as disclosed on Schedule
3.8(a);
m. increased the compensation of any
employee (except for increases in the ordinary course of business consistent
with past practice) or hired any new employee who is expected to receive
annualized compensation of at least $15,000;
n. made any payments to or loaned any
money to any person or entity referred to in Section 3.22;
o. formed or acquired or disposed of any
interest in any corporation, partnership, joint venture or other entity;
p. redeemed, purchased or otherwise
acquired, or sold, granted or otherwise disposed of, directly or indirectly,
any of its capital stock or securities, or agreed to change the terms and
conditions of any such capital stock, securities or rights;
q. entered into any agreement providing
for total payments in excess of $5,000 in any twelve (12) month period with any
person or group, or modified or amended in any material respect the terms of
any such existing agreement, except in the ordinary course of business;
r. entered into, adopted or amended any
Employee Benefit Plan, except as contemplated hereby or the other agreements
contemplated hereby; or
s. entered into any other commitment or
transaction or experienced any other event that would materially interfere with
its performance under this Agreement or any other agreement or document
executed or to be executed pursuant to this Agreement, or otherwise has,
individually or in the aggregate, resulted in a Material Adverse Effect.
3.11. Title; Leased Assets.
a. Real Property. The Company does not
own any interest (other than leasehold interests referred to on Schedule
3.11(c)) in real property. The leased real property referred to on Schedule
3.11(c) constitutes the only real property necessary for the conduct of the
Company's business.
b. Personal Property. Except as set
forth on Schedule 3.11(b), the Company and/or the Optometrist has good, valid
and marketable title to all the personal property constituting the
Non-optometric Assets. The personal property constituting the Non-
18
<PAGE> 33
optometric Assets constitute the only personal property necessary for the
conduct of the Company's business (except for the Optometric Assets). Upon
consummation of the transactions contemplated hereby, such interest in the
Non-optometric Assets shall be free and clear of all security interests, liens,
claims and encumbrances, other than those set forth on Schedule 3.11(b) (the
"Permitted Encumbrances") and statutory liens arising in the ordinary course of
business or other liens that do not materially detract from the value or
interfere with the use of such properties or assets.
c. Leases. A list and brief description
of (i) all leases of real property and (ii) leases of personal property
involving rental payments within any twelve (12) month period in excess of
$12,000, in either case to which the Company is a party, either as lessor or
lessee, are set forth on Schedule 3.11(c). All such leases are valid and, to
the knowledge of the Company, enforceable in accordance with their respective
terms except as may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally or the availability of equitable
remedies.
3.12. Commitments.
a. Commitments; Defaults. Except as set
forth on Schedule 3.12 or as otherwise disclosed pursuant to this Agreement,
the Company is not a party to nor bound by, nor are the Non-optometric Assets
or the assets or the business of the Company bound by, whether or not in
writing, any of the following (collectively, "Commitments"):
i) partnership or joint
venture agreement;
ii) guaranty or suretyship,
indemnification or contribution agreement or performance bond;
iii) debt instrument, loan
agreement or other obligation relating to indebtedness for borrowed money or
money lent or to be lent to another;
iv) contract to purchase real
property;
v) agreement with dealers or
sales or commission agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with this Agreement and the
transactions contemplated hereby) involving total payments within any twelve
(12) month period in excess of $2,000 and which is not terminable on thirty
(30) days' notice or without penalty;
vi) agreement relating to any
material matter or transaction in which an interest is held by a person or
entity that is an Affiliate of the Company or the Optometrist;
19
<PAGE> 34
vii) agreement for the
acquisition of services, supplies, equipment, inventory, fixtures or other
property involving more than $2,000 in the aggregate;
viii) powers of attorney;
ix) contracts containing
non-competition covenants;
x) agreement providing for the
purchase from a supplier of all substantially all of the requirements of the
Company of a particular product or services;
xi) agreements regarding
clinical research;
xii) agreements with Payors and
contracts to provide optometric or health care services; or
xiii) any other agreement or
commitment not made in the ordinary course of business or that is material to
the business, operations, condition (financial or otherwise) or results of
operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Vision 21. Except as set forth on Schedule 3.12
and to the Company's best knowledge, there are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that,
with the giving of notice or lapse of time or both, would constitute defaults
by the Company or, to the best knowledge of the Company, any other party to a
material Commitment, and no penalties have been incurred nor are amendments
pending, with respect to the material Commitments, except as described on
Schedule 3.12. The Commitments are in full force and effect and are valid and
enforceable obligations of the Company, and to the best knowledge of the
Company, are valid and enforceable obligations of the other parties thereto, in
accordance with their respective terms, and no defenses, off-sets or
counterclaims have been asserted or, to the best knowledge of the Company, may
be made by any party thereto (other than the Company), nor has the Company
waived any rights thereunder, except as described on Schedule 3.12. Except as
set forth on Schedule 3.12, no consents or approvals are required under the
terms of any agreement listed on Schedule 3.12 in connection with the
transactions contemplated herein, including, without limitation, the transfer
of any such agreement pursuant to this Agreement.
b. No Cancellation or Termination of
Commitment. Except as disclosed pursuant to this Agreement or contemplated
hereby and except where such default would not have a Material Adverse Effect
on the Practice, (i) neither the Company nor the Optometrist has received
notice of any plan or intention of any other party to any Commitment to
exercise any right to cancel or terminate any Commitment, and the Company does
not know of any fact that would justify the exercise of such a right; and (ii)
neither the Company nor the
20
<PAGE> 35
Optometrist currently contemplates, or has reason to believe any other person
currently contemplates, any amendment or change to any Commitment.
3.13. Insurance. The Company, the Optometrist and each
Professional Employee carries property, liability, malpractice, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described on Section 3.13 (the "Insurance
Policies"). The Insurance Policies are all of the insurance policies of the
Company, the Optometrist and each Professional Employee relating to the
business of the Company and the Non-optometric Assets. All of the Insurance
Policies are issued by insurers of recognized responsibility, and, to the best
knowledge of the Company, are valid and enforceable policies, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. Except
as set forth in Schedule 3.13, no consent or approval is required for, and no
other impediment or restriction exists that will prohibit or limit, the
transfer of any such Insurance Policies included within the Non-optometric
Assets in accordance with the terms of this Agreement. All Insurance Policies
shall be maintained in force without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided or made available to Vision 21. Except as set forth on Schedule
3.13, neither the Company nor the Optometrist has received any notice or other
communication from any issuer of any Insurance Policy cancelling such policy,
materially increasing any deductibles or retained amounts thereunder, and to
the actual knowledge of the Company, no such cancellation or increase of
deductibles, retainages or premiums is threatened. Except as set forth on
Schedule 3.13, neither the Company, the Optometrist nor any Professional
Employee has any outstanding claims, settlements or premiums owed against any
Insurance Policy, and the Company, the Optometrist and each Professional
Employee has given all notices or has presented all potential or actual claims
under any Insurance Policy in due and timely fashion. Except as set forth on
Schedule 3.13, since January 1, 1994, neither the Company, the Optometrist nor
any Professional Employee has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier, and the Company, the Optometrist and each Professional Employee has
been continuously insured for professional malpractice claims for at least the
past seven (7) years (or such shorter periods of time that any Professional
Employee has been licensed to practice optometry). Schedule 3.13 also sets
forth a list of all claims under any Insurance Policy in excess of $10,000 per
occurrence filed by the Company, the Optometrist and each Professional Employee
since January 1, 1994.
3.14. Proprietary Rights and Information. Set forth on
Schedule 3.14 is a true and correct description of the following ("Proprietary
Rights"):
a. all trademarks, trade-names, service
marks and other trade designations, including common law rights, registrations
and applications therefor, and all patents and applications therefor currently
owned, in whole or in part, by the Company, and all licenses, royalties,
assignments and other similar agreements relating to the foregoing to which the
Company is a party (including the expiration date thereof if applicable); and
21
<PAGE> 36
b. all agreements relating to technology,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other healthcare providers), or which it licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, such ownership or use does not conflict,
infringe or violate the rights of any other person. Except as disclosed on
Schedule 3.14, no consent of any person will be required for the use thereof by
Vision 21 upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or for infringement by the Company of the
proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. To the best knowledge of the Company and the
Optometrist, the Company has the right to use, free and clear of any adverse
claims or rights of others, all trade secrets, customer lists and proprietary
information required for the marketing of all merchandise and services formerly
or presently sold or marketed by it.
3.15. Taxes.
a. Filing of Tax Returns. The Company
has duly and timely filed (in accordance with any extensions duly granted by
the appropriate governmental agency, if applicable) with the appropriate
governmental agencies all federal, state, local or foreign income, excise,
corporate, franchise, property, sales, use, payroll, withholding, provider,
value added and other tax returns and reports (collectively the "Tax Returns")
required to be filed by the United States or any state or any political
subdivision thereof or any foreign jurisdiction. All such Tax Returns or
reports are complete and accurate in all material respects and properly reflect
the taxes of the Company for the periods covered thereby.
b. Payment of Taxes. Except for such
items as the Company may be disputing in good faith by proceedings in
compliance with applicable law, which are described on Schedule 3.15, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records for all of the same that have not yet become
due, and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
c. No Pending Deficiencies,
Delinquencies, Assessments or Audits. Except as set forth on Schedule 3.15,
the Company has not received any notice that any tax deficiency or delinquency
has been asserted against the Company. There is no unpaid assessment, proposal
for additional taxes, deficiency or delinquency in the payment of any of the
taxes of the Company that could be asserted by any taxing authority. There is
no taxing authority audit of the Company pending, or to the actual knowledge of
the Company, threatened, and the results of any completed audits are properly
reflected in the Financial Statements. The Company has not, to its best
knowledge, violated any federal, state, local or foreign tax law.
22
<PAGE> 37
d. No Extension of Limitation Period.
The Company has not granted an extension to any taxing authority of the
limitation period during which any tax liability may be assessed or collected.
e. All Withholding Requirements
Satisfied. All monies required to be withheld by the Company and paid to
governmental agencies for all income, social security, unemployment insurance,
sales, excise, use, and other taxes have been collected or withheld and paid to
the respective governmental agencies.
f. Foreign Person. Neither the Company
nor the Optometrist is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
3.16. Compliance with Laws. The Company has not
failed, and neither the Company nor the Optometrist is aware of any failure by
the Optometrist or any Professional Employee to comply with all applicable
laws, regulations and licensing requirements relating to the operation of the
Practice or failure to file with the proper authorities all necessary
statements and reports except where the failure to so comply or file would not,
individually or in the aggregate, result in a Material Adverse Effect. There
are no existing violations by the Company, and neither the Company nor the
Optometrist is aware of any existing violations by the Optometrist or any
Professional Employee of any federal, state or local law or regulation that
could, individually or in the aggregate, result in a Material Adverse Effect.
The Company, the Optometrist and each Professional Employee possesses all
necessary licenses, franchises, permits and governmental authorizations for the
conduct of the Company's business as now conducted, all of which are listed
(with expiration dates, if applicable) on Schedule 3.16. Except as set forth
on Schedule 3.16, the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded by any such licenses, franchises, permits or
government authorizations, except for any such default, breach or violation
that would not, individually or in the aggregate, have a Material Adverse
Effect. Except as set forth on Schedule 3.16, since January 1, 1993, neither
the Company, the Optometrist nor, to the knowledge of the Company based on a
certificate in writing obtained from each Professional Employee, any
Professional Employee has received any notice from any federal, state or other
governmental authority or agency having jurisdiction over its, his or her
properties or activities, or any insurance or inspection body, that its, his or
her operations or any of its, his or her properties, facilities, equipment, or
business practices fail to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public or
quasi-public authority or body, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect.
3.17. Finder's Fee. Except as set forth on Schedule
3.17, the Company has not incurred any obligation for any finder's, brokers or
agent's fee in connection with the transactions contemplated hereby.
3.18. Litigation. Except as described on Schedule 3.18
or otherwise disclosed pursuant to this Agreement, there are no legal actions
or administrative proceedings
23
<PAGE> 38
or investigations instituted, to the actual knowledge of the Company or the
Optometrist, which affect or could affect the Practice, the Non-optometric
Assets or the operation, business, condition (financial or otherwise), or
results of operations of the Company which (i) if successful could,
individually or in the aggregate, have a Material Adverse Effect or (ii) could
adversely affect the ability of the Company or the Optometrist to effect the
transactions contemplated hereby. Neither the Company nor the Optometrist is
(a) subject to any continuing court or administrative order, judgment, writ,
injunction or decree applicable specifically to the Non-optometric Assets, the
Company or to its business, assets, operations or employees or (b) in default
with respect to any such order, judgment, writ, injunction or decree. The
Company has no knowledge of any valid basis for any such action, proceeding or
investigation. Except as set forth on Schedule 3.18, all medical malpractice
claims asserted, general liability incidents and incident reports have been
submitted to the Company's insurer therefor. All claims made or threatened
against the Company in excess of its deductible are covered under its Insurance
Policies.
3.19. Condition of Fixed Assets. All of the fixtures,
structures and equipment reflected in the Financial Statements and used by the
Company in its business, are in good condition and repair, subject to normal
wear and tear, and conform in all material respects with all applicable
ordinances, regulations and other laws, and the Company has no actual knowledge
of any latent defects therein.
3.20. Distributions and Repurchases. No distribution,
payment or dividend of any kind has been declared or paid by the Company on any
of its capital stock since the Company Balance Sheet Date. No repurchase of
any of the Company's capital stock has been approved, effected or is pending,
or is contemplated by the Board of Directors of the Company.
3.21. Banking Relations. Set forth on Schedule 3.21 is
a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the
person or persons authorized in respect thereof.
3.22. Ownership Interests of Interested Persons;
Affiliations. Except as set forth on Schedule 3.22, no officer, supervisory
employee or director of the Company, or their respective spouses, children or
Affiliates, owns directly or indirectly, on an individual or joint basis, any
interest in, has a compensation or other financial arrangement with, or serves
as an officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the Company.
Except as may be disclosed pursuant to this Agreement, neither the Company, nor
any of its directors, officers, employees or consultants, nor any Affiliate of
such person is, or within the last three (3) years was, a party to any
contract, lease, agreement or arrangement, including, but not limited to, any
joint venture or consulting agreement with any optometrist, hospital, pharmacy,
home health agency or other person which is in a position to make or influence
referrals to, or otherwise generate business for, the Company.
24
<PAGE> 39
3.23. Investments in Competitors. Except as disclosed
on Schedule 3.23, neither the Company nor the Optometrist owns directly or
indirectly any interests or has any investment in any person that is a
Competitor of the Company.
3.24. Environmental Matters.
a. Environmental Laws. To the best
knowledge of the Company and the Optometrist, neither the Company nor any of
the Non-optometric Assets (including the leased real property described on
Schedule 3.11(c)) are currently in violation of, or subject to any existing,
pending or, to the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations under, any
federal, state or local laws or regulations pertaining to health or the
environment ("Environmental Laws"), except for any such violations,
investigations or inquiries that would not, individually or in the aggregate,
result in a Material Adverse Effect.
b. Permits. The Company is not required
to obtain, and has no knowledge of any reason Vision 21 will be required to
obtain, any permits, licenses or similar authorizations to occupy, operate or
use any buildings, improvements, fixtures and equipment owned or leased by the
Company by reason of any Environmental Laws.
c. Superfund List. To the best knowledge
of the Company, none of the Non-optometric Assets (including the Company's
leased real property described on Schedule 3.11(c)) are on any federal or state
"Superfund" list or subject to any environmentally related liens, except such
liens as would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.25. Certain Payments. Neither the Company nor any
director, officer or employee of the Company acting for or on behalf of the
Company, has paid or caused to be paid, directly or indirectly, in connection
with the business of the Company:
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds of directors, officers or
employees not reimbursed by their respective employers or as otherwise
permitted by applicable law).
3.26. Medical Waste. With respect to the generation,
transportation, treatment, storage, and disposal, or other handling of medical
waste, to the best knowledge of the Company and the Optometrist, the Company
has complied with all material federal, state or local laws or regulations
pertaining to medical waste.
3.27. Medicare and Medicaid Programs. The Company, the
Optometrist and each Professional Employee is qualified for participation in
the Medicare and Medicare programs
25
<PAGE> 40
and is party to provider agreements for such programs which are in full force
and effect with no events of default having occurred thereunder. The Company,
the Optometrist and each Professional Employee has timely filed all claims or
other reports required to be filed prior to the Closing Date with respect to
the purchase of services by third-party payors ("Payors"), including but not
limited to Medicare and Medicaid programs, except where the failure to file
would not, individually or in the aggregate, result in a Material Adverse
Effect. All such claims or reports are complete and accurate in all material
respects. The Company, the Optometrist and each Professional Employee has paid
or has properly recorded on the Financial Statements all actually known and
undisputed refunds, discounts or adjustments which have become due pursuant to
such claims, and neither the Company, the Optometrist nor any Professional
Employee has any material liability to any Payor with respect thereto, except
as has been reserved for in the Company Balance Sheet. There are no pending
appeals, overpayment determinations, adjustments, challenges, audits,
litigation, or notices of intent to reopen Medicare and/or Medicaid claims
determinations or other reports required to be filed by the Company, the
Optometrist or any Professional Employee in order to be paid by a Payor for
services rendered. Neither the Company, nor any of its directors, officers,
employees, consultants or the Optometrist has been convicted of, or pled guilty
or nolo contendere to, patient abuse or neglect, or any other Medicare or
Medicaid program-related offense. Neither the Company, nor its directors,
officers, the Optometrist, or to the best of the Company's knowledge, its
employees or consultants, has committed any offense which may serve as the
basis for suspension or exclusion from the Medicare and Medicaid programs,
including but not limited to, defrauding a government program, loss of a
license to provide health services, and failure to provide quality care.
3.28. Fraud and Abuse. To the best knowledge of the
Company and the Optometrist, the Company, its officers and directors, the
Professional Employees, and the other persons and entities providing
professional services for the Company, have not engaged in any activities which
are prohibited under 42 U.S.C. Sections 1320-7, 7a or 7b or 42 U.S.C.
Section 1395nn (subject to the exceptions set forth in such legislation), or
the regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including but not limited to the following:
a. knowingly and willfully making or
causing to be made a false statement or representation of a material fact in
any application for any benefit or payment;
b. knowingly and willfully making or
causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment;
c. failure to disclose knowledge by a
Medicare or Medicaid claimant of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with intent to fraudulently secure such benefit or payment;
26
<PAGE> 41
d. knowingly and willfully offering,
paying, soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind (i) in return for referring an individual to a person for the furnishing
or arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part by Medicare or Medicaid; and
e. referring a patient for designated
health services (as defined in 42 U.S.C. Section 1395nn) to or providing
designated health services to a patient upon a referral from an entity or
person with which the Optometrist or the Professional Employee or an immediate
family member has a financial relationship, and to which no exception under 42
U.S.C. Section 1395nn applies.
3.29. Payors. Schedule 3.29 sets forth a true, correct
and complete list of the names and addresses of each Payor, including any
private pay patient as a single payor, of the Company's services which
accounted for more than 10% of the revenues of the Company in the three (3)
previous fiscal years. Except as set forth on Schedule 3.29, the Company has
good relations with such Payors and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any claims submitted to such Payor for payment.
3.30. Prohibitions on the Corporate Practice of
Optometry. To the best of the Company's and the Optometrist's knowledge, the
actions, transactions or relationships arising from, and contemplated by this
Agreement, do not violate any law, rule or regulation relating to the corporate
practice of optometry. The Company and the Optometrist accordingly agree that
the Company and the Optometrist will not, in an attempt to void or nullify any
document contemplated herein or any relationship involving Vision 21, the
Company or the Optometrist, sue, claim, aver, allege or assert that any such
document contemplated herein or any such relationship violates any law, rule or
regulation relating to the corporate practice of optometry and expressly
warrant that this Section is valid and enforceable by Vision 21, and recognize
that Vision 21 has relied upon the statements herein in closing this
Transaction.
3.31. Acquisition Proposals. Except for the
negotiations, offers and agreements with Vision 21 and its representatives, the
Company has not received during the twelve (12) month period preceding the date
of this Agreement any proposal or offer (including, without limitation, any
proposal or offer of its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") nor has the Company or any of its employees, agents, representatives
or stockholders engaged in any negotiations concerning, or provided any
confidential information or data to, or had any discussions with, any person
27
<PAGE> 42
relating to an Acquisition Proposal, or otherwise facilitated any effort or
attempted to make or implement an Acquisition Proposal.
3.32. Consistent Treatment of Expenses. The Company
has, in presenting information concerning the Company's expenses to Vision 21
for the purpose of determining the Company's value, separated out those
expenses which shall be borne by the Company in a manner which is consistent
with the treatment of expenses which shall be the responsibility of the Company
pursuant to the Business Management Agreement.
3.33. Accounts Receivable/Payable. The Accounts
Receivable of the Company relating to the ownership and operation of the
Practice reflected on the Company Balance Sheet, to the extent uncollected on
the date hereof, are, and the accounts receivable of the Company relating to
the ownership and operation of the Practice to be reflected on the books of the
Company on the Closing Date will be, valid, existing and collectible within six
months from the Closing Date (taking into consideration the allowance for
doubtful accounts set forth in the Financial Statements) using reasonably
diligent collection methods taking into account the size and nature of the
receivable, and represent amounts due for goods sold and delivered or services
performed. There are not, and on the date of Closing there will not be, any
refunds, discounts, set-offs, defenses, counterclaims or other adjustments
payable or assessable with respect to the Accounts Receivable. The Company has
collected Accounts Receivable only in the ordinary course and has not changed
collection procedures or methods nor accelerated the pace of such collection
efforts in anticipation of the transactions contemplated in this Agreement.
The Company has paid accounts payable in the ordinary course and has not
changed payment procedures or methods nor delayed the timing of such payments
in anticipation of the transactions contemplated in this Agreement.
3.34. Projections. There is no fact, development or
threatened development with respect to the markets, products, services,
clients, patients, facilities, personnel, vendors, suppliers, operations,
assets or prospects of the Practice which are known to the Company or the
Optometrist which would materially adversely affect the projected fiscal year
1997 earnings of the Company disclosed to Vision 21 by Optometrist, other than
such conditions as may affect as a whole the economy or the practice of
optometry generally.
3.35. Inventory. Except as set forth on Schedule 3.35,
to the best of the Company's and the Optometrist's knowledge: (i) the
Inventory is in its originally manufactured condition, fit for the use for
which it was intended, free from any known defect and in a quantity and quality
usable in the ordinary course of business; (ii) the Inventory does not contain
material amounts of items that are slow-moving, obsolete or of below-standard
quality; (iii) the qualities and quantities of Inventory are reasonable and
warranted in the present and anticipated circumstances of the Practice; and
(iv) there has been no decrease in the physical Inventory since the Company
Balance Sheet Date other than in the ordinary course of business.
3.36. Tangible Personal Property. Except as set forth
on Schedule 3.36, the Company's Tangible Personal Property is in good operating
condition, working order and repair
28
<PAGE> 43
(normal wear and tear excepted) and is fully suitable for the uses for which it
is employed in the conduct of the Practice.
3.37. Leases. With respect to each of the Real
Property Leases and Personal Property Leases, except as set forth on Schedule
3.37:
(a) such lease is legal, valid, binding, enforceable
and in full force and effect;
(b) such lease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the Closing;
(c) no party to such lease is in material breach or
default, and no event has occurred that, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification or
acceleration thereunder;
(d) no party to such lease has repudiated in writing
any provision thereof;
(e) there are no disputes, oral agreements or
forbearance programs in effect as to such lease; and
(f) The Company has performed and satisfied in full
each material obligation to be performed by the Company under such lease.
3.38. Contract Rights. Except as set forth on Schedule
3.38, each of the Assumed Contracts is valid and enforceable and is in full
force and effect, and there is no material default or existing condition that,
with the giving of notice or the passage of time, would constitute such a
default by any parties thereto. The Company has performed and satisfied in
full each material obligation required to be performed by the Company under
each Assumed Contract. If services are to be provided to the Company under any
of such Assumed Contracts, such services have been and are being performed
satisfactorily and in a timely manner, substantially in accordance with the
terms of such Assumed Contract.
3.39. Prepaid Items. Except as described on Schedule
3.13, each of the Prepaid Items may be transferred to Vision 21 without the
necessity of obtaining any consent or approval.
3.40. Completeness of Assets. The Non-optometric
Assets, together with the Optometric Assets, include all the properties used to
conduct the Practice as presently conducted.
3.41. Disclosure. To the best of the Company's and the
Optometrist's knowledge, no representation, warranty or statement made by the
Company or the Optometrist in this Agreement or any of the exhibits or
schedules hereto, or any agreements, certificates, documents or instruments
delivered or to be delivered to Vision 21 in accordance with this
29
<PAGE> 44
Agreement or the other documents contemplated herein, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. The
Company and the Optometrist do not know of any fact or condition (other than
general economic conditions or legislative or administrative changes in
health-care delivery) which materially adversely affects, or in the future may
materially affect, the condition, properties, assets, liabilities, business,
operations or prospects of the Practice which has not been set forth herein or
in the Schedules provided herewith.
4. REPRESENTATIONS AND WARRANTIES OF THE OPTOMETRIST. The
Optometrist represents and warrants to Vision 21 that the following are true
and correct as of the date hereof, and shall be true and correct through the
Closing Date as if made on that date:
4.1. Validity; Optometrist Capacity. This Agreement,
the Optometrist Employment Agreement, and each other agreement contemplated
hereby or thereby have been, or will be as of the Closing Date, duly executed
and delivered by the Optometrist and constitute or will constitute legal, valid
and binding obligations of the Optometrist, enforceable against the Optometrist
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. The Optometrist has legal
capacity to enter into and perform this Agreement and his Optometrist
Employment Agreement.
4.2. No Violation. Except as set forth on Schedule
4.2, neither the execution, delivery or performance of this Agreement, other
agreements of the Optometrist contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby or thereby, will (a)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture or other
instrument under which the Optometrist is bound or to which any of his property
or the shares of common stock of the Company are subject, or result in the
creation or imposition of any security interest, lien, charge or encumbrance
upon any of his property or the shares of common stock of the Company or (b) to
the best knowledge of the Optometrist, violate or conflict with any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body.
4.3. Consents. Except as may be required under the
Exchange Act, the Securities Act, the Corporation Law and state securities
laws, or otherwise disclosed pursuant to this Agreement, no consent,
authorization, approval, permit or license of, or filing with, any governmental
or public body or authority, or any other person is required to authorize, or
is required in connection with, caution, delivery and performance of this
Agreement or the agreements contemplated hereby on the part of the Optometrist.
4.4. Certain Payments. The Optometrist has not paid
or caused to be paid, directly or indirectly, in connection with the business
of the Company:
30
<PAGE> 45
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds not reimbursed by the
Company or as otherwise permitted by applicable law).
4.5. Finder's Fee. Except as set forth on Schedule
4.5, the Optometrist has not incurred any obligation for any finder's, broker's
or agent's fee in connection with the transactions contemplated hereby.
4.6. Ownership of Interested Persons; Affiliations.
Except as set forth on Schedule 4.6, neither the Optometrist nor his spouse,
children or Affiliates, owns directly or indirectly, on an individual or joint
basis, any interest in, has a compensation or other financial arrangement with,
or serves as an officer or director of, any customer or supplier of the Company
or any organization that has a material contact or arrangement with the
Company. Neither the Optometrist nor any of his Affiliates is, or with the
last three (3) years was, a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or consulting
agreement with any optometrist, hospital, pharmacy, home health agency or other
person which is in a position to make or influence referrals to, or otherwise
generate business for, the Company.
4.7. Investments in Competitors. Except as disclosed
on Schedule 4.7, the Optometrist does not own directly or indirectly any
interests or have any investment in any person that is a Competitor of the
Company.
4.8. Litigation. Except as disclosed on Schedule 4.8,
there are no claims, actions, suits, proceedings (arbitration or otherwise) or
investigations pending or, to the Optometrist's knowledge, threatened against
the Optometrist at law or at equity in any court or before or by any
Governmental Authority, and, to the Optometrist's knowledge, there are no, and
have not been any, facts, conditions or incidents that may result in any such
actions, suits, proceedings (arbitration or otherwise) or investigations.
Except as set forth on Schedule 4.10, there have been no disciplinary,
revocation or suspension proceedings or similar types of claims, actions or
proceedings, hearings or investigations against the Optometrist or the Company.
4.9. Permits. To the best of the Optometrist's
knowledge, the Optometrist has all permits, licenses, orders and approvals of
all Governmental Authorities necessary to perform the services performed by the
Optometrist in connection with the conduct of the Practice. All such permits,
licenses, orders and approvals are in full force and effect and no suspension
or cancellation of any of them is pending or threatened. To the best of the
Optometrist's knowledge, none of such permits, licenses, orders or approvals
will be adversely affected by the consummation of the transactions contemplated
herein. The Optometrist is a participating optometrist, as such term is
defined by the Medicare and Medicaid programs, and the Optometrist has not been
disciplined, sanctioned or excluded from either the Medicare or
31
<PAGE> 46
Medicaid programs and has not been subject to any plan of correction imposed by
any professional review body.
4.10. Staff Privileges. Schedule 4.10 lists all
hospitals at which the Optometrist has full staff privileges. Such staff
privileges have not been revoked, surrendered, suspended or terminated, and to
the Optometrist's knowledge, there are no, and have not been any, facts,
conditions or incidents that may result in any such revocation, surrender,
suspension or termination.
4.11. Intentions. Except as set forth on Schedule
4.11, the Optometrist intends to continue practicing optometry on a full-time
basis for at least the next five (5) years with the Company and does not know
of any fact or condition that materially adversely affects, or in the future
may materially adversely affect, his ability or intention to practice optometry
on a full-time basis for the next five (5) years with the Company.
5. REPRESENTATIONS AND WARRANTIES OF VISION 21. Vision 21
represents and warrants to the Company and the Optometrist that the following
are true and correct as of the date hereof and shall be true and correct as of
the Closing Date; when used in this Section 5, the term "best knowledge" shall
mean the best knowledge of those individuals listed on Schedule 5:
5.1. Organization and Good Standing. Vision 21 is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Florida, with all requisite corporation power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. At or prior to Closing, Vision 21 will be
qualified to do business as a foreign corporation in the jurisdictions listed
on Schedule 5.1.
5.2. Capitalization. The authorized capital stock of
Vision 21 consists of 50,000,000 shares of Vision 21 Common Stock, of which
5,465,673 shares are issued and outstanding. Immediately prior to the Closing,
the authorized capital stock of Vision 21 will consist of 50,000,000 shares of
Vision 21 Common Stock, of which 5,465,673 shares will be issued and
outstanding.
5.3. Corporate Records. The copies of the Articles of
Incorporation and Bylaws, and all amendments thereto, of Vision 21 that have
been delivered or made available to the Company and the Optometrist are true,
correct and complete copies thereof, as in effect on the date hereof. The
minute books of Vision 21, copies of which have been delivered or made
available to the Company and the Optometrist, contain accurate minutes of all
meetings of, and accurate consents to all actions taken without meetings by,
the Board of Directors (and any committees thereof) and the stockholders of
Vision 21, since its formation.
5.4. Authorization and Validity. The execution,
delivery and performance by Vision 21 of this Agreement and the other
agreements contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized
32
<PAGE> 47
by Vision 21. This Agreement and each other agreement contemplated hereby to
be executed by Vision 21 have been or will be as of the Closing Date duly
executed and delivered by Vision 21 and constitute or will constitute legal,
valid and binding obligations of Vision 21, enforceable against Vision 21 in
accordance with their respective terms, except as may be limited by applicable
bankruptcy, insolvency or similar laws affecting creditors' rights generally or
the availability of equitable remedies.
5.5. Compliance. The execution and delivery of the
documents contemplated hereunder and the consummation of the transactions
contemplated thereby by Vision 21 shall not (i) violate any provision of Vision
21's organizational documents, (ii) violate any material provision of or result
in the breach of or entitle any party to accelerate (whether after the giving
of notice or lapse of time or both) any material obligation under, any
mortgage, lien, lease, contract, license, instrument or any other agreement to
which Vision 21 is a party, (iii) result in the creation or imposition of any
material lien, charge, pledge, security interest or other material encumbrance
upon any property of Vision 21 or (iv) violate or conflict with any order,
award, judgment or decree or other material restriction or to the best of
Vision 21's knowledge violate or conflict with any law, ordinance or regulation
to which Vision 21 or its property is subject.
5.6. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by Vision 21 or the consummation
by such party of the transactions contemplated thereby, except for those
consents or approvals set forth on Schedule 5.6.
5.7. Finder's Fee. Except as disclosed on Schedule
5.7, Vision 21 has not incurred any obligation for any finder's, broker's or
agent's fee in connection with the transactions contemplated hereby.
5.8. Capital Stock. The issuance and delivery by
Vision 21 of shares of Vision 21 Common Stock in connection with the Note have
been duly and validly authorized by all necessary corporate action on the part
of Vision 21. The shares of Vision 21 Common Stock to be issued in connection
with the Note, when issued in accordance with the terms of this Agreement, will
be validly issued, fully paid and nonassessable and will not have been issued
in violation of any preemptive rights, rights of first refusal or similar
rights of any of Vision 21's stockholders, or any federal or state law,
including, without limitation, the registration requirements of applicable
federal and state securities laws.
5.9. Vision 21 Financial Statements; Confidential
Information Memorandum. The balance sheet of Vision 21 as of September 30,
1996 and the related statements of income of Vision 21 for the first nine (9)
months of Vision 21's 1996 fiscal year, without giving effect to the Related
Acquisitions, including the costs incurred during such fiscal year associated
with any Registration Statement, shall be contained in the Confidential
Information Memorandum to be provided to the Optometrist and the Company by
Vision 21
33
<PAGE> 48
prior to the Closing (collectively, with the related notes thereto, the "Vision
21 Financial Statements"). The Vision 21 Financial Statements (a) fairly
present the financial condition and results of operations of Vision 21, without
giving effect to the Related Acquisitions, as of the dates and for the periods
indicated; and (b) have been prepared in conformity with GAAP (subject to
normal year-end adjustments and the absence of notes for any unaudited interim
financial statement), except as otherwise indicated in the Vision 21 Financial
Statements. Subject to the foregoing and the other qualifications contained
elsewhere in this Agreement, to the best knowledge of Vision 21, the
Confidential Information Memorandum, as amended on December, 1996, is true and
correct in all material respects.
5.10. Liabilities and Obligations. Except as disclosed
on Schedule 5.10, the Vision 21 Financial Statements shall reflect all material
liabilities of Vision 21, accrued, contingent or otherwise, that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with GAAP. Except as set forth on Schedule 5.10 or in the Vision
21 Financial Statements, Vision 21 is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity,
and Vision 21 does not know of any valid basis for the assertion of any other
claims or liabilities of any nature or in any amount.
5.11. Compliance with Laws. Vision 21 has not failed
to comply with any applicable laws, regulations and licensing requirements or
failed to file with the proper authorities any necessary statements and reports
except where the failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Vision 21 of any federal, state or local law or regulation that
could, individually or in the aggregate, result in a Material Adverse Effect.
Vision 21 possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of Vision 21's business as now
conducted and after the Closing, as contemplated in this Agreement. The
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government
authorizations, except for any such default, breach or violation that would
not, individually or in the aggregate, have a Material Adverse Effect. Since
January 1, 1993, Vision 21 has not received any notice from any federal, state
or other governmental authority or agency having jurisdiction over its
properties or activities, or any insurance or inspection body, that its
operations or any of its properties, facilities, equipment, or business
practices fail to comply with any applicable law, ordinance, regulation,
building or zoning law, or requirement of any public or quasi-public authority
or body, except where failure to so comply would not, individually or in the
aggregate, have a Material Adverse Effect.
5.12. Insolvency Proceedings. Vision 21 is not
currently under the jurisdiction of a Federal or state court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
34
<PAGE> 49
5.13. Employment of Company's Employees. Vision 21
does not currently intend to change the existing composition or employment
terms of any of the non-professional personnel which have employment
arrangements with the Company on the effective date of this Agreement (except
as is necessary for Vision 21 to employ such individuals pursuant to the
Business Management Agreement). Vision 21 reserves the right, however, to
change the number, composition or employment terms of such non-professional
personnel in the future.
6. SECURITIES LAW MATTERS.
6.1. Investment Representations and Covenants of
Optometrist.
a. Optometrist understands that the
Securities will not be registered under the Securities Act or any state
securities laws on the grounds that the issuance of the Securities is exempt
from registration pursuant to Section 4(2) of the Securities Act under the
Securities Act and applicable state securities laws, and that the reliance of
Vision 21 on such exemptions is predicated in part on the Optometrist's
representations, warranties, covenants and acknowledgements set forth in this
Section.
b. Except as disclosed on Schedule 6.1(b)
attached hereto, Optometrist represents and warrants that Optometrist is an
"accredited investor" or "sophisticated investor" as defined under the
Securities Act and state "Blue Sky" laws, or that Optometrist has utilized, to
the extent necessary to be deemed a sophisticated investor under the Securities
Act and State "Blue Sky" laws, the assistance of a professional advisor.
c. Optometrist represents and warrants
that the Securities to be acquired by Optometrist upon consummation of the
transactions described in this Agreement will be acquired by Optometrist for
Optometrist's own account, not as a nominee or agent, and without a view to
resale or other distribution within the meaning of the Securities Act and the
rules and regulations thereunder, except as contemplated in this Agreement, and
that Optometrist will not distribute any of the Securities in violation of the
Securities Act. All Securities shall bear a restrictive legend in
substantially the following form:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAWS."
In addition, the Securities shall bear any legend required by the
securities or "Blue Sky" laws of any state where Optometrist resides as well as
any other legend deemed appropriate by Vision 21 or its counsel.
d. Optometrist represents and warrants
that the address set forth below Optometrist's name on Schedule 6.1(d) is
Optometrist's principal residence.
35
<PAGE> 50
e. Optometrist (i) acknowledges that the
Securities issued to Optometrist at the Closing must be held indefinitely by
Optometrist unless subsequently registered under the Securities Act or an
exemption from registration is available, (ii) is aware that any routine sales
of Securities made pursuant to Rule 144 under the Securities Act may be made
only in limited amounts and in accordance with the terms and conditions of that
Rule and that in such cases where the Rule is not applicable, compliance with
some other registration exemption will be required, (iii) is aware that Rule
144 is not currently available for use by Optometrist for resale of any of the
Securities to be acquired by Optometrist upon consummation of the transactions
described in this Agreement, and (iv) acknowledges and agrees that the transfer
of the Securities shall be further restricted by the "lock-up" provisions
contained in the Registration Rights Agreement in the form of Exhibit 14(e),
whereby Optometrist shall be treated as an "affiliate" of Vision 21 under Rule
144.
f. Optometrist represents and warrants to
Vision 21 that Optometrist, either alone or together with the assistance of
Optometrist's own professional advisor, has such knowledge and experience in
financial and business matters such that Optometrist is capable of evaluating
the merits and risks of Optometrist's investment in any of the Securities to be
acquired by Optometrist upon consummation of the transactions described in this
Agreement.
g. Optometrist confirms that Optometrist
has received and read the Confidential Information Memorandum of Vision 21
dated September 27, 1996 and the December, 1996 Supplement thereto.
Optometrist also confirms that Optometrist has had the opportunity to ask
questions of and receive answers from Vision 21 concerning the terms and
conditions of Optometrist's investment in the Securities, and the Optometrist
has received to Optometrist's satisfaction, such additional information, in
addition to that set forth herein, about Vision 21's operations and the terms
and conditions of the offering as Optometrist has requested.
h. In order to ensure compliance with the
provisions of paragraph (c) hereof, Optometrist agrees that after the Closing
Optometrist will not sell or otherwise transfer or dispose of Securities or any
interest therein (unless such shares have been registered under the Securities
Act) without first complying with either of the following conditions, the
expenses and costs of satisfaction of which shall be fully borne and paid for
by Optometrist:
i) Vision 21 shall have
received a written legal opinion from legal counsel, which opinion and counsel
shall be satisfactory to Vision 21 in the exercise of its reasonable judgment,
or a copy of a "no-action" or interpretive letter of the Securities and
Exchange Commission specifying the nature and circumstances of the proposed
transfer and indicating that the proposed transfer will not be in violation of
any of the registration provisions of the Securities Act and the rules and
regulations promulgated thereunder; or
ii) Vision 21 shall have
received an opinion from its own counsel to the effect that the proposed
transfer will not be in violation of any of the
36
<PAGE> 51
registration provisions of the Securities Act and the rules and regulations
promulgated thereunder.
Optometrist also agrees that the certificates or instruments representing the
Securities to be issued to Optometrist pursuant to this Agreement may contain a
restrictive legend noting the restrictions on transfer described in this
Section and required by federal and applicable state securities laws, and that
appropriate "stop-transfer" instructions will be given to Vision 21's transfer
agent, if any, provided that this Section 6.1(h) shall no longer be applicable
to any Securities following their transfer pursuant to a registration statement
effective under the Securities Act or in compliance with Rule 144 or if the
opinion of counsel referred to above is to the further effect that transfer
restrictions and the legend referred to herein are no longer required in order
to establish compliance with any provisions of the Securities Act.
i. Optometrist understands that although
an Initial Public Offering is contemplated by Vision 21, there are no
assurances that an Initial Public Offering will occur or if it does occur that
it will be successful.
j. Optometrist agrees that he shall be
considered an "affiliate" of Vision 21 for purposes of Rule 144 and agrees to
the restrictions and limitations imposed by Rule 144 on affiliates.
Optometrist further agrees that he shall be considered an affiliate of Vision
21 for Rule 144 purposes even if he does not meet the technical definition of
"affiliate" under Rule 144.
6.2. Current Public Information. At all times
following the registration of any of Vision 21's securities under the
Securities Act or Exchange Act pursuant to which Vision 21 becomes subject to
the reporting requirements of the Exchange Act, Vision 21 shall use
commercially reasonable efforts to comply with the requirements of Rule 144
under the Securities Act, as such Rule may be amended from time to time (or any
similar rule or regulation hereafter adopted by the SEC) regarding the
availability of current public information to the extent required to enable any
holder of shares of Common Stock to sell such shares without registration under
the Securities Act pursuant to Rule 144 (or any similar rule or regulation).
7. COVENANTS OF THE COMPANY AND THE OPTOMETRIST. The Company
and the Optometrist, jointly and severally, agree that between the date hereof
and the Closing (with respect to the Company's covenants, the Optometrist
agrees to use his best efforts to cause the Company to perform):
7.1. Consummation of Agreement. The Company and the
Optometrist shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or the
Optometrist to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
37
<PAGE> 52
7.2. Business Operations. The Company shall operate
its business in the ordinary course. The Company and the Optometrist shall use
their best efforts to preserve the business of the Company intact. Neither the
Company nor the Optometrist shall take any action that would, individually or
in the aggregate, result in a Material Adverse Effect.
7.3. Access. The Company and the Optometrist shall,
at reasonable times during normal business hours and on reasonable notice,
permit Vision 21 and its authorized representatives, including without
limitation, the Accountants, reasonable access to, and make available for
inspection, all of the assets and business of the Company, including its
employees, customers and suppliers, and permit Vision 21 and its authorized
representatives to inspect and, at Vision 21's sole cost and expense, make
copies of all documents, records (other than patient optometric records) and
information with respect to the affairs of the Company, including, without
limitation, the Financial Statements, as Vision 21 and its representatives may
request, all for the sole purpose of permitting Vision 21 to become familiar
with the business and assets and liabilities of the Company.
7.4. Notification of Certain Matters. The Company and
the Optometrist shall promptly inform Vision 21 in writing of (a) any notice
of, or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company or the
Optometrist subsequent to the date of this Agreement and prior to the Closing
Date under any Commitment material to the Company's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in the Company's condition
(financial or otherwise), operations, assets, liabilities or business.
7.5. Approvals of Third Parties. As soon as
practicable after the date hereof, the Company and the Optometrist shall secure
all necessary approvals and consents of landlords with respect to the real
property described on Schedule 2.1(d) to the consummation of the transactions
contemplated hereby and shall use their best efforts to secure all necessary
approvals and consents of other third parties to the consummation of the
transactions contemplated hereby; provided, however, that this covenant shall
not require the Company or the Optometrist to make any material expenditures
that are not expressly set forth in this Agreement or otherwise contemplated
herein.
7.6. Employee Matters. Except as set forth in
Schedule 3.8(a) or as otherwise contemplated by this Agreement, the Company
shall not, without the prior written approval of Vision 21, except as required
by law:
a. increase the cash compensation of the
Optometrist or any other employees of the Company (other than in the ordinary
course of business and consistent with past practice);
b. adopt, amend or terminate any
Compensation Plan;
38
<PAGE> 53
c. adopt, amend or terminate any
Employment Agreement;
d. adopt, amend or terminate any
Employee Policies and Procedures;
e. adopt, amend or terminate any
Employee Benefit Plan;
f. take any action that could deplete the
assets of any Employee Benefit Plan, other than payment of benefits in the
ordinary course to participants and beneficiaries;
g. fail to pay any premium or
contribution due or with respect to any Employee Benefit Plan;
h. fail to file any return or report with
respect to any Employee Benefit Plan;
i. institute, settle or dismiss any
employment litigation except as could not, individually or in the aggregate,
result in a Material Adverse Effect;
j. enter into, modify, amend or terminate
any agreement with any union, labor organization or collective bargaining unit;
or
k. take or fail to take any action with
respect to any past or present employee of the Company that would, individually
or in the aggregate, result in a Material Adverse Effect.
7.7. Contracts. Except with Vision 21's prior written
consent, the Company shall not assume or enter into any contract, lease,
license, obligation, indebtedness, commitment, purchase or sale except in the
ordinary course of business that is material to the Company's business, nor
will it waive any material right or cancel any material contract, debt or
claim.
7.8. Capital Assets; Payments of Liabilities. The
Company shall not, without the prior written approval of Vision 21 (a) acquire
or dispose of any capital asset having a fair market value of $5,000 or more,
or acquire or dispose of any capital asset outside of the ordinary course of
business or (b) discharge or satisfy any lien or encumbrance or pay or perform
any obligation or liability other than (i) liabilities and obligations
reflected in the Financial Statements or (ii) current liabilities and
obligations incurred in the usual and ordinary course of business since the
Company Balance Sheet Date and, in either case (i) or (ii) above, only as
required by the express terms of the agreement or other instrument pursuant to
which the liability or obligation was incurred.
39
<PAGE> 54
7.9. Mortgages, Liens and Guaranties. The Company
shall not, without the prior written approval of Vision 21, enter into or
assume any mortgage, pledge, conditional sale or other title retention
agreement, permit any security interest, lien, encumbrance or claim of any kind
to attach to any of its assets (other than statutory liens arising in the
ordinary course of business and other liens that do not materially detract from
the value or interfere with the use of such assets), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently liable for
any obligation of another, except obligations arising by reason of endorsement
for collection and other similar transactions in the ordinary course of
business, or make any capital contribution or investment in any person.
7.10. Acquisition Proposals. The Company and the
Optometrist agree that from the date of this Agreement through the earlier of
the Closing Date or January 1, 1997, (a) neither the Optometrist nor the
Company nor any of its officers and directors shall, and the Optometrist and
the Company shall direct and use their best efforts to cause the Company's
employees, agents, and representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
Acquisition Proposal or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) the Optometrist and
the Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and each will take the necessary steps to
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 7.10; and (c) the Optometrist and
the Company will notify Vision 21 immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, the
Company or the Optometrist.
7.11. Distributions and Repurchases. No distribution,
payment or dividend of any kind will be declared or paid by the Company with
respect of its capital stock, nor will any repurchase of any of the Company's
capital stock be approved or effected.
7.12. Requirements to Effect the Transaction. The
Company and the Optometrist shall use their best efforts to take, or cause to
be taken, all actions necessary to effect the Transaction under applicable law.
7.13. Optometrist Accounts Payable and Optometrist
Retained Equity. The Company shall, and the Optometrist shall cause the
Company, to pay in a timely manner the accounts payable of the Optometrist.
Except as contemplated herein, the Company shall not, and the Optometrist shall
not permit the Company to, make payment of all or any portion of any retained
equity of the Company at any time prior to Closing.
7.14. Optometrist Employment Agreements. The Company
and the Optometrist shall cause, at or immediately prior to Closing, each
Optometrist Employee (except for those non-shareholder Optometrist Employees
identified on Schedule 7.14) who is then an
40
<PAGE> 55
employee of the Company and Optometrist agrees at or immediately prior to
Closing (i) to terminate his employment agreement, if any, with the Company by
mutual consent without any liability therefor on the part of the Company and
(ii) to enter into a new Optometrist Employment Agreement with the Company in
accordance with the terms of the Business Management Agreement.
7.15. Optometrist Employment Agreements. The Company
and the Optometrist shall cause, at or immediately prior to Closing, each
Optometrist Employee who is then an employee of the Company (i) to terminate
his existing employment agreement, if any, with the Company by mutual consent
without any liability therefor on the part of the Company and (ii) to enter
into a new Optometrist Employment Agreement with the Company in accordance with
the terms of the Business Management Agreement.
7.16. Termination of Retirement Plans. Prior to
Closing, the Optometrist shall cause the Company to take all steps necessary to
discontinue benefits accruals under any Employee Benefit Plan that is intended
to be a qualified employee retirement plan under Section 401(a) of the Code (a
"Retirement Plan") effective as of Closing or as soon thereafter as may be
practical.
Subsequent to Closing, the Company and Vision 21 shall
review the extent to which the Company can resume contributions to the
Retirement Plan without violating the qualification requirements of Sections
410(b) and 401(a)(4) of the Code, taking into account any employees of Vision
21 who would be "leased employees" of the Company under Section 414(n) of the
Code. If Vision 21 and the Company mutually agree that such qualification
requirements can be satisfied, the Company may elect to continue the Retirement
Plan and make contributions in accordance with its terms, provided that the
Company shall agree to cover at its own expense any Vision 21 employees who are
leased employees if such coverage is required to maintain the tax-qualified
status of the Retirement Plan.
7.17. Delivery of Schedules. The Company and the
Optometrist shall deliver to Vision 21 all schedules required to be delivered
by them prior to the Closing.
7.18. Assignment of Fees for Optometry Services. On or
prior to the Closing Date, the Company shall obtain an irrevocable assignment
from all Professional Employees of any and all of their rights to receive
payment for the provision of optometry services which are part of the Accounts
Receivable to Vision 21 existing on the Closing Date, except for those fees
specified and set forth on Schedule 7.18. Each Professional Employee shall
undertake to endorse any payments received on account of such services to the
order of Vision 21 and to take such other action as may be necessary to confirm
to Vision 21 the rights to collect and retain for its own account such Accounts
Receivable. The Company shall cause its Professional Employees to agree that
such security interest of such lender(s) is intended to be a first priority
security interest and is superior to any right, title or interest which may be
asserted by such Professional Employees with respect to the Accounts Receivable
or the proceeds thereof. In the event that the assignment of rights described
in this Section shall be deemed, for
41
<PAGE> 56
any reason, to be ineffective as an outright assignment, the Company shall
cause each Professional Employee to agree that such Professional Employee shall
be deemed, effective as of the Closing Date, to have granted to Vision 21 a
first priority lien on and security interest in and to any and all interests of
such Professional Employee in any of the Accounts Receivable, and all proceeds
with respect thereto, to secure the collection by Vision 21 of all Accounts
Receivable, and this Agreement shall be deemed to be a security agreement to
the extent necessary to give effect to the foregoing. The Company shall cause
each Professional Employee to execute and deliver, all such financing
statements as the Company or Vision 21 may request in order to perfect such
security interest. The Company shall not suffer any Professional Employee to
grant any other lien on or security interest in or to such Accounts Receivable
or any proceeds thereof.
8. COVENANTS OF VISION 21. Vision 21 agrees that between the
date hereof and the Closing:
8.1. Consummation of Agreement. Vision 21 shall use
its best efforts to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other actions necessary to approve the Transaction; provided, however, that
this covenant shall not require Vision 21 to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
8.2. Notification of Certain Matters. Vision 21 shall
promptly inform the Company and the Optometrist in writing of (a) any notice
of, or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by Vision 21 subsequent
to the date of this Agreement and prior to the Closing Date under any Vision 21
Commitment material to Vision 21's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; or (b)
any material adverse change in Vision 21's condition (financial or otherwise),
operations, assets, liabilities or business.
8.3. Licenses and Permits. Vision 21 shall use its
best efforts to obtain all licenses, permits, approvals or other authorizations
required under any law, statute, rule, regulation or ordinance, or otherwise
necessary or desirable to consummate the Transaction or provide the services
contemplated by the Business Management Agreement and to conduct the intended
business of Vision 21.
8.4. Release of Optometrist From Practice Liabilities.
Vision 21 shall use its best efforts to obtain from third party creditors the
release of Optometrist from any personal liabilities relating to the Practice
which are identified on Schedule 8.4 and assumed by Vision 21 pursuant to the
terms of this Agreement.
9. COVENANTS OF VISION 21, THE COMPANY AND THE OPTOMETRIST.
Vision 21, the Company and the Optometrist agree as follows:
42
<PAGE> 57
9.1. Filings; Other Action.
a. Vision 21, the Company and the
Optometrist shall cooperate to promptly prepare and file at Vision 21's expense
with the SEC, a Registration Statement on Form S-1 (or other appropriate form)
to be filed by Vision 21 in connection with any Initial Public Offering of
Vision 21 (including the prospectus constituting a part thereof, the
"Registration Statement"). Vision 21 shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement, and the Company and the
Optometrist shall furnish all information concerning the Company, the
Non-optometric Assets and the Optometrist as may be reasonably requested in
connection with any such action.
b. Each of the Company, the Optometrist
and Vision 21 represents and warrants that none of the information or documents
supplied or to be supplied by it specifically for inclusion in a Registration
Statement, by exhibit or otherwise, will, at the time the Registration
Statement and each amendment and supplement thereof, if any, becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company, the Optometrist, and Vision 21 shall
agree as to the information and documents supplied by the Company and the
Optometrist for inclusion in the Registration Statement and shall indicate such
information and documents in a letter to be delivered at least ten (10) days
prior to the initial filing of the Registration Statement with the SEC. The
Company and the Optometrist shall be entitled to review the Registration
Statement and each amendment thereto, if any, prior to the time each becomes
effective under the Securities Act.
c. The Optometrist and the Company shall,
upon request, furnish Vision 21 with all information concerning himself,
itself, their respective partners, the Company's subsidiaries, directors,
officers, and stockholders, and including financial statements with respect to
the same, any consents (and information necessary to obtain such consents) and
such other matters as may be reasonably requested by Vision 21 in connection
with the preparation of the Registration Statement and each amendment or
supplement thereto, or any other statement, filing, notice or application made
by or on behalf of each such party or any of the Company's subsidiaries to any
governmental entity in connection with the Transaction, any Initial Public
Offering and the other transactions contemplated by this Agreement.
9.2. Amendment of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to attach, supplement or amend promptly the Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to the Company or the Non-optometric Assets may be made
unless Vision 21 consents to such amendment or supplement,
43
<PAGE> 58
and no amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to Vision 21 may be made unless the Company and the
Optometrist consent to such amendment or supplement. For all purposes of this
Agreement, including without limitation for purposes of determining whether the
conditions set forth in Sections 10.1 and 11.1 have been fulfilled, the
Schedules hereto shall be deemed to be the Schedules as amended or supplemented
pursuant to this Section 9.2. In the event that the Company is required to
amend or supplement a Schedule in accordance with this Section 9.2 and Vision
21 does not consent to such amendment or supplement, or Vision 21 is required
to amend or supplement a Schedule in accordance with this Section 9.2 and the
Company and the Optometrist do not consent, this Agreement shall be deemed
terminated by mutual consent as set forth in Section 15.1(d) or Section 15.1(e)
as appropriate.
9.3. Fees and Expenses.
a. Vision 21 shall pay all costs of the
Audit of the Company's Financial Statements and financial records by Vision
21's auditors (or auditors designated by Vision 21's auditors). All items
prepared by Vision 21's auditors in connection with the Audit ("Prepared Audit
Materials") shall be for use solely by Vision 21; provided, however, that the
Company may utilize the Prepared Audit Materials solely in connection with its
review of Vision 21's calculation of the Purchase Price. The Prepared Audit
Materials shall not be deemed to include those items which customarily remain
the property of auditors such as their working papers and memos.
b. In the event the Transaction is not
consummated, the Company and Optometrist shall not be entitled to copies or
originals of the Prepared Audit Materials unless the Company or Optometrist pay
for or reimburses Vision 21 for all expenses of the auditor in connection with
the Audit in advance of receiving the Prepared Audit Materials (either from
Vision 21 or its auditor). For purposes of this Agreement, Audit expenses
shall include all expenses related to the Audit as well as expenses incurred to
present the financial statements in accordance with GAAP and all schedules
related thereto.
c. Each of the Company and Vision 21
shall pay the costs and expenses of their own legal counsel with respect to
legal services rendered in connection with the preparation and negotiation of
this Agreement and the transactions contemplated hereby.
d. In the event that an Initial Public
Offering does not take place for any reason whatsoever, Vision 21 (but not the
Company or the Optometrist) shall have sole responsibility for the payment of
all legal fees (except as set forth in Section 9.3(c)), accounting fees (except
as set forth in Section 9.3(c)), underwriters' expenses and other fees, costs
and expenses associated solely in connection with the preparation of any
Registration Statement relating to such Initial Public Offering.
e. If any Initial Public Offering is
consummated as contemplated by this Agreement, all legal fees, audit fees,
printing costs, filing fees, blue sky fees and
44
<PAGE> 59
underwriters' discounts and fees associated solely with the Initial Public
Offering shall be paid by Vision 21 from the proceeds of the Initial Public
Offering, except for those expenses, fees and underwriters' discounts related
to any shares sold by the Optometrist.
9.4. Release of Optometrist From Practice Liabilities.
Vision 21 shall use its best efforts to obtain the release of the Optometrist
from any liabilities relating to the Practice of which the Optometrist and the
Company are jointly obligated which are set forth on Schedule 9.4.
10. CONDITIONS PRECEDENT OF VISION 21. Except as may be waived
in writing by Vision 21, the obligations of Vision 21 hereunder are subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions precedent:
10.1. Representations and Warranties. The
representations and warranties of the Company and the Optometrist contained
herein shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Closing
Date.
10.2. Covenants. The Company and the Optometrist shall
have performed and complied in all material respects with all covenants
required by this Agreement to be performed and complied with by the Company or
the Optometrist prior to the Closing Date.
10.3. Legal Opinion. Counsel to the Company and the
Optometrist shall have delivered to Vision 21 their opinions, dated as of the
Closing Date, in form and substance substantially similar to Exhibit 10.3 which
Vision 21, Vision 21's counsel, the underwriters of the Initial Public Offering
and their counsel shall be permitted to rely upon.
10.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened orally or
in writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
10.5. No Material Adverse Change. No material adverse
change in the condition (financial or otherwise), operations, assets,
liabilities or business of the Company shall have occurred since the Company
Balance Sheet Date, whether or not such change shall have been caused by the
deliberate act or omission of the Company or the Optometrist.
10.6. Government Approvals and Required Consents. The
Company, the Optometrist and Vision 21 shall have obtained all necessary
government and other third-party approvals and consents (other than consents
technically required as a result of the transactions contemplated hereby under
the terms of managed care contracts to which the Company or any of its
employees are a party).
10.7. Certification. Neither the Company nor the
Optometrist shall have received any notice of or been made a party to any
judicial or administrative proceeding, or
45
<PAGE> 60
threatened to so be made a party, in any action or proceeding that seeks to
deny the continued use or receipt of any necessary permit, license,
authorization, certification or approval under the Medicare and Medicaid
programs to provide optometry services.
10.8. Closing Deliveries. Vision 21 shall have
received all documents and agreements, duly executed and delivered in form
reasonably satisfactory to Vision 21, referred to in Section 12.1.
10.9. Due Diligence. Vision 21 shall have completed to
its satisfaction a due diligence review of the Company and the Optometrist.
10.10. Financial Audit. Vision 21 shall have approved
in Vision 21's sole discretion an audit of the Company and the Practice which
audit shall have been performed by an accounting firm designated by Vision 21
at the sole expense of Vision 21.
10.11. Medicare Audit. Vision 21 shall have approved in
Vision 21's sole discretion a Medicare audit of the Company and the Practice
which audit shall be at the sole expense of Vision 21.
10.12. Exemption Under State Securities Laws. The
transfer of Vision 21's Securities to the Optometrist as contemplated in this
Agreement shall qualify for one or more exemptions from registration under the
State's securities laws. Vision 21 shall pay all filing fees in connection
with any filing required to qualify the transfer of the Securities for such
exemption(s).
10.13. Assignment of Professional Employees' Rights in
Accounts Receivable. The Company shall have caused the Professional Employees
to assign any and all of their rights with respect to Accounts Receivable to
Vision 21 and shall cause such Professional Employees to execute such other
agreements and instruments as contemplated in Section 7.18.
11. CONDITIONS PRECEDENT OF THE COMPANY AND THE OPTOMETRIST.
Except as may be waived in writing by the Company and the Optometrist, the
obligations of the Company and the Optometrist hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions
precedent:
11.1. Representations and Warranties. The
representations and warranties of Vision 21 contained herein shall be true and
correct in all respects when initially made and shall be true and correct in
all material respects as of the Closing Date.
11.2. Covenants. Vision 21 shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Closing
Date.
46
<PAGE> 61
11.3. Legal Opinions. Counsel to Vision 21 shall have
delivered to the Company and the Optometrist their opinion, dated as of the
Closing Date, in form and substance substantially similar to Exhibit 11.3.
11.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
11.5. Government Approvals and Required Consents. The
Company, the Optometrist and Vision 21 shall have obtained all necessary
government and other third-party approvals and consents (other than consents
technically required as a result of the transactions contemplated hereby under
the terms of managed care contracts to which the Company or any of its
employees are a party).
11.6. Closing Deliveries. The Company and the
Optometrist shall have received all documents, instruments and agreements, duly
executed and delivered in form reasonably satisfactory to the Company, referred
to in Section 12.2.
11.7. No Change in Voting or Ownership Control. There
shall have been no changes in the voting or ownership control of Vision 21 from
the date first above written to the Closing Date.
11.8. No Material Adverse Change; Delivery of Amended
Confidential Information Memorandum. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities or business
of Vision 21 shall have occurred since the end of the last fiscal period
reported in the Vision 21 Financial Statements, whether or not such change
shall have been caused by the deliberate act or omission of Vision 21. Vision
21 shall deliver an amended Confidential Information Memorandum updating the
information contained in the initial Confidential Information Memorandum on or
before December, 1996, and the Company and the Optometrist shall have the right
not to close the transactions contemplated in this Agreement if they determine,
based upon their review of the amended Confidential Information Memorandum,
that a material adverse change has occurred with respect to the condition
(financial or otherwise), operations, assets, liabilities or business of Vision
21.
12. CLOSING DELIVERIES; ESCROW OF DOCUMENTS.
12.1. Deliveries of the Company and the Optometrist.
At or prior to December ___, 1996, the Company and the Optometrist shall
deliver to Vision 21, c/o Shumaker, Loop & Kendrick, LLP, counsel to Vision 21,
the following, all of which shall be in a form reasonably satisfactory to
Vision 21 and shall be held by Shumaker, Loop & Kendrick, LLP in escrow pending
Closing, pursuant to an escrow agreement or letter in form and substance
mutually acceptable to the parties hereto:
47
<PAGE> 62
a. a copy of resolutions of the Board of
Directors of the Company authorizing (i) the execution, delivery and
performance of this Agreement and all related documents and agreements, and
(ii) the consummation of the Transaction, certified by the Secretary of the
Company as being true and correct copies of the originals thereof subject to no
modifications or amendments;
b. a certificate of the President of the
Company, and of the Optometrist, dated the Closing Date, as to the truth and
correctness of the representations and warranties of the Company and the
Optometrist contained herein, on and as of the Closing Date;
c. a certificate of the President of the
Company, and of the Optometrist, dated the Closing Date, (i) as to the
performance of and compliance in all material respects by the Company and the
Optometrist with all covenants contained herein on and as of the Closing Date
and (ii) certifying that all conditions precedent of the Company and the
Optometrist to the Closing have been satisfied;
d. a certificate of the Secretary of the
Company certifying as to the incumbency of the directors and officers of each
such corporation and as to the signatures of such directors and officers who
have executed documents delivered pursuant to the Agreement on behalf of each
such corporation;
e. a certificate, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the state of
incorporation for the Company establishing that the Company is in existence,
has paid all franchise or similar taxes, if any, and, if applicable, otherwise
is in good standing to transact business in its state of organization;
f. certificates, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the states in
which the Company is qualified to do business, to the effect that the Company
is qualified to do business and, if applicable, is in good standing as a
foreign corporation in each of such states;
g. an opinion of counsel to the Company
and Optometrists dated as of the Closing Date, in form and substance
satisfactory to Vision 21, which Vision 21, Vision 21's counsel and the
underwriters of any Initial Public Offering and their counsel are permitted to
rely upon and which shall include an opinion, subject to normal and customary
exceptions that to the best of their knowledge the transactions and
arrangements contemplated by this Agreement are in conformity with State laws,
rules and regulations governing the practice of optometry.
h. such appropriate documents of
transfer, including bills of sale, endorsements, assignments, drafts, checks or
other instruments, as to all of the Non-optometric Assets, and any other
appropriate instruments in such reasonable or customary form as shall be
requested by Vision 21 and its counsel;
48
<PAGE> 63
i. such instruments satisfactory to
Vision 21 that all liens, claims, pledges, security interests and other
encumbrances on all of the Non-optometric Assets have been released;
j. all authorizations, consents, permits
and licenses referenced in Section 3.5;
k. the executed Business Management
Agreement in substantially the form attached hereto as Exhibit 12.1 (k), as
revised in accordance with changes reasonably deemed necessary or advisable by
legal counsel retained by Vision 21 in the State to address regulatory and
compliance issues;
l. an executed Optometrist Employment
Agreement between the Company and the Optometrist in substantially the form
attached hereto as Exhibit 12.1 (l);
m. an executed Optometrist Employment
Agreement between the Company and each Optometrist Employee who is then an
employee of the Company in substantially the form attached hereto as Exhibit
12.1 (m);
n. an executed Optometrist Employment
Agreement between the Company and each Optometrist Employee who is then an
employee of the Company in substantially the form attached hereto as Exhibit
12.1 (n);
o. an executed Registration Rights
Agreement between Vision 21 and the Optometrist in substantially the form
attached hereto as Exhibit 12.1 (o) (the "Registration Rights Agreement");
p. a non-foreign affidavit, as such
affidavit is referred to in Section 1445 (b) (2) of the Code, of the
Optometrist, signed under a penalty of perjury and dated as of the Closing
Date, to the effect that the Optometrist is a United States citizen or a
resident alien (and thus not a foreign person) and providing the Optometrist's
United States taxpayer identification number;
q. an assignment to Vision 21 of each
lease for real property described on Schedule 2.1(d) (the "Lease Assignments"),
or if desired by Vision 21, a new lease or leases between the landlords under
such leases and Vision 21 in form and substance reasonably satisfactory to
Vision 21;
r. an executed Agreement to Continue
Practice After Transfer Event and Stock Pledge Agreement substantially in the
form of Exhibit 12.1(r); and
s. such other instrument or instruments
of transfer prepared by Vision 21 as shall be necessary or appropriate, as
Vision 21 or its counsel shall reasonably request, to carry out and effect the
purpose and intent of this Agreement.
49
<PAGE> 64
12.2. Deliveries of Vision 21. At or prior to December
___, 1996, Vision 21 shall deliver to the Company and the Optometrist, c/o
Shumaker, Loop & Kendrick, LLP, counsel to Vision 21, the following, all of
which shall be in a form reasonably satisfactory to the Company and the
Optometrist and shall be held by Shumaker, Loop & Kendrick, LLP in escrow
pending Closing, pursuant to an escrow agreement or letter in form and
substance mutually acceptable to the parties hereto:
a. a copy of the resolutions of the Board
of Directors of Vision 21 authorizing (i) the execution, delivery and
performance of this Agreement, and all related documents and agreements, and
(ii) the consummation of the Transaction, certified by Vision 21's Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
b. a certificate of an officer of Vision
21 dated the Closing Date as to the truth and correctness of the
representations and warranties of Vision 21 contained herein, on and as of the
Closing Date;
c. a certificate of an officer of Vision
21 dated the Closing Date, (i) as to the performance and compliance of Vision
21 with all covenants contained herein on and as of the Closing Date and (ii)
certifying that all conditions precedent of Vision 21 to the Closing have been
satisfied;
d. a certificate, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the State of
Florida establishing that Vision 21 is in existence, has paid all franchise or
similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in such state;
e. certificates (or photocopies thereof),
dated within ten (10) days prior to the Closing Date, of the Secretary of State
of each state in which Vision 21 is qualified to do business, to the effect
that Vision 21 is qualified to do business and, if applicable, is in good
standing as a foreign corporation in each of such states;
f. an opinion of Shumaker, Loop &
Kendrick, LLP, counsel to Vision 21, dated as of the Closing Date, pursuant to
Section 11.3;
g. the executed Registration Rights
Agreement;
h. the executed Lease Assignments;
i. the Note in the original principal
amount set forth in this Agreement;
j. the Agreement to Continue Practice
After Transfer Event and Stock Pledge; and
50
<PAGE> 65
k. such other instrument or instruments
of transfer, prepared by the Company or the Optometrist as shall be necessary
or appropriate, as the Company, the Optometrist or their counsel shall
reasonable request, to carry out and effect the purpose and intent of this
Agreement.
12.3. Release of Escrow Materials. Shumaker, Loop &
Kendrick, LLP shall release the agreements, certificates, instruments,
documents and other materials described in Sections 12.1 and 12.2 to the
appropriate parties to effectuate the transactions contemplated in this
Agreement only after all such materials have been delivered by all applicable
parties (or the parties receiving such documents have waived in writing such
delivery requirement) and after counsel for the Optometrist and the Company
have sent written notice to Shumaker, Loop & Kendrick, LLP stating that the
Optometrist and the Company have reviewed the amended Confidential Information
Memorandum and have decided, based upon such review, to consummate the
transactions contemplated in this Agreement. In the event that the Optometrist
and the Company elect not to consummate the transactions contemplated in this
Agreement based upon their review of the amended Confidential Information
Memorandum, and counsel for the Optometrist and the Company informs Shumaker,
Loop & Kendrick, LLP in writing as to such decision, Shumaker, Loop & Kendrick,
LLP shall promptly return the foregoing materials to the parties sending such
materials.
13. POST CLOSING MATTERS.
13.1. Further Instruments of Transfer. From and after
the Closing Date, at the request of Vision 21 and at Vision 21's sole cost and
expense, the Optometrist and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate
to carry out the purpose and intent of this Agreement.
13.2. Practice Advisory Council; Local Advisory
Council; National Appeals Council. Vision 21 and the Company shall establish a
practice advisory council composed of delegates from Vision 21 and the Company
which shall advise Vision 21 and the Company and determine certain issues as
more fully described in the Business Management Agreement. Vision 21 shall
also establish a local advisory council composed of delegates from certain
practice groups acquired by Vision 21 in connection with the Related
Acquisitions. Such delegates shall be appointed from practice groups which are
located in a market area to be identified by Vision 21 and in which the Company
is located. The local advisory council board shall advise Vision 21 and the
practice groups within the market area as to policy and strategy issues and
shall determine certain types of issues and disputes between Vision 21 and such
practice groups which issues and disputes are identified in the Business
Management Agreement and other management agreements entered into between
Vision 21 and practice groups. The Company shall have the right to appoint one
(1) member to a local advisory council who shall serve an initial two (2) year
term. After the initial two-year term, election of members to the local
advisory council shall be in accordance with by-laws which shall be adopted and
amended by the local advisory council. Vision 21 shall also establish a
national appeals council which shall have, among other duties and
responsibilities, the power to adopt and amend its by-laws,
51
<PAGE> 66
to review and approve as limited herein certain decisions of the local advisory
councils, and to resolve deadlocks among the members of such local advisory
councils.
14. REMEDIES.
14.1. Indemnification by the Company and Optometrist.
Subject to the terms and conditions of this Agreement, the Company and the
Optometrist, jointly and severally, agree to indemnify, defend and hold Vision
21 and its directors, officers, members, managers, employees, agents, attorneys
and affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (collectively, "Damages") asserted against or
incurred by such entities and individuals (including, but not limited to, any
reduction in payments to or revenues of the Company) arising out of or
resulting from:
a. a breach of any representation,
warranty or covenant of the Company or the Optometrist contained herein or in
any schedule or certificate delivered hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, (i) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact relating to
the Optometrist or the Company (including its subsidiaries, if any), and
provided to Vision 21 or its counsel by the Company or the Optometrist,
specifically for inclusion in a Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (ii)
arising out of or based upon any omission or alleged omission to state therein
a material fact relating to the Optometrist or the Company (including its
subsidiaries, if any) required to be stated therein or necessary to make the
statements therein not misleading, and not provided to Vision 21 or its counsel
by the Company or the Optometrist, provided, however, that such indemnity shall
not inure to the benefit of Vision 21 to the extent that such untrue statement
(or alleged untrue statement) was made, in, or omission (or alleged omission)
occurred in, any preliminary prospectus, and such information was not so
included by Vision 21 and properly delivered to shareholders of Vision 21 who
acquire Vision 21 Common Stock in any Initial Public Offering;
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable; and
d. any liability arising from any alleged
unlawful sale or offer to sell or transfer any of the Common Stock by
Optometrist.
14.2. Indemnification by Vision 21. Subject to the
terms and conditions of this Agreement, Vision 21 hereby agrees to indemnify,
defend and hold the Company and the Optometrist harmless from and against all
damages asserted against or incurred by it or him arising out of or resulting
from:
52
<PAGE> 67
a. a breach by Vision 21 of any
representation, warranty or covenant of Vision 21 contained therein or in any
schedule or certificate delivered hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to
Vision 21, contained in any preliminary prospectus, Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, arising out of or based upon any omission or alleged omission to state
therein a material fact relating to Vision 21 (including its subsidiaries),
required to be stated therein or necessary to make the statements therein not
misleading; and
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable.
Notwithstanding anything in this Section 14.2, Vision 21 shall not be
liable for any Damages resulting from any matter not disclosed to Vision 21 by
any of the third parties to be acquired by Vision 21 in connection with the
Related Acquisitions.
14.3. Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
a. A party claiming indemnification under
this Agreement (an "Indemnified Party") shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify the party from whom indemnification is sought
(the "Indemnifying Party") of any third-party claim or claims asserted against
the Indemnified Party ("Third Party Claim") that could give rise to a right of
indemnification under this Agreement and (ii) transmit to the Indemnifying
Party a written notice ("Claim Notice") describing in reasonable detail the
nature of the Third Party Claim, a copy of all papers served with respect to
such claim (if any), an estimate of the amount of damages attributable to the
Third Party Claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. Except as set forth in Section 14.6, the
failure to promptly deliver a Claim Notice shall not relieve the Indemnifying
Party of its obligations to the Indemnified Party with respect to the related
Third Party Claim except to the extent that the resulting delay is materially
prejudicial to the defense of such claim. Within thirty (30) days after
receipt of any Claim Notice (the "Election Period"), the Indemnifying Party
shall notify the Indemnified Party (i) whether the Indemnifying Party disputes
its potential liability to the Indemnified Party under this Article 14 with
respect to such Third Party Claim and (ii) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.
b. If the Indemnifying Party notifies the
Indemnified Party within the Election Period that the Indemnifying Party elects
to assume the defense of the Third Party Claim, then the Indemnifying Party
shall have the right to defend, at its sole cost and
53
<PAGE> 68
expense, such Third Party Claim by all appropriate proceedings, which
proceedings shall be prosecuted diligently by the Indemnifying Party to a final
conclusion or settled at the discretion of the Indemnifying Party in accordance
with this Section 14.3(b). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof.
The Indemnified Party is hereby authorized, at the sole cost and expense of the
Indemnifying Party (but only if the Indemnified Party is entitled to
indemnification hereunder), to file, during the Election Period, any motion,
answer or other pleadings that the Indemnified Party shall deem necessary or
appropriate to protect its interests or those of the Indemnifying Party and not
prejudicial to the Indemnifying Party (it being understood and agreed that if
an Indemnified Party takes any such action that is prejudicial and causes a
final adjudication that is adverse to the Indemnifying Party, the Indemnifying
Party shall be relieved of its obligations hereunder with respect to such Third
Party Claim). If requested by the Indemnifying Party, the Indemnified Party
agrees, at the sole cost and expense of the Indemnifying Party, to cooperate
with the Indemnifying Party and its counsel in contesting any Third Party Claim
that the Indemnifying Party elects to contest, including, without limitation,
the making of any related counterclaim against the person asserting the Third
Party Claim or any cross-complaint against any person. The Indemnified Party
may participate in, but not control, any defense or settlement of any Third
Party Claim controlled by the Indemnifying Party pursuant to Section 14.3(b)
and shall bear its own costs and expenses with respect to such participation;
provided, however, that if the named parties to any such action (including any
impleaded parties) include both the Indemnifying Party and the Indemnified
Party, and the Indemnified Party has been advised by counsel that there may be
one or more legal defenses available to it that are different from or
additional to those available to the Indemnifying Party, then the Indemnified
Party may employ separate counsel at the expense of the Indemnifying Party, and
upon written notification thereof, the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of the Indemnified Party;
provided further that the Indemnifying Party shall not, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate firm
of attorneys at any time for the Indemnified Party, which firm shall be
designated in writing by the Indemnified Party.
c. If the Indemnifying Party fails to
notify the Indemnified Party within the Election Period that the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section 14.3(b), or if
the Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 14.3(b) but fails diligently and promptly to prosecute or settle the
Third Party Claim, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party (if the Indemnified
Party is entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes its
potential
54
<PAGE> 69
liability to the Indemnified Party under this Article 14 and if such dispute is
resolved in favor of the Indemnifying Party, the Indemnifying Party shall not
be required to bear the costs and expenses of the Indemnifying Party's defense
pursuant to this Section or of the Indemnifying Party's participation therein
at the Indemnified Party's request, and the Indemnified Party shall reimburse
the Indemnifying Party in full for all costs and expenses of such litigation.
The Indemnifying Party may participate in, but not control any defense or
settlement controlled by the Indemnified Party pursuant to this Section
14.3(c), and the Indemnifying Party shall bear its own costs and expenses with
respect to such participation; provided, however, that if the named parties to
any such action (including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party, and the Indemnifying Party has been advised by
counsel that there may be one or more legal defenses available to the
Indemnified Party, then the Indemnifying Party may employ separate counsel and
upon written notification thereof, the Indemnified Party shall not have the
right to assume the defense of such action on behalf of the Indemnifying Party.
d. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder that does not
involve a Third Party Claim, the Indemnified Party shall transmit to the
Indemnifying Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not
notify the Indemnified Party within sixty (60) days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim, the claim
specified by the Indemnified Party in the Indemnity Notice shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed such claim, as provided above, such dispute shall be resolved
by mediation or arbitration as provided in Section 18.1 if the parties do not
reach a settlement of such dispute within thirty (30) days after notice of a
dispute is given.
e. Payments of all amounts owing by an
Indemnifying Party pursuant to this Article 14 relating to a Third Party Claim
shall be made within thirty (30) days after the latest of (i) the settlement of
such Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by an
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the sixty (60) day Indemnity
Notice period or (ii) the expiration of the period for appeal, if any, of a
final adjudication or arbitration of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
14.4. Remedies Not Exclusive. The remedies provided in
this Agreement shall not be exclusive of any other rights or remedies available
to one party against the other, either at law or in equity. This Article 14
regarding indemnification shall survive Closing.
55
<PAGE> 70
14.5. Costs, Expenses and Legal Fees. Each party
hereto agrees to pay the costs and expenses (including attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of
the terms of this Agreement, or (b) proving that another party breached any of
the terms of this Agreement.
14.6. Indemnification Limitations. Notwithstanding the
provisions of Sections 14.1 and 14.2, (a) no party shall be required to
indemnify another party with respect to a breach of a representation, warranty
or covenant unless the claim for indemnification is brought within two (2)
years after the Closing Date, except that a claim for indemnification for a
breach of the representations and warranties contained in Sections 3.1, 3.2.,
3.3, 3.11, 3.14, 3.20, 4.3, 4.5, 4.8, 5.1, 5.2, 5.3, 5.4 and 6.1 may be made at
any time, and a claim for indemnification for a breach of the representations
and warranties contained in Sections 3.9, 3.15, 3.17, 3.18, 3.24, 3.25, 3.26,
3.27, 3.28, 3.30, 4.1, 4.4, 4.6, 5.6 and 5.7 may be made at any time within the
applicable statute of limitations; (b) indemnification based upon Sections
14.1(b) through (d) and 14.2(b) may be made at any time within the applicable
statute of limitations; and (c) the Optometrist shall not be required to
indemnify Vision 21 pursuant to Section 16.1 unless, and to the extent that,
the aggregate amount of Damages incurred by Vision 21 shall exceed an amount
equal to two percent (2%) of the total Purchase Price; and (c) the Optometrist
shall not be required to indemnify Vision 21 with respect to a breach of a
representation, warranty or covenant for Damages in excess of the aggregate
Purchase Price received by the Optometrist (other than pursuant to a
requirement to indemnify Vision 21 under Sections 3.27 or 3.28, or unless the
breach involves an intentional breach or fraud by the Optometrist or the
Company which shall be unlimited).
14.7. Tax Benefits; Insurance Proceeds. The total
amount of any indemnity payments owed by one party to another party to this
Agreement shall be reduced by any correlative tax benefit received by the party
to be indemnified or the net proceeds received by the party to be indemnified
with respect to recovery from third parties or insurance proceeds and such
correlative insurance benefit shall be net of the insurance premium, if any,
that becomes due as a result of such claim.
14.8. Payment of Indemnification Obligation. In the
event that the Optometrist has an indemnification obligation to Vision 21
hereunder, subject to Vision 21's approval as set forth below, the Optometrist
may satisfy such obligation by transferring to Vision 21 such number of shares
of Vision 21 Common Stock owned by the Optometrist having an aggregate fair
market value (which is prior to any Initial Public Offering based upon the
valuation given at Closing hereof or after an Initial Public Offering the fair
market value at such time based on the last reported sale price of Vision 21
Common Stock on a principal national securities exchange or other exchange on
which the Vision 21 Common Stock is then listed or the last quoted ask price on
any over-the-counter market through which the Vision 21 Common Stock is then
quoted on the last trading day immediately preceding the day on which the
Optometrist transfers shares of Vision 21 Common Stock to Vision 21 hereunder)
equal to the indemnification obligation, provided that each of the following
conditions are satisfied:
56
<PAGE> 71
a. The Optometrist shall transfer to
Vision 21 good, valid and marketable title to the shares of Vision 21 Common
Stock, free and clear of all adverse claims, security interests, liens, claims,
proxies, options, stockholders' agreements and encumbrances;
b. The Optometrist shall make such
representation and warranties as to title to the stock, absences of security
interests, liens, claims, proxies, stockholders' agreements and other
encumbrances and other matters as reasonably requested by Vision 21; and
c. The other terms and conditions of any
transaction contemplated pursuant to this Section and the effects thereof,
including any legal or tax consequences, shall be reasonably satisfactory to
Vision 21.
15. TERMINATION.
15.1. Termination. This Agreement may be terminated
and the Transaction may be abandoned:
a. at any time prior to the Closing Date
by mutual agreement of all parties;
b. at any time prior to the Closing Date
by Vision 21 if any representation or warranty of the Company or the
Optometrist contained in this Agreement or in any certificate or other document
executed and delivered by the Company or the Optometrist pursuant to this
Agreement is or becomes untrue or breached in any material respect or if the
Company or the Optometrist fails to comply in any material respect with any
covenant or agreement contained herein, and any such misrepresentation,
noncompliance or breach is not cured, waived or eliminated within twenty (20)
days after receipt of written notice thereof;
c. at any time prior to the Closing Date
by the Company if any representation or warranty of Vision 21 contained in this
Agreement is or becomes untrue in any material respect or if Vision 21 fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within twenty (20) days after receipt or written notice thereof;
d. at any time prior to the Closing Date
by the Company in the event of the failure of any of the conditions precedent
set forth in Article 13 of this Agreement;
e. at any time prior to the Closing Date
by Vision 21 in the event of the failure of any of the conditions precedent set
forth in Article 12 of this Agreement;
f. by Vision 21 if at any time prior to
the Closing Date, Vision 21 deems termination to be advisable, provided,
however, that if Vision 21 exercises its right to terminate this Agreement
under this subsection, Vision 21 shall reimburse the Company
57
<PAGE> 72
and the Optometrist for all reasonable attorneys' and accountants' fees
incurred by the Company and the Optometrist in connection with this Agreement;
provided that Vision 21 shall only reimburse the Company and the Optometrist up
to an aggregate maximum amount of One Hundred Thousand and No/100 Dollars
($100,000.00) for such fees; or
g. by Vision 21 or the Company if the
Transaction shall not have been consummated by December 5, 1996.
15.2. Effect of Termination. In the event this
Agreement is terminated pursuant to Section 15.1, Vision 21, the Company and
the Optometrist, shall each be entitled to pursue, exercise and enforce any and
all remedies, rights, powers and privileges available at law or in equity,
subject to the limitations set forth in Section 15.1. In the event of a
termination of this Agreement under the provisions of this Article 15, a party
not then in material breach of this Agreement shall stand fully released and
discharged of any and all obligations under this Agreement.
16. OPTOMETRIST EMPLOYMENT AGREEMENT.
16.1. Optometrist Employment Agreement. The parties
acknowledge that in accordance with the terms of this Agreement, Optometrist,
as employee, and the Company, as employer, have entered into the Optometrist
Employment Agreement and that Vision 21 is entitled to enforce such Optometrist
Employment Agreement as an intended third party beneficiary. Optometrist and
Vision 21 acknowledge that Vision 21 would suffer severe harm in the event of
Optometrist's resignation prior to the expiration of the five (5) year term of
such Optometrist Employment Agreement (without first obtaining the written
consent of Vision 21) or a breach or default of Optometrist's obligations under
such Optometrist Employment Agreement, and Optometrist, the Company and Vision
21 agree that Vision 21 shall be entitled to recover from Optometrist any and
all damages incurred by Vision 21 caused by such resignation, breach or
default. Notwithstanding the foregoing, Vision 21 shall not be entitled to
recover its damages caused by such resignation, breach or default if such
resignation, breach or default was caused by: (i) the death or disability of
Optometrist, (ii) circumstances not caused by an act or omission of Optometrist
and which circumstances are beyond his control, or (iii) loss of Optometrist's
license to practice as an optometrist, unless such loss of license is due to an
act or omission of Optometrist. Notwithstanding the foregoing, Optometrist
shall have no obligation to pay the damages contemplated in this Section 16.1
if (a) the Business Management Agreement has been terminated pursuant to a
material breach by Vision 21, or (b) Optometrist cures any such breach or
default of the Optometrist Employment Agreement within a period of thirty (30)
days after notice from Vision 21 of such breach or default.
16.2. Survival. The parties acknowledge and agree that
this Article 16 shall survive the Closing of the transactions contemplated
herein.
58
<PAGE> 73
17. NON-COMPETITION AND CONFIDENTIALITY COVENANTS.
17.1. Optometrist and Company Non-Competition Covenant.
a. The Optometrist and the Company
recognize that the covenants of the Optometrist and the Company contained in
this Section 17.1 are an essential part of this Agreement and that, but for the
agreement of the Optometrist and the Company to comply with such covenants,
Vision 21 would not have entered into this Agreement. The Optometrist and the
Company acknowledge and agree that the Optometrist's and the Company's
covenants not to compete are necessary to ensure the continuation of the
Management Business (as defined below) and are necessary to protect the
reputation of Vision 21, and that irreparable and irrevocable harm and damage
will be done to Vision 21 if the Optometrist or the Company compete with the
Management Business or Vision 21. The Optometrist and the Company accordingly
agree that for the periods set forth in the Business Management Agreement the
Optometrist and the Company shall not:
i) directly or indirectly,
either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Optometrist's
or the Company's own benefit or for the benefit of any other person or entity
knowingly (A) hire, attempt to hire, contact or solicit with respect to hiring
any employee of Vision 21 (or of any of its direct or indirect subsidiaries) or
(B) induce or otherwise counsel, advise or encourage any employee of Vision 21
(or of any of its direct or indirect subsidiaries) to leave the employment of
Vision 21;
ii) act or serve, directly or
indirectly, as a principal, agent, independent contractor, consultant,
director, officer, employee, employer or advisor or in any other position or
capacity with or for, or acquire a direct or indirect ownership interest in or
otherwise conduct (whether as stockholder, partner, investor, joint venturer,
or as owner of any other type of interest), any Competing Management Business
as such term is defined herein; provided, however, that this clause (ii) shall
not prohibit the Optometrist or the Company from being the owner of up to 1% of
any class of outstanding securities of any company or entity if such class of
securities is publicly traded; or
iii) directly or indirectly,
either as principal, agent, independent, contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Optometrist's
or the Company's own benefit or for the benefit of any other person or entity,
call upon or solicit any customers or clients of the Management Business;
provided however, that the Optometrist may send out a general notice to the
customers or clients of the Management Business announcing the termination of
his arrangement with Vision 21 and may advertise in a general manner without
violating this covenant. The parties hereto acknowledge and agree that for
purposes of this Section, patients which have in the past received optometric
care from the
59
<PAGE> 74
Company and/or shall in the future receive optometric care from the Company are
not deemed to be customers or clients of the Management Business.
b. For the purposes of this Section 17.1,
the following terms shall have the meaning set forth below:
i) "Management Business" shall
mean management and administration of the non-optometric and non-medical
aspects of medical, ophthalmology and optometry practices.
ii) "Competing Management
Business" shall mean an individual, business, corporation, association, firm,
undertaking, company, partnership, joint venture, organization or other entity
that either (A) conducts a business substantially similar to the Management
Business within the State, or (B) provides or sells a service which is the same
or substantially similar to, or otherwise competitive with the services
provided by the Management Business within the State; provided, however, that
"Competing Management Business" shall not include Vision 21, or the
Optometrist's internal management and administration of the Optometrist's or
the Company's optometric practice or participation in the management and
administration of a optometrist group in which the Optometrist or the Company
devote a significant amount of time to the practice of optometry.
c. Should any portion of this Section
17.1 be deemed unenforceable because of the scope, duration or territory
encompassed by the undertakings of the Optometrist or the Company hereunder,
and only in such event, then the Optometrist, the Company and Vision 21 consent
and agree to such limitation on scope, duration or territory as may be finally
adjudicated as enforceable by a court of competent jurisdiction after the
exhaustion of all appeals.
d. This covenant shall be construed as an
agreement ancillary to the other provisions of this Agreement, and the
existence of any claim or cause of action of the Optometrist or the Company
against Vision 21, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Vision 21 of this covenant;
provided, however, that the Optometrist and the Company shall not be bound by
this covenant and shall not be obligated to pay the liquidated damages
contemplated in this Section 17.1 if at the time of a breach of this covenant
the Business Management Agreement has already been terminated pursuant to
Section 6.2(a) thereof. Without limiting other possible remedies to Vision 21
for breach of this covenant, the Optometrist and the Company agree that
injunctive or other equitable relief will be available to enforce the covenants
of this provision, such relief to be without the necessity of posting a bond,
cash or otherwise. The Optometrist, the Company and Vision 21 further
expressly acknowledge that the damages that would result from a violation of
this non-competition covenant would be impossible to predict with any degree of
certainty, and agree that liquidated damages in the aggregate amount of the
aggregate consideration received by the Optometrist pursuant to this Agreement
is reasonable in light of the severe harm to the Management Business and Vision
21 which would result in the event that a violation of
60
<PAGE> 75
this non-competition covenant were to occur. For purposes of calculation of
the liquidated damages contemplated in this Section and for purposes of
calculation of the liquidated damages contemplated in the Business Management
Agreement and the Optometrist Employment Agreement between the Optometrist and
the Company, the aggregate consideration received by Optometrist and the
Company pursuant to this Agreement shall be in those amounts and in such form
as set forth in Schedule 17.1. If the Optometrist violates this
non-competition covenant, Vision 21 shall, in addition to all other rights and
remedies available at law or equity, be entitled to (a) cancel the number of
shares of Common Stock held by the Optometrist or the Company or, with respect
to shares of Common Stock entitled to be received by the Optometrist or the
Company, terminate its obligation to deliver such number of shares of Common
Stock, valued as set forth in Section 6.6(a) of the Business Management
Agreement, (b) set off all or any of such liquidated damages sum against
amounts payable under the Note held by the Optometrist or the Company, and (c)
repayment by Optometrist to Vision 21 of the fair market value as described
above, of Vision 21 Common Stock sold by Optometrist; but in no event shall
Vision 21 be entitled to offset amounts in excess of the liquidated damages sum
pursuant to this Section 17.1. The Optometrist and the Company agree to
deliver to Vision 21 the certificates representing any such shares canceled by
Vision 21 or the Note. Payment and satisfaction by Optometrist shall be made
within sixty (60) days of notification to Optometrist by Vision 21 that
Optometrist has violated this non-competition covenant.
e. Notwithstanding anything contained
herein, this Section 17.1 shall not be construed to (i) limit the freedom of
any patient of the Optometrist or the Company to choose the facility or
optometrist from whom such patient shall receive health-care services or (ii)
limit or interfere with the Optometrist's ability to exercise his professional
judgment in treating his patients or his ability to provide optometric services
to his patients.
17.2. Optometrist and Company Confidentiality Covenant.
From the date hereof, the Optometrist and the Company shall not, directly or
indirectly, use for any purpose, other than in connection with the performance
of the Optometrist's duties under the Optometrist Employment Agreement with the
Company, or disclose to any third party, any information of Vision 21 or the
Company, as appropriate (whether written or oral), including any business
management or economic studies, patient lists, proprietary forms, proprietary
business or management methods, marketing data, fee schedules, or trade secrets
of Vision 21 or of the Company, as applicable, and including the terms and
provisions of this Agreement and any transaction or document executed by the
parties pursuant to this Agreement. Notwithstanding the foregoing, the
Optometrist and the Company may disclose information that the Optometrist or
the Company can establish (a) is or becomes generally available to and known by
the public or optometric community (other than as a result of an unpermitted
disclosure directly or indirectly by the Optometrist or the Company or their
respective Affiliates, advisors, or representatives); (b) is or becomes
available to the Optometrist or the Company on a nonconfidential basis from a
source other than Vision 21 or its Affiliates, advisors or representatives,
provided that such source is not and was not bound by a confidentiality
agreement with or other obligation of secrecy to Vision 21 or its Affiliates,
advisors or representatives of which the Optometrist or the Company has
knowledge; or (c) has already been
61
<PAGE> 76
or is hereafter independently acquired or developed by the Optometrist or the
Company without violating any confidentiality agreement with or other
obligation of secrecy to Vision 21, the Company or their respective Affiliates,
advisors or representatives. Without limiting the other possible remedies to
Vision 21 for the breach of this covenant, the Optometrist and the Company
agree that injunctive or other equitable relief shall be available to enforce
this covenant, such relief to be without the necessity of posting a bond, cash
or otherwise. The Optometrist and the Company further agree that if any
restriction contained in this Section 17.2 is held by any court to be
unenforceable or unreasonable, a lesser restriction shall be enforced in its
place and the remaining restrictions contained herein shall be enforced
independently of each other.
17.3. Survival. The parties acknowledge and agree that
this Article 17 shall survive the Closing of the transactions contemplated
herein.
18. DISPUTES.
18.1. Mediation and Arbitration. Any dispute,
controversy or claim (excluding claims arising out of an alleged breach of
Article 17 of this Agreement) arising out of this Agreement, or the breach
thereof, that cannot be settled through negotiation shall be settled (a) first,
by the parties trying in good faith to settle the dispute by mediation under
the Commercial Mediation Rules of the AAA (such mediation session to be held in
Tampa, Florida, and to commence within 15 days of the appointment of the
mediator by the AAA), and (b) if the controversy, claim or dispute cannot be
settled by mediation, then by arbitration administered by the AAA under its
Commercial Arbitration Rules (such arbitration to be held in Tampa, Florida,
before a single arbitrator and to commence within 15 days of the appointment of
the arbitrator by the AAA), and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
19. MISCELLANEOUS
19.1. Taxes. Optometrist and the Company shall pay all
transfer taxes, sales and other taxes and charges, imposed by the State, if
any, which may become payable in connection with the transactions and documents
contemplated hereunder (excluding any of such taxes which may be attributable
to services to be provided by Vision 21 under the Business Management
Agreement). Vision 21 shall pay all transfer taxes, sales and other taxes and
charges imposed by the State of Florida, if any, which may become payable in
connection with the transactions and documents contemplated hereunder
(excluding any of such taxes which may be attributable to services to be
provided by Vision 21 under the Business Management Agreement).
19.2. Remedies Not Exclusive. No remedy conferred by
any of the specific provisions of this Agreement or any document contemplated
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in
62
<PAGE> 77
equity or by statute or otherwise. The election of any one or more remedies by
any party hereto shall not constitute a waiver of the right to pursue other
available remedies.
19.3. Parties Bound. Except to the extent otherwise
expressly provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
administrators, guardians, successors and assigns; and no other person shall
have any right, benefit or obligation hereunder.
19.4. Notices. All notices, reports, records or other
communications that are required or permitted to be given to the parties under
this Agreement shall be sufficient in all respects if given in writing and
delivered in person, by telecopy, by overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, to the receiving
party at the following address:
If to Vision 21 addressed to:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34777
Attn: Richard T. Welch, Chief Financial Officer
With copies to:
Shumaker, Loop & Kendrick
Post Office Box 172609
101 E. Kennedy Boulevard, Suite 2800
Tampa, Florida 33672-0609
Facsimile No. (813) 229-1660
Attn: Darrell C. Smith, Esquire
If to the Company and the Optometrist addressed to:
Dr. Smith & Associates, P.A.
7209 Bryan Dairy Road
Largo, Florida 34777
Attn: Paul Smith, O.D.
With copies to:
MacFarlane, Ausley, Ferguson & McMullen
400 North Cleveland Street
9th Floor
Clearwater, Florida 34617-1669
Attn: Paul J. Raymond, Esquire
63
<PAGE> 78
or to such other address as such party may have given to the other parties by
notice pursuant to this Section 19.4. Notice shall be deemed given on the date
of delivery, in the case of personal delivery or telecopy, or on the delivery
or refusal date, as specified on the return receipt, in the case of overnight
courier or registered or certified mail.
19.5. Choice of Law. This Agreement shall be
construed, interpreted, and the rights of the parties determined in accordance
with, the laws of the State of Florida except with respect to matters of law
concerning the internal affairs of any corporate or partnership entity which is
a party to or the subject of this Agreement, and as to those matters the law of
the state of incorporation or organization of the respective entity shall
govern.
19.6. Entire Agreement; Amendments and Waivers. This
Agreement, together with the documents contemplated by this Agreement and all
Exhibits and Schedules hereto and thereto, constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof. No supplement, modification or
waiver of any of the provisions of this Agreement shall be binding unless it
shall be specifically designated to be a supplement, modification or waiver of
this Agreement and shall be executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
19.7. Confidentiality Agreements. The provisions of
any prior confidentiality agreements and letters of intent between or among
Vision 21, the Company and the Optometrist, as amended, shall terminate and
cease to be of any force or effect at and upon the Closing.
19.8. Reformation Clause. It is the intention of the
parties hereto to conform strictly to applicable laws regarding the practice
and regulation of optometry, whether such laws are now or hereafter in effect,
including the laws of the United States of America, the State or any other
applicable jurisdiction, and including any subsequent revisions to, or judicial
interpretations of, those laws, in each case to the extent they are applicable
to this Agreement (the "Applicable Laws"). Accordingly, if the ownership of
any Non-optometric Asset by Vision 21 violates any Applicable Law, then the
parties hereto agree as follows: (a) the provisions of this section 19.8 shall
govern and control; (b) if none of the parties hereto are materially
economically disadvantaged, then any Non-optometric Asset, the ownership of
which violates any Applicable Law, shall be deemed to have never been owned by
Vision 21; (c) if one or more of the parties hereto is materially economically
disadvantaged, then the parties hereto agree to negotiate in good faith such
changes to the structure and terms of the transactions provided for in this
Agreement as may be necessary to make these transactions, as restructured,
lawful under applicable laws and regulations, without materially disadvantaging
either party; (d) this Agreement shall be deemed reformed; and (e) the parties
to this Agreement shall execute
64
<PAGE> 79
and deliver all documents or instruments necessary to effect or evidence the
provisions of this Section 19.8.
19.9. Assignment. The Agreement may not be assigned by
operation of law or otherwise except that Vision 21 shall have the right to
assign this Agreement, at any time, to any Affiliate or direct or indirect
wholly-owned subsidiary. In the event of such assignment, Vision 21 shall
remain liable hereunder.
19.10. Attorneys' Fees. Except as otherwise
specifically provided herein, if any action or proceeding is brought by any
party with respect to this Agreement or the other documents contemplated with
respect to the interpretation, enforcement or breach hereof, the prevailing
party in such action shall be entitled to an award of all reasonable costs of
litigation or arbitration, including, without limitation, attorneys' fees, to
be paid by the losing party, in such amounts as may be determined by the court
having jurisdiction of such action or proceeding or by the arbitrators deciding
such action or proceeding.
19.11. Further Assurances. From time to time hereafter
and without further consideration, each of the parties hereto shall execute and
deliver such additional or further instruments of conveyance, assignment and
transfer and take such other actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the transactions
contemplated hereunder or as shall be reasonably necessary or appropriate in
connection with the carrying out of the parties' respective obligations
hereunder for the purposes of this Agreement.
19.12. Announcements and Press Releases. Any press
releases or any other public announcements concerning this Agreement or the
transactions contemplated hereunder shall be approved in advance by Vision 21
and the Company; provided, however, that such approval shall not be
unreasonably withheld and if any party reasonably believes that it has a legal
obligation to make a press release and the consent of the other party cannot be
obtained, then the release may be made without such approval.
19.13. No Tax Representations. Each party acknowledges
that it is relying solely on its advisors to determine the tax consequences of
the transactions contemplated hereunder and that no representation or warranty
has been made by any party as to the tax consequences of such transactions
except as otherwise specifically set forth in this Agreement.
19.14. No Rights as Stockholder. The Optometrist shall
have no rights as a stockholder with respect to any shares of Common Stock
until the issuance of a stock certificate evidencing such shares. Except as
otherwise provided in the Agreement, no adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to such
date any stock certificate is issued.
65
<PAGE> 80
19.15. Multiple Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
19.16. Headings. The headings of the several articles
and sections herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
19.17. Severability. Each article, section and
subsection of this Agreement constitutes a separate and distinct undertaking,
covenant or provision of this Agreement. If any such provision shall finally
be determined to be unlawful, such provision shall be deemed severed from this
Agreement, but every other provision of this Agreement shall remain in full
force and effect.
19.18. Form of Transaction. If after the execution
hereof, Vision 21 determines that the sale of the Non-optometric Assets of the
Company can be better achieved through a different form of transaction without
economic injury to the Company or the Optometrist, or delay of the consummation
of the transaction, the Company and the Optometrist shall cooperate in revising
the structure of the transaction and shall negotiate in good faith to so amend
this Agreement; provided, that Vision 21 shall reimburse the Company and the
Optometrist at Closing for all reasonable additional expenses incurred by the
Company and the Optometrist as a result of such change in form.
66
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
"COMPANY"
DR. SMITH & ASSOCIATES, #6958, P.A.
/s/ By: /s/ Paul Smith
- ------------------------------------- -----------------------------------
Witness Paul Smith, O.D., President
/s/
- -------------------------------------
Witness
"OPTOMETRIST"
/s/ /s/ Paul Smith
- ------------------------------------- --------------------------------------
Witness Paul Smith, O.D.
/s/
- -------------------------------------
Witness
"VISION 21"
VISION 21, INC.
/s/ By: /s/ Theodore N. Gillette
- ------------------------------------- -----------------------------------
Witness Theodore N. Gillette, President
/s/
- -------------------------------------
Witness
67
<PAGE> 82
Schedule 2.1(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Personal Property Leases
None.
<PAGE> 83
Schedule 2.1(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Real Property Leases
1. Lease Agreement with Visionworks.
<PAGE> 84
Schedule 2.1(e)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Assumed Contracts
Real Property Lease in Schedule 2.1(d)
<PAGE> 85
Schedule 2.1(f)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D.
(the "Optometrist") and Vision 21, Inc. ("Vision 21")
Tangible Personal Property
See attached list.
[TABLE OF TANGIBLE PERSONAL PROPERTY OMITTED]
<PAGE> 86
Schedule 2.1(h)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Franchises, Licenses, Permits, etc. Relating to Non-Optometric Assets
None.
<PAGE> 87
Schedule 2.2
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometric Assets
The following constitute the Optometric Assets:
Optometric records;
Patient lists;
Third-party payer contracts (except for rights to purchased accounts
receivable);
Licenses, certificates of need, Medicare/Medicaid certifications and
other governmental authorizations necessary to provide Professional
Eye Care Services and to be paid therefor by applicable third-party
payers; and
Any other asset that legally cannot be owned by a party that is not
optometrist-owned.
<PAGE> 88
Schedule 2.2(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Personal Effects
None.
<PAGE> 89
Schedule 2.3
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Assumed Obligations
1. Real Property Lease in Schedule 2.1(d)
<PAGE> 90
Schedule 2.4A
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Purchase Price
$73,956.00 in cash and 105,000 shares of Vision 21 common stock
payable pursuant to the terms of the Subordinated Promissory Note.
<PAGE> 91
Schedule 2.8
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Purchase Price Allocation
to be completed after Purchase Price Adjustment
<PAGE> 92
Schedule 3
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Individuals - Best knowledge
Representations and Warranties of the Company
1. Paul R. Smith, O.D.
2. April K. Smith
<PAGE> 93
Schedule 3.1
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Capital Stock or Other Interest Owned by the Company,
the Optometrist or Any Professional Employee in Any Competitor
None.
<PAGE> 94
Schedule 3.2
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Sale, Distribution, or Spin-Off of Significant Assets
of the Company or Its Affiliates Within the Last Two Years
None.
<PAGE> 95
Schedule 3.4
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Violations or Conflicts Resulting from Execution,
Delivery and Consummation of Transaction by the Company
None.
<PAGE> 96
Schedule 3.5
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Consents Required for Company from
Governmental Authority or Any Other Persons
None.
<PAGE> 97
Schedule 3.7
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Liabilities of the Company
Not Reflected in Financial Statements
None.
<PAGE> 98
Schedule 3.8(a)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Compensation of All Employees of the Company
See chart attached hereto and made a part hereof.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 99
Schedule 3.8(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Compensation Plans, Arrangements or Practices
Sponsored by the Company or to which the Company
Contributes on Behalf of Its
Employees (Other than Employment Agreements and Employee Benefit Plans)
None.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 100
Schedule 3.8(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employment Agreements
Jose Macedo, O.D. (full-time)
All part-time Optometrists work on an independent contractor basis.
<PAGE> 101
Schedule 3.8(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Policies and Procedures
The Employee Policies and Procedures for Dr. Smith & Associates #6950,
#6958 and #6966 are identical to those for Vision 21 and Dr. Gillette's O.D.
practices. We do not have our own individual Policies and Procedures Manual.
The manuals in each office say Vision 21 Policies and Procedures.
<PAGE> 102
Schedule 3.8(f)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to Labor Compliance
None.
<PAGE> 103
Schedule 3.8(g)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Union Participation of Company Employees
None.
<PAGE> 104
Schedule 3.9(a)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plans Sponsored by the Company or
to which the Company Contributes on Behalf of Its
Employees in the Past Three Years
Group medical and life insurance plans.
<PAGE> 105
Schedule 3.9(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to Employee Benefit Plan Compliance
None.
<PAGE> 106
Schedule 3.9(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Audits, Investigations or Enforcement Actions
None.
<PAGE> 107
Schedule 3.9(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Prohibited Transactions
None.
<PAGE> 108
Schedule 3.9(f)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Determination Letter or IRS Ruling
Not applicable.
<PAGE> 109
Schedule 3.9(g)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Accumulated Funding Deficiency
Not applicable.
<PAGE> 110
Schedule 3.9(h)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Excise Taxes
None.
<PAGE> 111
Schedule 3.10
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Changes to Company since Balance Sheet Date
None.
<PAGE> 112
Schedule 3.11(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Permitted Encumbrances on Personal Property
None. All liens and security interests are to be released within
thirty (30) days.
<PAGE> 113
Schedule 3.11(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Real Property Leases and Personal Property Leases
See Schedules 2.1(c) and 2.1(d)
<PAGE> 114
Schedule 3.12
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Commitments of the Company
None.
<PAGE> 115
Schedule 3.13
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Insurance Policies; Cancellations; Outstanding Claims,
Settlements or Premiums Owed; Professional
Liability Insurance Denials since January 1, 1994;
and All Claims since January 1, 1994
See chart attached hereto and made a part hereof.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 116
SMITH & ASSOCIATES - SCHEDULE 3.13 RE: INSURANCE
<TABLE>
<S> <C> <C> <C>
Insured Paul Smith Laurie Lesser Arsenio Arabitg
Optometrist Optometrist Optometrist
Liability limits $5 million / $5 million $2 million / $4 million $1 million / $3 million
Professional liability Professional liability Professional liability
Expiration date 2-2-97 10-29-97 12-18-96
Retroactive N/A N/A N/A
date
Occurrence vs. Occurrence Occurrence Occurrence
Claims Made
Claims Same as Dr. Smith & Laurie Lesser, along with None
Associates a primary care physician
and an opthamologist, is
being sued for failure to
diagnose a condition that
left an 80 year old man
blind. The opthamologist
testified that Lesser
would not have been able
to diagnose the problem at
the time that she saw the
patient.
<S> <C> <C>
Insured Jose Macedo Smith & Associates
Optometrist (Policy issued in
name of
Paul R. Smith, O.D.)
Liability limits $1 million / $3 million $5 million/ $5 million
Professional Liability Commercial general
Expiration date 10-2-97 2-2-97
Retroactive N/A N/A
date
Occurrence vs. Occurrence Occurrence
Claims Made
Claims None Named as defendant through
vicarious liability claim in
the Lesser suit. The insurance
company believes that Laurie Lesser
is an independent contractor, and
believes that no recovery against
the professional association
will occur.
</TABLE>
<PAGE> 117
Schedule 3.14
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Description of Proprietary Rights; Consents
None.
<PAGE> 118
Schedule 3.15
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Good Faith Disputes Over Payment of
Taxes; Tax Deficiency or Delinquency
None.
<PAGE> 119
Schedule 3.16
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
List of Licenses, Franchises, Permits and Governmental
Authorizations for Conduct of the Company's Business; Notices of Noncompliance
1. State Board License for Paul Smith, O.D.
2. State Board License for Laurie Lesser, O.D.
3. State Board License for Arsenio Arabitg, O.D.
4. State Board License for Jose Santiago Macedo, O.D.
5. Dade County Occupational License Tax for Paul Smith, O.D.
6. Dade County Occupational License Tax for Laurie Lesser, O.D.
7. Dade County Occupational License Tax for Dr. Smith &
Associates.
8. N. Miami Beach Occupational License for Paul
Smith, O.D.
9. N. Miami Beach Occupational License for Laurie
Lesser, O.D.
<PAGE> 120
Schedule 3.17
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Finder's, Broker's or Agent's Fee Owed by the Company
None.
<PAGE> 121
Schedule 3.18
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Company Litigation
None.
<PAGE> 122
Schedule 3.21
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
List of Company Borrowing and Investing Arrangements
1. Promissory Note with Barnett Bank of Broward County, N.A.
dated March 19, 1996 in the principal amount of $50,000.00,
payable on demand. Variable Interest rate at prime plus 3%
per annum. Vision 21 will not assume this debt. The Company
and the Optometrist shall within thirty (30) days obtain a
release from the Bank of the lien securing this note. An
agreed upon amount of Vision 21 stock shall be escrowed to
assure compliance with this obligation.
<PAGE> 123
Schedule 3.22
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Ownership Interests of Interested Persons and
Material Affiliations in the Last Three Years
None.
<PAGE> 124
Schedule 3.23
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Company Investments in Competitors
None.
<PAGE> 125
Schedule 3.29
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Description of and Relationship with Payors
None.
<PAGE> 126
Schedule 3.35
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Inventory Exceptions
None.
<PAGE> 127
Schedule 3.36
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Tangible Personal Property Exceptions
None.
<PAGE> 128
Schedule 3.37
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Real Property Lease and Personal Property Leases Exceptions
None.
<PAGE> 129
Schedule 3.38
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Assumed Contract Exceptions
None.
<PAGE> 130
Schedule 4.2
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Violations or Conflicts Resulting from Execution,
Delivery or Consummation of Transaction by the Optometrist
None.
<PAGE> 131
Schedule 4.5
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Finder's, Broker's or Agent's Fees Owed by the Optometrist
None.
<PAGE> 132
Schedule 4.6
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Ownership of Interested Persons and Material Affiliations
None.
<PAGE> 133
Schedule 4.7
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Investments in Competitors
None.
<PAGE> 134
Schedule 4.8
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Litigation
None.
<PAGE> 135
Schedule 4.10
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
List of Hospitals at which Optometrist Has Full Staff Privileges
Not applicable.
<PAGE> 136
Schedule 4.11
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to Continued Optometrist Intent to Practice
Consistent with activity of Optometrist in prior twelve (12) months.
<PAGE> 137
Schedule 5
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Individuals - Best Knowledge
Representations and Warranties of Vision 21
1. Theodore N. Gillette
2. Richard L. Sanchez
3. Richard T. Welch
4. Nicholas M. Arfaras
<PAGE> 138
Schedule 5.1
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Jurisdictions where Vision 21 is Qualified to do Business
1. Florida
2. Arizona
3. Minnesota
4. New York
<PAGE> 139
Schedule 5.6
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Finder's, Brokers or Agent's Fees Owed by Vision 21
None.
<PAGE> 140
Schedule 5.9
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Liabilities of Vision 21 Not Reflected in Financial Statements
None.
<PAGE> 141
Schedule 6.1(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exception to Optometrist "Accredited Investor"
or "Sophisticated Investor" Representation
None.
<PAGE> 142
Schedule 6.1(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist's Principal Residence
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 143
Schedule 7.14
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist Employment Agreement
None.
<PAGE> 144
Schedule 7.18
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Assignment of Fees for Optometry Services
None.
<PAGE> 145
Schedule 8.4
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Personal Liabilities of Optometrist for which
Vision 21 Will Use Best Efforts to Obtain Release
None.
<PAGE> 146
Schedule 11.5
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Joint Personal Liabilities of Optometrist and Company
to which Vision 21 Will Use Best Efforts to Obtain Release
None.
<PAGE> 147
Schedule 12.1(o)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of
______________, 1996, is by and between Vision 21, Inc., a Florida corporation
and any successor ("Vision 21"), and Dr. Smith & Associates, #6958, P.A., a
Florida professional association located at 7209 Bryan Dairy Road, Largo,
Florida 34647 ("Shareholder").
1. Registration Rights.
(a) In the event that Vision 21 proposes to file a
registration statement under the Securities Act for purposes of effecting an
underwritten public offering of shares of Vision 21 common stock for cash
(including, but not limited to, a registration statement relating to a
secondary offering of Vision 21 common stock, but excluding registration
statements relating to any employee benefit plan or a corporate
reorganization), Vision 21 shall give written notice of such proposed filing to
the Shareholder at least fifteen (15) days before the anticipated filing date,
and such notice shall offer Shareholder the opportunity to register such number
of the Shareholder's shares of common stock as Shareholder may request in
writing within ten (10) days after receipt of such notice; provided, however,
that the maximum number of shares of common stock that such Shareholder may
request to include in any registration statement shall be limited as provided
in Section 1(c).
(b) In the event that (i) one (1) year has elapsed from
the date of effectiveness of the registration statement filed in connection
with an underwritten initial public offering of shares of Vision 21 common
stock, and (ii) Vision 21 receives a written request from holders holding in
the aggregate a minimum of 300,000 shares of Vision 21 common stock issued to
the founding practices described in Vision 21's Confidential Information
Memorandum dated September 27, 1996, as amended, and issued to certain
professionals owning equity interests in such founding practices (the founding
practices and professionals of such practices holding share's of common stock
of Vision 21 are collectively referred to as the "Founding Shareholders"), that
Vision 21 file a registration statement under the Securities Act effecting an
offering of shares of Vision 21 common stock; then Vision 21 shall as soon as
practicable file a registration statement at its own expense effecting a public
offering of shares of Vision 21 common stock held by Founding Shareholders, as
well as any other Vision 21 shares owned by any other shareholders which Vision
21 wishes to include in the offering (which offering may be an underwritten
offering at Vision 21's sole discretion); provided however that Vision 21 shall
be obligated to effect only one registration statement containing each
Shareholder, and Vision 21 shall be obligated to file only two (2) registration
statements in the aggregate, pursuant to this Section 1(b).
(c) The maximum aggregate number of shares of common
stock that Shareholder may request to be registered under this Agreement shall
be sixty percent (60%) of Shareholder's original shares of Vision 21 common
stock. In no event shall the total number of Shareholder's shares of common
stock that Vision 21 is obligated to register under this Agreement exceed sixty
percent (60%) of Shareholder's original shares of Vision 21 common stock, and
in no event shall Vision 21 be obligated to register more than (i) in an
initial offering, thirty percent (30%) of Shareholder's original shares of
Vision 21 common stock or (ii) in a second
<PAGE> 148
offering, sixty percent (60%) of the Shareholder's original shares minus the
percent of the Shareholder's original shares that the Shareholder registered in
the first offering. The "original shares" of Vision 21 as described herein
shall be deemed to be the _________________ shares of common stock received by
the Shareholder on the date of this Agreement.
(d) Vision 21 shall have the sole and exclusive right to
select the underwriters of any public offering of shares of Vision 21 common
stock, including any public offering conducted pursuant to the demand
registration right set forth in Section 1(b) above. The use of underwriters in
any demand registration right set forth in Section 1(b) above is subject to
Vision 21's ability to engage underwriters under terms and conditions deemed
reasonable by Vision 21.
(e) If the managing underwriter of any offering advises
Vision 21 that the total number of shares of Vision 21's common stock which
Vision 21, the Shareholder and any other persons intend to include in such
offering would adversely affect the success of such offering, then the amount
of shares of common stock to be offered for the account of Shareholder shall be
reduced to the extent necessary to reduce the total number of shares of common
stock to be included in such offering to the amount recommended by such
managing underwriter.
(f) Vision 21 shall not be required to (i) reduce the
amount of shares of common stock to be offered by Vision 21 in such offering
for any reason or (ii) include any shares of common stock of Shareholder in any
public offering for which a registration statement is or is proposed to be
filed if such shares of common stock are, at the time of effectiveness of such
registration statement, eligible to be sold under Rule 144 under the Securities
Act or otherwise eligible for sale to the public without registration.
(g) Vision 21 shall have the right to extend or delay the
effectiveness of any registration statement for a period of up to ninety (90)
days if, upon the advice of counsel, such delay is advisable and in the best
interests of Vision 21 because of the existence of non-public material
information, or to allow Vision 21 to complete any pending audit of its
financial statements, any public financing plan, any pending acquisition, or to
release audited financial statements for any pending acquisition as required by
the Securities and Exchange Commission.
(h) Shareholder agrees to cooperate with Vision 21 in all
respects in connection with registration of the common stock, including timely
supplying all information and executing and returning all documents requested
by Vision 21 and its managing underwriter.
(i) Vision 21 shall not be required to include any of
Shareholder's shares of common stock in any registration statement unless
Shareholder accepts the terms of the underwriting as agreed upon between Vision
21 and its underwriters.
(j) Vision 21 shall have the right to defer the filing of
any registration statement if the Board of Directors of Vision 21 determines in
good faith that it would be seriously detrimental to Vision 21 and its
shareholders for such registration statement to be filed.
Exhibit 12.1(o) - Page 2
<PAGE> 149
(k) This Agreement shall expire two (2) years from the
date of an initial public offering of Vision 21 common stock.
2. Covenants of Vision 21. Vision 21 hereby covenants and
agrees:
(a) To take such steps as may be necessary to comply with
the Blue Sky laws of such states as the managing underwriter may reasonably
request; provided that in no event shall Vision 21 be obligated to qualify to
do business in any state where it is not so qualified or to take any action
which would subject it to unlimited service of process in any state where it is
not at such time so subject;
(b) To use reasonable efforts to cause the registration
statement to become effective and to keep the registration statement effective
for such period as may be required under the terms of the underwriting
agreement relating thereto but no longer than for a period of forty-five (45)
days, to file such post-effective amendments as may be necessary to keep any
prospectus contained in such registration statement true and complete during
such period as the registration statement shall be effective, and to furnish
and file such other amendments, supplements, and other documents the managing
underwriter may reasonably request;
(c) To supply such numbers of prospectuses as may be
reasonably required by the managing underwriter;
(d) To pay the reasonable costs and expenses of the
registration statement including without limitation all registration and Blue
Sky filing fees, all fees and expenses of Vision 21's counsel (but not the fees
and expenses of counsel for Shareholder), all accounting costs (including costs
associated with the preparation of interim period financial statements), NASD
fees, printing costs, experts' fees, expenses, costs of post-effective
amendments, and all other usual and customary expenses in connection with the
registration statement, except for Shareholder's pro rata share of underwriting
discounts, fees, and selling commissions (calculated in the manner set forth in
Section 3(a)(ii) of this Agreement); and
(e) With respect to any registration statement filed
pursuant to this Agreement, where underwriters are utilized, to cooperate with
the underwriters to the best of its abilities and to enter into an underwriting
agreement with such underwriters containing such representations, warranties,
and covenants on the part of Vision 21 as are usual and customary in an
underwritten public sale of common stock.
3. Covenants of Shareholder.
(a) Shareholder hereby covenants and agrees:
(i) To cooperate with Vision 21 in its compliance
with all federal and state securities laws, including without limitation
providing such information and signing such documents as are necessary to
effect a registration or reasonably requested by underwriters pursuant to this
Agreement;
(ii) To pay his pro rata portion (calculated on
the basis of the ratio of the aggregate offering price attributable to the
shares of Shareholder being registered and sold in relation to the aggregate
Exhibit 12.1(o) - Page 3
<PAGE> 150
offering price attributable to the total number of securities being registered
and sold, including securities being registered and sold by other selling
stockholders) of the underwriting discounts and selling commissions and to pay
all the fees and disbursements of his counsel; and
(iii) To the entry of stop transfer instructions
with the Company's transfer agent against the transfer of any shares of
Shareholder's Vision 21 common stock except in compliance with the restrictions
as set forth in this Section 3.
(b) Shareholder shall be considered an "affiliate" of
Vision 21 for purposes of Rule 144 under the Securities Act, even in the event
Shareholder is not technically an affiliate of Vision 21 as defined in Rule
144, and the Vision 21 common stock owned by Shareholder shall be subject to
the restrictions and limitations on resale imposed by Rule 144 on affiliates of
Vision 21. Shareholder shall not sell any of his shares of Vision 21 common
stock under Rule 144 unless Shareholder would be eligible to do so under the
provisions applicable to affiliates.
(c) In addition to the transfer restrictions otherwise
provided for herein, Shareholder shall not, whether or not Shareholder elects
to cause the registration of his shares pursuant to this Agreement, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise dispose of any shares of Vision 21 common stock
(other than the shares covered by such registration, which may be sold in
accordance with the plan or plans of distribution described in the registration
statement) owned by Shareholder for a period of one hundred eighty (180) days
or such shorter period as negotiated by the Company following the effective
date of such registration statement without the prior written consent of Vision
21. In the event that Shareholder is a corporation, professional corporation
or professional limited liability company, Shareholder may after receiving the
written approval of Vision 21 (which approval shall not be unreasonably
withheld) transfer its shares of Vision 21 Common Stock to any of the
individuals and/or trusts described in Sections 7(a), (b) and (c) hereof. Such
transferee shall, for purposes of the transfer restrictions contained in this
Agreement, be deemed to have held such transferred shares for the same period
as Shareholder.
4. Indemnification of Shareholder.
Whenever registration with respect to any shares of Shareholder's
common stock is effected under the Securities Act pursuant hereto, Vision 21
will indemnify and hold harmless Shareholder, each underwriter, the directors,
officers, employees and agents of each underwriter, and each person, if any,
who controls each underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, (including any securities law
violations) insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged omission to state
in such document a material fact required to be stated in it or necessary to
make the statements in it not misleading, provided that Vision 21 will not be
liable to Shareholder to the extent that such loss, claim, liability, expense
or damage is based on an untrue statement or omission made in reliance on and
in conformity with information furnished to Vision 21 by
Exhibit 12.1(o) - Page 4
<PAGE> 151
Shareholder, or by Shareholder through any attorney-in-fact, expressly for
inclusion in the registration statement or any prospectus included in such
registration statement.
5. Indemnification of Vision 21.
Whenever registration with respect to any shares of Shareholder's
common stock is effected under the Securities Act pursuant hereto, Shareholder
will indemnify and hold harmless Vision 21, each of Vision 21's directors and
officers, each person who controls Vision 21 within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, each underwriter, the
directors, officers, employees and agents of each underwriter, and each person,
if any, who controls each underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact required to be stated
in it or necessary to make the statements in it not misleading; provided that
Shareholder will not be liable except to the extent that such loss, claim,
liability, expense or damage arises from or is based upon an untrue statement
or omission or alleged untrue statement or omission made in reliance on and in
conformity with information furnished to Vision 21 by the Shareholder, or by
Shareholder through any attorney-in-fact, expressly for inclusion in the
registration statement or any prospectus included in such registration
statement.
6. Defense of Claim.
Promptly after receipt by an indemnified party of notice of the
commencement of any action, the indemnified party shall notify the indemnifying
party in writing of the commencement thereof if a claim in respect thereof is
to be made against an indemnifying party under this Agreement, but the omission
of such notice shall not relieve the indemnifying party from liability which it
may have to the indemnified party under this Agreement, except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice, and shall not relieve the indemnifying party from any liability which
it may have to any indemnified party otherwise than under this Agreement. In
case any action is brought against the indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and to the extent that it chooses, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party that it so chooses, the indemnifying party shall not be
liable for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof; provided however that (i) if the
indemnifying party fails to take reasonable steps necessary to defend
diligently the claim within twenty (20) days after receiving notice from the
indemnified party that the indemnified party believes the indemnifying party
has failed to diligently defend such claim, or (ii) if the indemnified party
who is a defendant in any action or proceeding which is also brought against
the indemnifying party reasonably shall have concluded that there are legal
defenses available to the indemnified party which conflict with the defense
strategy of the indemnifying party, or (iii) if representation under applicable
standards of professional conduct require separate representation of the
Exhibit 12.1(o) - Page 5
<PAGE> 152
indemnified party and the indemnifying party, then the indemnified party shall
have the right to assume or continue its own defense as set forth above and the
indemnifying party shall reimburse the indemnified party for the costs of such
defense as provided in Section 4 and 5. In no event shall the indemnifying
party be responsible for the fees of more than one firm for all indemnified
parties.
7. Non-Transferability.
The registration rights and benefits set forth herein, including
indemnification by Vision 21 are granted for the sole and personal benefit of
Shareholder and may not be transferred or assigned except for (a) gifts to
his/her family members (b) assignment to a trust controlled by the Shareholder,
(c) transfers to Shareholder;s heirs which occur by operation of law as a
result of the death of the Shareholder, or (d) if the Shareholder is a
corporation, professional corporation or professional limited liability
company, transfers or assignments to the individuals who are current equity
holders of Shareholder and by such equity holders to the individuals and/or
trusts described in subsection (i) and (ii) of this Section.
8. Survival of Indemnity.
The indemnifications provided by this Agreement shall be a continuing
right to indemnification and shall survive the registration and sale of any
securities by any person entitled to indemnification hereunder and the
expiration or termination of this Agreement.
9. Delay of Registration.
Shareholder agrees that he shall have no right to obtain or seek an
injunction restraining or otherwise delaying any registration statement filed
by Vision 21.
10. Notices.
(a) All communications under this Agreement shall be in
writing and shall be sufficient in all respects if when personally delivered
or mailed by prepaid certified or registered mail, return receipt requested,
addressed as follows:
(i) If to Vision 21, at:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Theodore N. Gillette,
Chief Executive Officer
Exhibit 12.1(o) - Page 6
<PAGE> 153
With a copy to:
Darrell C. Smith, Esquire
c/o Shumaker, Loop & Kendrick, LLP
101 E. Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
or at such other address as Vision 21 may have furnished in writing to
Shareholder at the time outstanding, or
(ii) If to Shareholder at:
Dr. Smith & Associates, #6958, P.A.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Paul Smith, O.D., President
With a copy to:
Paul J. Raymond, Esquire
MacFarlane, Ausley, Ferguson
& McMullen
400 North Cleveland Street, 9th Floor
Clearwater, Florida 34617-1669
(b) Any notice so addressed, when mailed by registered or
certified mail shall be deemed to be given three days after so mailed, and when
delivered by hand shall be deemed to be given immediately.
11. Counterparts.
One or more counterparts of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12. Governing Law.
This Agreement shall be construed in accordance with and governed by
the internal laws of the State of Florida, which shall prevail in all matters
arising under or in connection with this Agreement.
13. Headings.
The headings in this Agreement are for convenience of reference only
and shall not be deemed to alter or affect the meaning or interpretation of any
provisions hereof.
14. Stock Lettering.
Exhibit 12.1(o) - Page 7
<PAGE> 154
The Company shall have the right to provide a legend on the shares of
stock covered hereunder reflecting the restriction described hereunder.
Exhibit 12.1(o) - Page 8
<PAGE> 155
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date and year first above written.
"VISION 21"
VISION 21, INC.
By:_____________________________________
Theodore N. Gillette, Chief
Executive Officer
"SHAREHOLDER"
DR. SMITH & ASSOCIATES, #6958, P.A.
________________________________________
Paul Smith, O.D., President
Exhibit 12.1(o) - Page 9
<PAGE> 156
Schedule 12.1(r)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
AGREEMENT TO CONTINUE PRACTICE AFTER
TRANSFER EVENT AND STOCK PLEDGE
This Agreement to Continue Practice after Transfer Event and Stock
Pledge (the "Agreement") is made as of _______________, 1996 by and between
PAUL SMITH, O.D. ("Optometrist"), an individual licensed to practice optometry
in the State of Florida (the "State") whose mailing address is 7209 Bryan Dairy
Road, Largo, Florida 34647, and VISION 21, INC. ("Business Manager"), a Florida
corporation whose mailing address is 7209 Bryan Dairy Road, Largo, Florida
34647.
R E C I T A L S
A. Dr. Smith & Associates, #6958, P.A. ("P.C.") is a Florida
professional association which employs optometrists.
B. Optometrist is the sole shareholder of P.C.
C. Pursuant to that certain Business Management Agreement (the
"Business Management Agreement") dated December 1, 1996, the Business Manager
provides certain services and support to the optometry practices of P.C.'s
employed optometrists.
D. Optometrist has agreed to sell all of P.C.'s shares owned by
him to the Business Manager's designee for value if certain events occur, and
the Business Manager desires its designee to purchase such shares if certain
events occur.
E. Optometrist desires to pledge all of P.C.'s shares owned by
him to secure the promise referenced in Paragraph D above and Business Manager
desires to accept such security interest.
NOW, THEREFORE, for and in consideration of the mutual agreements,
terms, covenants and conditions contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions.
1.1. "Collateral" means the _____ shares of P.C. stock
owned by Optometrist consisting of all of the validly issued and
outstanding shares of P.C.
1.2. "Transferee" means an optometrist chosen by the
Business Manager who is licensed to practice optometry in the State.
<PAGE> 157
2. Conditional Agreement to Transfer Stock. Optometrist shall
immediately transfer the Collateral to the Transferee for the Purchase Price
set forth in Section 5 below if any of the following occurs (collectively,
"Events of Transfer"):
(a) Optometrist dies,
(b) Optometrist loses his State license to
practice optometry for any reason, or
(c) Optometrist is adjudicated incompetent by
any court of law.
3. Grant of Security Interest. Optometrist grants to Business
Manager a security interest in the Collateral to secure the promise set forth
in Section 2 above.
4. Designation of Transferee. The Business Manager shall
designate the Transferee to purchase the Collateral upon an Event of Transfer.
5. Payment of Purchase Price. The purchase price for the
Collateral purchased by the Transferee (the "Purchase Price") shall be an
amount equal to the fair market value of the Collateral as of the date of the
transfer, determined by the accounting firm of Ernst & Young, LLP (or any
successor to Ernst & Young LLP) acting through the personnel at its office in
Tampa, Florida, if that firm is willing to make the determination; or, if not,
any nationally recognized firm of independent certified public accountants
agreed to by Business Manager and Optometrist (or by Optometrist's guardian or
personal representative, if an Event of Transfer occurs pursuant to Sections
2(a) or (c)). Any determination of the Collateral's fair market value by such
firm shall be deemed a final determination of the fair market value as of the
determination date and shall be conclusive upon all parties for purposes of
this Agreement as a commercially reasonable price. The Purchase Price shall be
payable by cashier's check to Optometrist or his guardian or personal
representative (as the case may be) within thirty (30) days after the Business
Manager's receipt of the accounting firm's Purchase Price determination.
6. Commercially Reasonable Disposition. The parties acknowledge
that it would be impossible to realize a commercially reasonable price in the
event of the disposition of the pledged stock by public sale and very difficult
to do so by private sale, except on the terms and conditions in Sections 4 and
5 hereto. Therefore, the parties acknowledge that a disposition of the
Collateral under Sections 4 and 5 hereto is a commercially reasonable
disposition, and agree that the determination of the Purchase Price under
Section 5 is commercially reasonable and that they will be bound by the
Purchase Price determination.
7. Term. This Agreement shall continue for as long as the
Business Management Agreement and any renewals thereof are in effect.
8. Representations and Warranties. Optometrist represents and
warrants the following:
Exhibit 12.1(r) - Page 2
<PAGE> 158
8.1. Optometrist. There is no provision of any agreement
to which Optometrist is a party or of any law that would be
contravened by the execution, delivery, or performance of this
Agreement; Optometrist's name and the description of the legal status
of the P.C. in the Preamble and the information contained in the
Recitals hereto are correct.
8.2. Collateral. As to each item of Collateral,
Optometrist has good title, free and clear of all claims, charges,
liens, encumbrances, restrictions, options, calls and defects of any
kind or nature whatsoever, except for the security interest granted
hereby; no other person, entity, or governmental authority has or
claims any lien or other interest in the Collateral; no adverse
financing statements are on file; and there is no litigation nor are
there any proceedings by any public body, agency, or authority
presently pending or threatened against Optometrist, the outcome of
which might materially and adversely affect the Collateral.
8.3. P.C. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other contracts or commitments that could require
P.C. to issue, sell, or otherwise cause to become outstanding any of
its capital stock; and there is no litigation nor are there any
proceedings by any public body, agency, or authority presently pending
or threatened against P.C. or Optometrist, the outcome of which might
materially and adversely affect the continued operations of P.C.
8.4. Survival of Warranties. All representations and
warranties shall survive the execution and delivery of this Agreement.
9. Affirmative Covenants.
9.1. No Agency and Defense Against Claims. Nothing in
this Agreement shall make Optometrist an agent of Business Manager for
any purpose whatsoever. Optometrist shall defend the Collateral
against all claims, demands, and defenses affecting Business Manager's
security interest, regardless of merit, and shall hold Business
Manager harmless therefrom, including, without limitation, holding
Business Manager harmless from all attorneys' fees and other
litigation expenses arising out of any such claims, demands, or
defenses.
9.2. Disposition and Issuances of P.C. Common Stock. P.C.
shall not, and during the term of this Agreement Optometrist shall not
cause the P.C. to issue, sell or otherwise cause to be outstanding any
additional capital stock, except for (a) sales of such stock made to
successor shareholders pursuant to Section 4.1 of the Business
Management Agreement, provided that if there shall be only one
shareholder holding the P.C.'s stock following such transfer, such
successor shareholder shall execute an agreement in substantially the
same form as this Agreement; (b) issuances of additional stock to
individuals licensed to practice optometry in the State who are
competent and capable and who are approved by Business Manager;
provided that Business Manager shall not unreasonably withhold its
approval to the sale of such additional stock to such individual, and
after the sale of such additional stock, this Agreement shall be
terminated and the Collateral pledged hereby shall be returned to
Optometrist free of the restrictions imposed by this Agreement; (c)
the transfer without consideration of
Exhibit 12.1(r) - Page 3
<PAGE> 159
such stock to a revocable trust created by the Optometrist, provided
that any and all trustees of such trust first agrees in writing to
hold such stock so transferred subject to this Agreement; and (d) the
transfer of such stock upon the occurrence of an Event of Transfer by
any other means as determined by Optometrist and agreed to in writing
by Business Manager, which agreement shall not be unreasonably
withheld.
10. Custody and Handling of Collateral and Records.
10.1. Protection of Secured Party's Security Interest.
Upon execution of this Agreement, Optometrist shall give the Business
Manager the share certificate(s) representing the Collateral, duly
endorsed in blank or, if not endorsed in blank, Optometrist shall give
the Business Manager a duly executed stock power in blank.
10.2. No Authority to Sell. Optometrist shall not sell,
assign, pledge, hypothecate, encumber, or otherwise transfer any item
of Collateral except as expressly provided in this Agreement. If any
item of Collateral or any right therein is transferred contrary to
this Agreement, Business Manager retains a security interest in such
item and in the proceeds of such disposition.
11. Default and Remedies.
11.1. Remedies Upon Default. Upon the occurrence of any
breach of any covenant or warranty contained in this Agreement by
Optometrist and continuously thereafter until waived in writing,
Business Manager shall have the right and option to immediately sell
the Collateral to Transferee subject to a subsequent determination of
the Purchase Price to be paid later or to exercise any other remedy
available to Business Manager as a secured party under law or equity.
Optometrist acknowledges that Business Manager shall be entitled upon
any breach or threatened breach of this Agreement to the granting of a
temporary restraining order, a temporary or permanent injunction, or
any other equitable remedy which may then be available.
Exhibit 12.1(r) - Page 4
<PAGE> 160
11.2. Construction of Rights and Remedies and Waiver of
Notice and Consent.
(a) This Section 11 applies to all rights and
remedies provided by this Agreement or at law or in equity.
(b) Unless otherwise expressly provided herein,
any right or remedy may be pursued without notice to or
further consent of Optometrist, both of which Optometrist
waives.
(c) No forbearance in exercising any right or
remedy shall operate as a waiver thereof; no forbearance in
exercising any right or remedy on any one or more occasions
shall operate as a waiver thereof on any future occasion; and
no single or partial exercise of any right or remedy shall
preclude any other exercise thereof or the exercise of any
other right or remedy.
12. Miscellaneous.
12.1. Notices. Any notices, statements, requests, demands,
consents, or other documents ("notices") shall be in writing and shall
be delivered personally, by certified mail, postage prepaid, return
receipt requested, or by overnight courier (prepaid) to the addresses
set forth in the Preamble hereof. When personally delivered, all
notices shall be deemed given when actually received. When mailed,
all notices shall be deemed given three (3) days after mailing by
certified mail and one (1) day after mailing by overnight courier.
12.2. Governing Law. This Agreement shall be construed and
interpreted under the laws of the State of Florida.
12.3. Binding Effect. This Agreement shall be binding upon
Optometrist, Optometrist's personal representatives, heirs,
successors, and assigns, as the case may be, and shall be binding upon
and inure to the benefit of Business Manager and its successors and
assigns. Optometrist may not assign this Agreement.
12.4. Amendment. This Agreement may be amended, but only
by a written amendment signed by Business Manager and Optometrist.
12.5. Severability. If any provision of this Agreement or
the application of any provision to any party or circumstance shall be
adjudged invalid or unenforceable to any extent, the remainder of this
Agreement shall not be affected thereby. Each provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
12.6. Headings. The headings in this Agreement are for
convenience of reference only and shall not be used in interpreting
this Agreement.
Exhibit 12.1(r) - Page 5
<PAGE> 161
12.7. Number; Gender. Where appropriate, the number of all
words in this Agreement shall be both singular and plural and the
gender of all pronouns shall be masculine, feminine, neuter, or any
combination thereof.
"OPTOMETRIST"
________________________________
Paul A. Smith, O.D.
"BUSINESS MANAGER"
VISION 21, INC.
By:_______________________________
Theodore N. Gillette
Its:Chief Executive Officer
Exhibit 12.1(r) - Page 6
<PAGE> 162
Schedule 16.1
to Asset Purchase Agreement among Dr. Smith & Associates,
#6958, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Liquidated Damages for Optometrist
Breaching Optometrist Employment Agreement
Liquidated damages for Paul Smith, O.D. shall equal: (i) $72,421 in
cash; plus (ii) $2.77 per share of Vision 21 common stock times 103,138 shares
of Vision 21 common stock granted to Paul Smith, O.D. in connection with this
Acquisition, which stock total equals $285,692. The total of the foregoing
liquidated damages equals $358,113.
<PAGE> 1
EXHIBIT 10.31
THIS SUBORDINATED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK WHICH SHALL BE
DELIVERED IN ACCORDANCE WITH THE TERMS OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAW. NO SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS
NOTE OR ANY SUCH SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL,
SATISFACTORY TO MAKER, IS OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE
OR TRANSFER IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
SUBORDINATED PROMISSORY NOTE
$72,421 December 1, 1996
103,138 Shares of Common Stock
of Vision 21, Inc.
FOR VALUE RECEIVED, VISION 21, INC., a Florida corporation ("Maker"),
hereby promises to pay DR. SMITH & ASSOCIATES, #6958, P.A., a Florida
professional association ("Payee") (i) the principal amount of Seventy-Two
Thousand Four Hundred Twenty-One Dollars ($72,421), together with interest
thereon at a per annum rate equal to eight percent (8%), and (ii) One Hundred
Three Thousand One Hundred Thirty-Eight (103,138) shares of Maker's common
stock (the "Shares"). Interest shall be computed on the basis of the actual
number of days elapsed in a year of 360 days from and including the date hereof
through March 1, 1998.
Subject to the stock payment rights described herein, principal and
interest on this Note shall be payable in full, in one installment, in arrears,
on that date which is the earlier of (i) fifteen business days after the
closing date of an initial public offering of shares of common stock of Maker
and (ii) March 1, 1998 (the "Cash Payment Due Date"). If this Note or any
installment of principal or interest hereon becomes due and payable on
Saturday, Sunday or other day on which commercial banks are authorized or
permitted to close under the laws of the State of Florida, the maturity of this
Note or such installment shall be extended to the next succeeding business day.
All payments under this Note and deliveries of shares of Maker's common stock
described below shall be delivered to the office of Payee located at 601
Belcher Road, Clearwater, Florida 34624.
Maker shall (i) on January 15, 1997, deliver to Payee the Shares; and
(ii) on or before the Cash Payment Due Date, pay the outstanding principal
balance under this Note of Seventy- Two Thousand Four Hundred Twenty-One
Dollars ($72,421) by cashier's check or money order.
<PAGE> 2
At the time of delivery of the shares referenced above, Maker shall
deliver to Payee a certificate evidencing the number of fully paid and
nonassessable shares issuable upon payment. The certificate evidencing the
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE
CORPORATION THAT SUCH TRANSACTION WILL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS."
Payee by its acceptance hereof acknowledges that it is aware that
neither this Note nor the Shares issuable to Payee in connection with this Note
have been registered under the Securities Act of 1933, as amended.
This Note is being delivered to Payee by Maker pursuant to that
certain Asset Purchase Agreement effective as of December 1, 1996 between Payee
and Maker (the "Purchase Agreement") and is subject to the terms and provisions
thereof. The principal amount of this Note shall be automatically and
permanently reduced by set-off in amounts determined under and in accordance
with the terms of the Purchase Agreement.
This Note is not transferable or assignable by Payee. If this Note is
collected by law or through an attorney at law, or under advice therefrom, the
Maker agrees to pay all costs of collection, including reasonable attorneys'
fees. Reasonable attorneys' fees are defined to include, but not be limited
to, all fees incurred in all matters of collection and enforcement, trial
proceedings and appeals, as well as appearances in and connected with any
bankruptcy proceedings or creditors' reorganization or similar proceedings and
any post judgment collection efforts.
Any failure to exercise any right, remedy or recourse hereunder shall
not be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written document executed by the Payee and then only
to the extent specifically recited therein. A waiver or release with reference
to any one event shall not be construed as continuing, as a bar to, or as a
waiver or release of any subsequent right, remedy or recourse as to a
subsequent event.
In no event shall the amount of interest due or payments in the nature
of interest payable hereunder exceed the maximum rate of interest allowed by
applicable law, as amended from time
-2-
<PAGE> 3
to time, and in the event any such payment is paid by the Maker or received by
the Payee, then such excess sum shall be credited as a payment of principal,
unless the Maker shall notify the Payee, in writing, that the Maker elects to
have such excess sum returned to Maker forthwith.
The Maker waives protest, demand, notice of protest, dishonor,
presentment for payment or acceptance.
The rights of Payee to receive payment on this Note is subject and
subordinate to the prior payment of the principal and interest on all senior
secured indebtedness of Maker, whether now outstanding or subsequently
incurred, and any deferrals, renewals or extensions of such indebtedness or any
debentures, bonds or notes evidencing such indebtedness (the "Senior
Indebtedness"). Upon any receivership, insolvency, assignment for the benefit
of creditors, bankruptcy, reorganization, sale of all or substantially all of
the assets, dissolution, liquidation, or any other marshalling of assets and
liabilities of Maker, or in the event this Note is declared due and payable
upon the occurrence of a default under this Note, then no amount shall be paid
by Maker with respect to principal and interest hereon unless and until the
principal of, and interest on, all Senior Indebtedness then outstanding is paid
in full. The indebtedness of Maker under this Note shall have an equal
priority with all other indebtedness relating to Maker's acquisition of, or
merger into, founding health care practices occurring on or prior to December
31, 1996.
This Note has been executed and delivered in ____________, Hawaii and
shall be governed by and construed in accordance with the laws of the State of
Florida applicable to debts and obligations incurred and to be paid solely in
such jurisdiction. This Note may not be modified or amended and no provision
hereof may be waived except by a written instrument executed by the parties to
be bound thereby.
VISION 21, INC.
By: /s/ Theodore N. Gillette
------------------------------------
Theodore N. Gillette, President
-3-
<PAGE> 4
STATE OF HAWAII )
)SS
______ OF ______ )
I, _________________, a Notary Public in and for the __________ and
State aforesaid, DO HEREBY CERTIFY that Theodore N. Gillette, personally known
to me to be the same person whose name is, as President of Vision 21, Inc.,
executed and delivered the foregoing instrument in the City of ______________,
State of Hawaii before me this day in person and acknowledged to me that he or
she, being thereunto duly authorized, signed and delivered said instrument as
the free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal on January ___, 1997.
______________________________
Notary Public
My Commission Expires:
________________________
-4-
<PAGE> 1
EXHIBIT 10.33
"CONFIDENTIAL TREATMENT REQUESTED
BY VISION TWENTY-ONE, INC."
ASSET PURCHASE AGREEMENT
DATED: DECEMBER 1, 1996
<PAGE> 2
<TABLE>
<S> <C> <C> <C>
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. AAA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. ACCOUNTANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. ACCOUNTS RECEIVABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. ACQUISITION PROPOSAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5. AFFILIATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6. APPLICABLE LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7. ASSUMED CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8. ASSUMED OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9. AUDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11. BUSINESS MANAGEMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12. BUSINESS RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13. CASH COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14. CLAIM NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15. CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.16. CLOSING DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.17. CODE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.18. COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.19. COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20. COMPANY BALANCE SHEET. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.21. COMPANY BALANCE SHEET DATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
1.22. COMPENSATION PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23. COMPETING BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.24. COMPETITOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25. CONFIDENTIAL INFORMATION MEMORANDUM. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26. CONTROLLED GROUP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.27. CORPORATION LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.28. DAMAGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.29. ELECTION PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.30. EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.31. EMPLOYEE POLICIES AND PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.32. EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33. ENVIRONMENTAL LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34. ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.35. EXCHANGE ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.36. FBCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.37. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.38. GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.39. GOVERNMENTAL AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.40. INDEMNIFIED PARTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.41. INDEMNIFYING PARTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.42. INDEMNITY NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.43. INITIAL PUBLIC OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
1.44. INSURANCE POLICIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.45. INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.46. LEASE ASSIGNMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.47. LEASED PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.48. IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.49. MATERIAL ADVERSE EFFECT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.50. OPTOMETRIC ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.51. NON-OPTOMETRIC ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.52. NOTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.53. OPTOMETRIST EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.54. OPTOMETRIST EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.55. PAYORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.56. PERMITTED ENCUMBRANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.57. PERSONAL PROPERTY LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.58. OPTOMETRIST EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.59. OPTOMETRIST EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.60. PRACTICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.61. PREPAID ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.62. PROFESSIONAL EMPLOYEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.63. PROPOSED PURCHASE PRICE ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.64. PROPRIETARY RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.65. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
1.66. REAL PROPERTY LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.67. REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.68. RELATED ACQUISITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.69. SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.70. SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.71. SECURITIES ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.72. STATE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.73. TANGIBLE PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.74. TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.75. THIRD PARTY CLAIM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.76. TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.77. VISION 21 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. PURCHASE AND SALE OF NON-OPTOMETRIC ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1. PURCHASE AND SALE OF NON-OPTOMETRIC ASSETS. . . . . . . . . . . . . . . . . . . . . . 7
2.2. NO SALE OF OPTOMETRIC ASSETS; OTHER EXCLUDED ASSETS . . . . . . . . . . . . . . . . . 9
2.3. ASSUMPTION OF OBLIGATIONS AND LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . 9
2.4. PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.5. THE CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6. PURCHASE PRICE ADJUSTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7. SUBSEQUENT ACTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.8. ALLOCATION OF PURCHASE PRICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE OPTOMETRIST . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
3.1. ORGANIZATION AND GOOD STANDING; QUALIFICATION. . . . . . . . . . . . . . . . . . . . . 11
3.2. CONTINUITY OF BUSINESS ENTERPRISE. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3. AUTHORIZATION AND VALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4. COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5. CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.6. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.7. LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.8. EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
A. CASH COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . 13
B. COMPENSATION PLANS. . . . . . . . . . . . . . . . . . . . . . . 13
C. EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . 14
D. EMPLOYEE POLICIES AND PROCEDURES. . . . . . . . . . . . . . . . 14
E. UNWRITTEN AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . 14
F. LABOR COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . 14
G. UNIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
H. ALIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.9. EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A. IDENTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 15
B. ADMINISTRATION. . . . . . . . . . . . . . . . . . . . . . . . . 15
C. EXAMINATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 15
D. PROHIBITED TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . 15
E. CLAIMS AND LITIGATION. . . . . . . . . . . . . . . . . . . . . . 16
F. QUALIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 16
G. FUNDING STATUS. . . . . . . . . . . . . . . . . . . . . . . . . 16
H. EXCISE TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . 16
I. MULTIEMPLOYER PLANS. . . . . . . . . . . . . . . . . . . . . . . 16
J. PENSION BENEFIT GUARANTY CORPORATION. . . . . . . . . . . . . . 16
K. RETIREES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
L. OTHER COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . 16
3.10. ABSENCE OF CERTAIN CHANGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.11. TITLE; LEASED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
A. REAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . 18
B. PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . 18
C. LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
3.12. COMMITMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
A. COMMITMENTS; DEFAULTS. . . . . . . . . . . . . . . . . . . . . . 19
B. NO CANCELLATION OR TERMINATION OF COMMITMENT. . . . . . . . . . 20
3.13. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.14. PROPRIETARY RIGHTS AND INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.15. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
A. FILING OF TAX RETURNS. . . . . . . . . . . . . . . . . . . . . . 22
B. PAYMENT OF TAXES. . . . . . . . . . . . . . . . . . . . . . . . 22
C. NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
D. NO EXTENSION OF LIMITATION PERIOD. . . . . . . . . . . . . . . . 22
E. ALL WITHHOLDING REQUIREMENTS SATISFIED. . . . . . . . . . . . . 23
F. FOREIGN PERSON. . . . . . . . . . . . . . . . . . . . . . . . . 23
3.16. COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.17. FINDER'S FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.18. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.19. CONDITION OF FIXED ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.20. DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.21. BANKING RELATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.22. OWNERSHIP INTERESTS OF INTERESTED PERSONS; AFFILIATIONS. . . . . . . . . . . . . . . . 24
3.23. INVESTMENTS IN COMPETITORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.24. ENVIRONMENTAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
A. ENVIRONMENTAL LAWS. . . . . . . . . . . . . . . . . . . . . . . 25
B. PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
C. SUPERFUND LIST. . . . . . . . . . . . . . . . . . . . . . . . . 25
3.25. CERTAIN PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.26. MEDICAL WASTE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
vi
<PAGE> 8
<TABLE>
<S> <C> <C> <C>
3.27. MEDICARE AND MEDICAID PROGRAMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.28. FRAUD AND ABUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.29. PAYORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.30. PROHIBITIONS ON THE CORPORATE PRACTICE OF OPTOMETRY. . . . . . . . . . . . . . . . . . 27
3.31. ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.32. CONSISTENT TREATMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.33. ACCOUNTS RECEIVABLE/PAYABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.34 PROJECTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.
3.35. INVENTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.36. TANGIBLE PERSONAL PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.37. LEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.38. CONTRACT RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.39. PREPAID ITEMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.40. COMPLETENESS OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.41. DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4. REPRESENTATIONS AND WARRANTIES OF THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.1. VALIDITY; OPTOMETRIST CAPACITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.2. NO VIOLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3. CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4. CERTAIN PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.5. FINDER'S FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.6. OWNERSHIP OF INTERESTED PERSONS; AFFILIATIONS. . . . . . . . . . . . . . . . . . . . . 31
4.7. INVESTMENTS IN COMPETITORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
vii
<PAGE> 9
<TABLE>
<S> <C> <C> <C>
4.8. LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.9. PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.10. STAFF PRIVILEGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.11. INTENTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5. REPRESENTATIONS AND WARRANTIES OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.1. ORGANIZATION AND GOOD STANDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.2. CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.3. CORPORATE RECORDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.4. AUTHORIZATION AND VALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.5. COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.6 CONSENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.7. FINDER'S FEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.8. CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.9. VISION 21 FINANCIAL STATEMENTS; . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10. LIABILITIES AND OBLIGATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.11. COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12. INSOLVENCY PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.13. EMPLOYMENT OF COMPANY'S EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6. SECURITIES LAW MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.1. INVESTMENT REPRESENTATIONS AND COVENANTS OF OPTOMETRIST. . . . . . . . . . . . . . . . 35
6.2. CURRENT PUBLIC INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7. COVENANTS OF THE COMPANY AND THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1. CONSUMMATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
viii
<PAGE> 10
<TABLE>
<S> <C> <C> <C>
7.2. BUSINESS OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.3. ACCESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.4. NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.5. APPROVALS OF THIRD PARTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.6. EMPLOYEE MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7.7. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.8. CAPITAL ASSETS; PAYMENTS OF LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . 39
7.9. MORTGAGES, LIENS AND GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.10. ACQUISITION PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11. DISTRIBUTIONS AND REPURCHASES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12. REQUIREMENTS TO EFFECT THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . 40
7.13. OPTOMETRIST ACCOUNTS PAYABLE AND OPTOMETRIST RETAINED EQUITY. . . . . . . . . . . . . 40
7.14. OPTOMETRIST EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.15. OPTOMETRIST EMPLOYMENT AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.16 TERMINATION OF RETIREMENT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.17. DELIVERY OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.18. ASSIGNMENT OF FEES FOR OPTOMETRY SERVICES. . . . . . . . . . . . . . . . . . . . . . . 41
8. COVENANTS OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.1. CONSUMMATION OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.2. NOTIFICATION OF CERTAIN MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.3. LICENSES AND PERMITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.4. RELEASE OF OPTOMETRIST FROM PRACTICE LIABILITIES. . . . . . . . . . . . . . . . . . . 42
9. COVENANTS OF VISION 21, THE COMPANY AND THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
ix
<PAGE> 11
<TABLE>
<S> <C> <C> <C>
9.1. FILINGS; OTHER ACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.2. AMENDMENT OF SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
9.3. FEES AND EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.4. RELEASE OF OPTOMETRIST FROM PRACTICE LIABILITIES. . . . . . . . . . . . . . . . . . . 44
10. CONDITIONS PRECEDENT OF VISION 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.1. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.2. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.3. LEGAL OPINION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.4. PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.5. NO MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.6. GOVERNMENT APPROVALS AND REQUIRED CONSENTS. . . . . . . . . . . . . . . . . . . . . . 45
10.7. CERTIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
10.8. CLOSING DELIVERIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.9. DUE DILIGENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.10. FINANCIAL AUDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.11. MEDICARE AUDIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10.12. EXEMPTION UNDER STATE SECURITIES LAWS. . . . . . . . . . . . . . . . . . . . . . . . . 46
10.13. ASSIGNMENT OF PROFESSIONAL EMPLOYEES' RIGHTS IN ACCOUNTS RECEIVABLE. . . . . . . . . . 46
11. CONDITIONS PRECEDENT OF THE COMPANY AND THE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.1. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.2. COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.3. LEGAL OPINIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
x
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
11.4. PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.5. GOVERNMENT APPROVALS AND REQUIRED CONSENTS. . . . . . . . . . . . . . . . . . . . . . 47
11.6. CLOSING DELIVERIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.7. NO CHANGE IN VOTING OR OWNERSHIP CONTROL. . . . . . . . . . . . . . . . . . . . . . . 47
11.8. NO MATERIAL ADVERSE CHANGE; DELIVERY OF AMENDED CONFIDENTIAL INFORMATION
MEMORANDUM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12. CLOSING DELIVERIES; ESCROW OF DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
12.1. DELIVERIES OF THE COMPANY AND THE OPTOMETRIST. . . . . . . . . . . . . . . . . . . . . 47
12.2. DELIVERIES OF VISION 21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
12.3. RELEASE OF ESCROW MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13. POST CLOSING MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.1. FURTHER INSTRUMENTS OF TRANSFER. . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
13.2. PRACTICE ADVISORY COUNCIL; LOCAL ADVISORY COUNCIL; NATIONAL APPEALS COUNCIL. . . . . . 51
14. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.1. INDEMNIFICATION BY THE COMPANY AND OPTOMETRIST. . . . . . . . . . . . . . . . . . . . 52
14.2. INDEMNIFICATION BY VISION 21. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
14.3. CONDITIONS OF INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
14.4. REMEDIES NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
14.5. COSTS, EXPENSES AND LEGAL FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
14.6. INDEMNIFICATION LIMITATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
14.7. TAX BENEFITS; INSURANCE PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . 56
14.8. PAYMENT OF INDEMNIFICATION OBLIGATION. . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
xi
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
15. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
15.1. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
15.2. EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16. OPTOMETRIST EMPLOYMENT AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16.1. OPTOMETRIST EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
16.2. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
17. NON-COMPETITION AND CONFIDENTIALITY COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
17.1. OPTOMETRIST AND COMPANY NON-COMPETITION COVENANT. . . . . . . . . . . . . . . . . . . 59
17.2. OPTOMETRIST AND COMPANY CONFIDENTIALITY COVENANT. . . . . . . . . . . . . . . . . . . 61
17.3. SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18. DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
18.1. MEDIATION AND ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.1. TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.2. REMEDIES NOT EXCLUSIVE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
19.3. PARTIES BOUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
19.4. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
19.5. CHOICE OF LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.6. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . . . . 64
19.7. CONFIDENTIALITY AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.8. REFORMATION CLAUSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
19.9. ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
xii
<PAGE> 14
<TABLE>
<S> <C> <C>
19.10. ATTORNEYS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.11. FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.12. ANNOUNCEMENTS AND PRESS RELEASES. . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.13. NO TAX REPRESENTATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
19.14. NO RIGHTS AS STOCKHOLDER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.15. MULTIPLE COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.16. HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.17. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
19.18. FORM OF TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
xiii
<PAGE> 15
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement"), dated as of December
1, 1996, is by and among Dr. Smith & Associates, #6966, P.A., a Florida
professional association (the "Company"), Paul Smith, O.D., (the
"Optometrist"), and VISION 21, INC., a Florida corporation ("Vision 21").
R E C I T A L S
A. Optometrist is an optometrist licensed to practice
optometry in the State (as defined herein) and currently conducts an optometry
practice through the Company.
B. Optometrist owns all of the issued and outstanding shares
of capital stock of the Company.
C. Vision 21 provides business management services and
facilities for eye care professionals and related businesses.
D. The Company desires to sell, assign and transfer all of its
assets to the extent permitted by law and Vision 21 desires to purchase, assume
and acquire such assets and assume certain liabilities of the Company in
exchange for capital stock of Vision 21 and other consideration, all as more
specifically provided herein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, and on the terms and subject to the
conditions herein set forth, the parties hereto hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth below:
1.1. AAA. The term "AAA" shall mean the American
Arbitration Association.
1.2. Accountants. The term "Accountants" shall mean
the accounting firm for Vision 21.
1.3. Accounts Receivable. The term "Accounts
Receivable" shall have the meaning set forth in Section 2.1(b).
1.4. Acquisition Proposal. The term "Acquisition
Proposal" shall have the meaning set forth in Section 3.31.
1
<PAGE> 16
1.5. Affiliate. The term "Affiliate" with respect to
any person or entity shall mean a person or entity that directly or indirectly
through one or more intermediaries, controls, or is controlled by or is under
common control with, such person or entity.
1.6. Applicable Laws. The term "Applicable Laws"
shall have the meaning set forth in Section 19.8.
1.7. Assumed Contracts. The term "Assumed Contracts"
shall have the meaning set forth in Section 2.1(e).
1.8. Assumed Obligations. The term "Assumed
Obligations" shall have the meaning set forth in Section 2.3.
1.9. Audit. The term "Audit" shall have the meaning
set forth in Section 3.6.
1.10. Business. The term "Business" shall have the
meaning set forth in Section 19.1(b)(i).
1.11. Business Management Agreement. The term
"Business Management Agreement" shall mean the Business Management Agreement
entered into between the Company and Vision 21 at the Closing.
1.12. Business Records. The term "Business Records"
shall have the meaning set forth in Section 2.1(g).
1.13. Cash Compensation. The term "Cash Compensation"
shall have the meaning set forth in Section 3.8(a).
1.14. Claim Notice. The term "Claim Notice" shall have
the meaning set forth in Section 14.3(a).
1.15. Closing. The term "Closing" shall mean the
consummation of the transactions contemplated by this Agreement.
1.16. Closing Date. The term "Closing Date" shall mean
December ___, 1996, or such other date as mutually agreed upon by the parties.
1.17. Code. The term "Code" shall mean the Internal
Revenue Code of 1986, as amended.
1.18. Commitments. The term "Commitments" shall have
the meaning set forth in Section 3.12(a).
2
<PAGE> 17
1.19. Common Stock. The term "Common Stock" or "Vision
21 Common Stock" shall mean the common stock, par value $.01 per share, of
Vision 21.
1.20. Company Balance Sheet. The term "Company Balance
Sheet" shall have the meaning set forth in Section 3.6.
1.21. Company Balance Sheet Date. The term "Company
Balance Sheet Date" shall have the meaning set forth in Section 3.6.
1.22. Compensation Plans. The term "Compensation
Plans" shall have the meaning set forth in Section 3.8(b).
1.23. Competing Business. The term "Competing
Business" shall have the meaning set forth in Section 17.1(b).
1.24. Competitor. The term "Competitor" shall mean any
person or entity which, individually or jointly with others, whether for its
own account or for that of any other person or entity, owns, or holds any
ownership or voting interest in any person or entity engaged in, the practice
of optometry, the operation of out patient eye surgical facilities, the
operation of refractive surgery centers and the operation of optical shops;
provided, however, that such term shall not include any Affiliate of Vision 21
or any entity with which Vision 21 has an agreement similar to the Business
Management Agreement in effect.
1.25. Confidential Information Memorandum. The term
"Confidential Information Memorandum" shall mean that certain disclosure
memorandum distributed by Vision 21 to the Company and Optometrist dated as of
September 27, 1996, and any amendments or revisions thereto.
1.26. Controlled Group. The term "Controlled Group"
shall have the meaning set forth in Section 3.9(f).
1.27. Corporation Law. The term "Corporation Law"
shall mean the statutes, regulations and laws governing business corporations
and professional corporations in the State.
1.28. Damages. The term "Damages" shall have the
meaning set forth in Section 14.1.
1.29. Election Period. The term "Election Period"
shall have the meaning set forth in Section 16.3(a).
1.30. Employee Benefit Plans. The term "Employee
Benefit Plans" shall have the meaning set forth in Section 3.9(a).
3
<PAGE> 18
1.31. Employee Policies and Procedures. The term
"Employee Policies and Procedures" shall have the meaning set forth in Section
3.8(d).
1.32. Employment Agreements. The term "Employment
Agreements" shall have the meaning set forth in Section 3.8(c).
1.33. Environmental Laws. The term "Environmental
Laws" shall have the meaning set forth in Section 3.24(a).
1.34. ERISA. The term "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
1.35. Exchange Act. The term "Exchange Act" shall mean
the Securities Exchange Act of 1934, as amended.
1.36. FBCA. The term "FBCA" shall mean the Florida
Business Corporation Act.
1.37. Financial Statements. The term "Financial
Statements" shall have the meaning set forth in Section 3.6.
1.38. GAAP. The term "GAAP" shall mean generally
accepted accounting principles, applied on a consistent basis with prior
periods, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity or other practices and procedures as
may be approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of the determination.
1.39. Governmental Authority. The term "Governmental
Authority" shall mean any national, state, provincial, local or tribunal
governmental, judicial or administrative authority or agency.
1.40. Indemnified Party. The term "Indemnified Party"
shall have the meaning set forth in Section 14.3(a).
1.41. Indemnifying Party. The term "Indemnifying
Party" shall have the meaning set forth in Section 14.3(a).
1.42. Indemnity Notice. The term "Indemnity Notice"
shall have the meaning set forth in Section 14.3(d).
4
<PAGE> 19
1.43. Initial Public Offering. The term "Initial
Public Offering" shall mean the potential initial underwritten public offering
of Vision 21 Common Stock contemplated by Vision 21.
1.44. Insurance Policies. The term "Insurance
Policies" shall have the meaning set forth in Section 3.13.
1.45. Inventory. The term "Inventory" shall have the
meaning set forth in Section 2.1(a).
1.46. Lease Assignments. The term "Lease Assignments"
shall have the meaning set forth in Section 11.3(j).
1.47. Leased Property. The term "Leased Property"
shall have the meaning set forth in Section 2.1(d).
1.48. IRS. The term "IRS" shall mean the Internal
Revenue Service.
1.49. Material Adverse Effect. The term "Material
Adverse Effect" shall mean a material adverse effect on the Non-optometric
Assets and the Company's business, operations, condition (financial or
otherwise) or results of operations, taken as a whole, considering all relevant
facts and circumstances.
1.50. Optometric Assets. The term "Optometric Assets"
shall have the meaning set forth in Section 2.2.
1.51. Non-optometric Assets. The term "Non-optometric
Assets" shall mean all of the assets of the Company except for the Optometric
Assets, as such assets are more fully described in Section 2.1.
1.52. Note. The term "Note" shall mean the
subordinated promissory note, to be delivered to the Optometrist at the
Closing.
1.53. Optometrist Employee. The term "Optometrist
Employee" shall mean those licensed optometrists who are employees of the
Company, but are not shareholders.
1.54. Optometrist Employment Agreement. The term
"Optometrist Employment Agreement" shall mean the Optometrist Employment
Agreement to be executed between Optometrist and the Company, and between any
Optometrist Employee and the Company.
1.55. Payors. The term "Payors" shall have the meaning
set forth in Section 3.27.
5
<PAGE> 20
1.56. Permitted Encumbrances. The term "Permitted
Encumbrances" shall have the meaning set forth in Section 3.11(b).
1.57. Personal Property Leases. The term "Personal
Property Leases" shall have the meaning set forth in Section 2.1(c).
1.58. Practice. The term "Practice" shall mean the
optometry and all other vision related health-care practices conducted from
time to time by the Company prior to and after the Closing Date.
1.59. Prepaid Items. The term "Prepaid Items" shall
have the meaning set forth in Section 2.1(m).
1.60. Professional Employee. The term "Professional
Employee" shall mean any Optometrist Employee.
1.61. Proposed Purchase Price Adjustment. The term
"Proposed Purchase Price Adjustment" shall have the meaning set forth in
Section 2.6(b).
1.62. Proprietary Rights. The term "Proprietary
Rights" shall have the meaning set forth in Section 3.14.
1.63. Purchase Price. The term "Purchase Price" shall
mean the consideration set forth in Section 2.4 of this Agreement.
1.64. Real Property Leases. The term "Real Property
Leases" shall have the meaning set forth in Section 2.1(d).
1.65. Registration Statement. The term "Registration
Statement" shall have the meaning set forth in Section 9.1.
1.66. Related Acquisitions. The term "Related
Acquisitions" shall mean the pending acquisitions by Vision 21 with third
parties which are expected to be completed simultaneously with this
Transaction.
1.67. SEC. The term "SEC" shall mean the Securities
and Exchange Commission.
1.68. Securities. The term "Securities" shall mean the
Note and the shares of Vision 21 Common Stock which shall be delivered to the
Company under the terms of the Note.
1.69. Securities Act. The term "Securities Act" shall
mean the Securities Act of 1933, as amended.
6
<PAGE> 21
1.70. State. The term "State" shall mean the State in
which the Company is incorporated.
1.71. Tangible Personal Property. The term "Tangible
Personal Property" shall have the meaning set forth in Section 2.1(f).
1.72. Tax Returns. The term "Tax Returns" shall have
the meaning set forth in Section 3.15(a).
1.73. Third Party Claim. The term "Third Party Claim"
shall have the meaning set forth in Section 14.3(a).
1.74. Transaction. The term "Transaction" shall mean
the purchase and sale of the Non- optometric Assets and the assumption of the
Assumed Obligations pursuant to this Agreement.
1.75. Vision 21 Financial Statements. The term "Vision
21 Financial Statements" shall have the meaning set forth in Section 5.8.
2. PURCHASE AND SALE OF NON-OPTOMETRIC ASSETS.
2.1. Purchase and Sale of Non-optometric Assets.
Subject to the terms and conditions herein set forth, and in reliance upon the
representations and warranties set forth herein, the Company agrees to sell,
convey, assign, transfer and deliver to Vision 21, and Vision 21 agrees to
purchase, assume, accept and acquire, the assets consisting of all the assets
(other than the Optometric Assets specified in Section 2.2 hereof) owned by the
Company as of the Closing Date, of every kind, character and description,
whether tangible, real, personal, or mixed, and wheresoever located, whether
carried on the books of the Company or not carried on the books of the Company
due to having been expended, fully depreciated, or otherwise (the
"Non-optometric Assets"), including without limitation the following (except to
the extent that any of the following are specifically enumerated as Optometric
Assets in Section 2.2 hereof) to the extent permitted by applicable law:
(a) All of the inventory owned by the Company ("Inventory");
(b) All of the accounts receivable or other rights to receive
payment owing to the Company ("Accounts Receivable");
7
<PAGE> 22
(c) All of the Company's rights in, to and under all leases of
supplies, instruments, equipment, furniture, machinery and other items of
tangible personal property ("Personal Property Leases"), including, without
limitation, the Personal Property Leases described on Schedule 2.1(c);
(d) All of the Company's rights as a lessee in, to and under
all real property lease agreements (such real property lease agreements are
hereinafter referred to as "Real Property Leases" and the parcels of real
property in which the Company has a leasehold interest and that are subject to
the Real Property Leases are hereinafter referred to as "Leased Property"),
including, without limitation, estates created by, and rights conferred under,
the Real Property Leases described on Schedule 2.1(d), and any and all estates,
rights, titles and interests in, to and under all warehouses, storage
facilities, buildings, works, structures, fixtures, landings, constructions in
progress, improvements, betterments, installations, and additions constructed
or located on or affixed to the Leased Property;
(e) All of the Company's rights in, to and under all contracts,
agreements, leases, insurance policies, purchase orders and commitments (the
"Assumed Contracts"), including, without limitation, the Assumed Contracts
described on Schedule 2.1(e);
(f) All tangible personal property (including supplies,
instruments, equipment, furniture and machinery) owned by the Company
("Tangible Personal Property"), including, without limitation, the Tangible
Personal Property described on Schedule 2.1(f);
(g) All books and records of the Company, including, without
limitation, all credit records, payroll records, computer records, computer
programs, contracts, agreements, operating manuals, schedules of assets,
correspondence, books of account, files, papers, books and all other public and
confidential business records (together the "Business Records"), whether such
Business Records are in hard copy form or are electronically or magnetically
stored;
(h) All franchises, licenses, permits, certificates, approvals
and other governmental authorizations necessary to own and operate any of the
other Non-optometric Assets, a complete and correct list of which is set forth
on Schedule 2.1(h);
(i) All (i) United States and foreign patents, patent
applications, trademarks, trademark applications and registrations, service
marks, service mark applications and registrations, copyrights, copyright
applications and registrations and trade names of the Company; (ii) proprietary
data and technical, manufacturing know-how and information (and all materials
embodying such information) of the Company; (iii) developments, discoveries,
inventions, ideas and trade secrets of the Company; and (iv) rights to sue for
past infringement;
(j) All of the Company's right, title and interest in, to and
under all telephone numbers used in connection with the Practice, including all
extensions thereto;
8
<PAGE> 23
(k) All rights in, to and under all representations,
warranties, covenants and guaranties made or provided by third parties to or
for the benefit of the Company with respect to any of the other Non-optometric
Assets;
(l) All cash in registers or petty cash drawers (which shall on
the Closing Date be at least ninety percent (90%) of the average daily cash
balance held in such locations in the twelve (12) month period preceding the
Closing Date); and
(m) All of the Company's prepaid expenses, prepaid insurance,
deposits and other similar items ("Prepaid Items").
If and to the extent the assignment of any personal property lease,
real property lease, contract, agreement, purchase order, work order,
commitment, license, permit, certificate or approval listed on the foregoing
Schedules shall require the consent of another party thereto, then (i) such
personal property lease, real property lease, contract, agreement, purchase
order, work order, commitment, license, permit, certificate or approval shall
constitute a Personal Property Lease, Real Property Lease, Assumed Contract or
License, as the case may be, only upon and subject to receipt of such consent;
(ii) such personal property lease, contract, agreement, purchase order, work
order, commitment, license, permit, certificate or approval shall not be a
Personal Property Lease, Real Property Lease, Assumed Contract or License, as
the case may be, if and for so long as the attempted assignment would
constitute a breach thereof; and (iii) the Company shall cooperate fully with
Vision 21 (or Vision 21's successor-in-interest) in seeking such consent or
reasonable arrangement designed to provide to Vision 21 (or such
successor-in-interest) the benefits, claim or rights arising thereunder.
2.2. No Sale of Optometric Assets; Other Excluded
Assets. The Company shall not sell, convey, assign, transfer or deliver to
Vision 21, and Vision 21 shall not be obligated to purchase, accept or acquire
(or make any payments or otherwise discharge any liability or obligation of the
Company with respect to), the Optometric Assets of the Company as set forth on
Schedule 2.2 and those other assets listed on the other Schedules attached
hereto which by law cannot be acquired by Vision 21 which shall also be deemed
to include (a) life insurance policies covering the life of any employee of the
Company, and (b) personal effects listed on Schedule 2.2(b); and (c) cash and
cash equivalents in banks, certificates of deposit, commercial paper and
securities owned by the Company (but excluding cash held in registers or petty
cash drawers on the Closing Date); and (d) those assets of which the entire
costs of maintenance are deemed to be "Practice Expenses" as defined in the
Business Management Agreement.
2.3. Assumption of Obligations and Liabilities. At
the Closing, Vision 21 shall assume and agree to pay or perform, promptly as
they become due, only those obligations and liabilities of the Company
expressly set forth on Schedule 2.3 (the "Assumed Obligations") which shall
exclude the Business Management Agreement. Except for the Assumed Obligations,
Vision 21 shall not assume or be deemed to have assumed and shall not be
responsible for any other obligation or liability of the Company, direct or
indirect, known or unknown, absolute or
9
<PAGE> 24
contingent, including without limitation (i) any and all obligations regarding
any foreign, Federal, state or local income, sales, use, franchise or other tax
liabilities, (ii) any and all obligations or liabilities relating to any fees
or expenses of the Company's or Optometrists' counsel, accountants or other
experts incident to the negotiation and preparation of any of the documents
contemplated herein and consummation of the transactions contemplated thereby,
and (iii) any and all liabilities relating to or arising from the provision of
optometric services (or failure to provide optometric services) prior to the
Closing Date.
2.4. Purchase Price. Vision 21 agrees that, subject
to the terms and conditions of this Agreement, and in full consideration for
the aforesaid sale, transfer, conveyance, assignment and delivery of the Non-
optometric Assets of the Company to Vision 21, and the acceptance by Vision 21
of such Non-optometric Assets and the assumption of the Assumed Obligations of
the Company by Vision 21, Vision 21 shall deliver to the Company at the Closing
the consideration (the "Purchase Price") set forth in Schedule 2.4A which shall
be paid pursuant to a Note in substantially the form attached hereto and made a
part hereof as Exhibit 2.4B.
2.5. The Closing. The Closing shall take place on the
Closing Date at the offices of Shumaker, Loop & Kendrick, LLP, 101 E. Kennedy
Boulevard, Suite 2800, Tampa, Florida 33602 or at such other location in the
State as the parties shall mutually agree.
2.6. Purchase Price Adjustments.
(a) The Purchase Price shall be subject to
adjustment to the extent that Current Assets (as defined herein) or Current
Liabilities Assumed (as defined herein) materially differ from the amounts
customarily arising in the ordinary course of business of the Company as of
November 30, 1996. The term "Current Assets" shall mean petty cash, Accounts
Receivable, prepaid expenses, Inventory, supplies and other current assets
(excluding cash in banks, certificates of deposit, other cash equivalents,
current portion of capital leases and prepaid Income Taxes). The term "Current
Liabilities Assumed" shall mean the audited balances as of November 30, 1996 of
trade accounts payable, accrued payroll, accrued payroll taxes, accrued
benefits, and other current liabilities (excluding notes payable, current
portion of capital leases and long-term debt and income and franchise taxes and
accrued shareholder expenses). The adjustment shall be settled in cash (which
shall be set-off from moneys due the Company pursuant to the Business
Management Agreement) or Vision 21 Common Stock at Vision 21's option. The
parties also agree that to the extent the adjustments materially impact the
goodwill created by the transaction, there shall be an adjustment for the
related impact of net income created by the change in amortization of such
goodwill and the Purchase Price shall be increased or reduced to reflect the
impact on net income settled in cash or Vision 21 Common Stock at Vision 21's
option.
(b) Within sixty (60) days following the Closing
Date, Vision 21 shall present to the Optometrist its Purchase Price adjustment
(the "Proposed Purchase Price Adjustment") calculated in accordance with
Section 2.6(a) hereof. The Optometrist shall, within
10
<PAGE> 25
thirty (30) days after the delivery by Vision 21 of the Proposed Purchase Price
Adjustment, complete his review thereof. In the event that the Optometrist
believes that the Proposed Purchase Price Adjustment has not been prepared on
the basis set forth in Section 2.6(a) or otherwise contests any item set forth
therein, the Optometrist shall, on or before the last day of such 30 day
period, so object to Vision 21 in writing, setting forth a specific description
of the nature of the objection and the corresponding adjustments the
Optometrist believes should be made. If no objection is received by Vision 21
on or before the last day of such 30 day period, then the Proposed Purchase
Price Adjustment delivered by Vision 21 shall be final. If an objection has
been made and Vision 21 and the Optometrist are unable to resolve all of their
disagreements with respect to the proposed adjustments within 15 days following
the delivery of the Optometrist's objection, the dispute shall be submitted to
arbitration as provided in Section 18.1 except that the arbitrator shall be
instructed to deliver his determination of the dispute to the parties no later
than 30 days after the arbitration hearing. Vision 21 shall provide to the
Optometrist and his accountants full access to all relevant books, records and
work papers utilized in preparing the Proposed Purchase Price Adjustment.
2.7. Subsequent Actions. If, at any time after the
Closing Date, Vision 21 shall determine or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in Vision 21 its
right, title or interest in, to or under any of the rights, properties or
assets of the Company acquired or to be acquired by Vision 21 as a result of,
or in connection with, the Transaction, or otherwise to carry out this
Agreement, the officers and directors of Vision 21 shall, at the sole cost and
expense of Vision 21, be authorized to execute and deliver, in the name and on
behalf of the Company, such deeds, bills of sale, assignments and assurances,
and to take and do, in the name and on behalf of the Company, all such other
actions and things as may be necessary or desirable to vest, perfect or confirm
any and all right, title and interest in, to and under such rights, properties
or assets in Vision 21 or otherwise to carry out this Agreement.
2.8. Allocation of Purchase Price. The Purchase Price
shall be allocated among the Non-optometric Assets as set forth on Schedule
2.8. Each of Vision 21, the Company and the Optometrist covenants and agrees
that he or it shall not take a position that is in any way inconsistent with
the terms of this Section 2.8 on any income tax return, before any governmental
agency charged with the collection of any income tax or in any judicial
proceeding.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
OPTOMETRIST. The Company and the Optometrist, jointly and severally, represent
and warrant to Vision 21 that the following are true and correct as of the date
hereof, and shall be true and correct through the Closing Date as if made on
that date; when used in this Section 3, the term "best knowledge" shall mean in
the case of the Company the best knowledge of those individuals listed on
Schedule 3:
11
<PAGE> 26
3.1. Organization and Good Standing; Qualification.
The Company is a professional corporation duly organized, validly existing and
in good standing under the laws of the State, with all requisite corporate
power and authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The Company is not duly qualified and
licensed to do business in any other jurisdiction. The Company does not have
any assets, employees or offices in any state other than the State. Except as
set forth on Schedule 3.1, neither the Company, the Optometrist nor any
Professional Employee owns, directly or indirectly, any of the capital stock of
any other corporation or any equity, profit sharing, participation or other
interest in any corporation, partnership, joint venture or other entity that is
engaged in a business that is a Competitor.
3.2. Continuity of Business Enterprise. Except as set
forth on Schedule 3.2, and except as contemplated by this Agreement, there has
not been any sale, distribution or spin-off of significant assets of the
Company or any of its Affiliates other than in the ordinary course of business
within the two (2) year period preceding the date of this Agreement.
3.3. Authorization and Validity. The execution,
delivery and performance by the Company of this Agreement and the other
agreements contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby to be performed by the Company, have been duly
authorized by the Company. This Agreement has been duly executed and delivered
by the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. The
Company has obtained, in accordance with applicable law and its Articles or
Certificate of Incorporation and Bylaws, the approval of its stockholders
necessary for the consummation of the transactions contemplated hereby.
3.4. Compliance. Except as disclosed on Schedule 3.4,
the execution and delivery of the documents contemplated hereunder and the
consummation of the transactions contemplated thereby by the Company will not
(i) violate any provision of the Company's organizational documents, (ii)
violate any material provision of or result in the breach of or entitle any
party to accelerate (whether after the giving of notice or lapse of time or
both) any material obligation under, any mortgage, lien, lease, contract,
license, instrument or any other agreement to which the Company is a party,
(iii) result in the creation or imposition of any material lien, charge,
pledge, security interest or other material encumbrance upon any property of
the Company or (iv) violate or conflict with any order, award, judgment or
decree or other material restriction or to the best of the Company's knowledge
violate or conflict with any law, ordinance or regulation to which the Company
or its property is subject.
3.5. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by the
12
<PAGE> 27
Company or the consummation by such party of the transactions contemplated
thereby, except for those consents or approvals set forth on Schedule 3.5.
3.6. Financial Statements. The Company has furnished
to Vision 21 its unaudited balance sheet and related unaudited statements of
income, retained earnings and cash flows for its prior three (3) full fiscal
years, and its unaudited interim balance sheet for the fiscal period ended
September 30, 1996 (the "Company Balance Sheet", and the date thereof shall be
referred to as the "Company Balance Sheet Date") and related unaudited
statements of income, retained earnings and cash flows for the twelve months
then ended (all collectively, with the related notes thereto, the "Financial
Statements"). The Financial Statements fairly present the financial condition
and results of operations of the Company as of the dates and for the periods
indicated except as otherwise indicated in the Financial Statements. The
Company and the Optometrist expressly warrant that they will have prior to the
Closing fairly, accurately and completely provided all necessary information
requested in or relevant to the preparation of the audit to be conducted by the
Accountants or their designees prior to Closing (the "Audit"). The cost of the
Audit shall be paid by Vision 21 and all materials prepared by Vision 21's
Accountants in connection with the Audit shall be solely the property of Vision
21.
3.7. Liabilities and Obligations. Except as set forth
on Schedule 3.7, the Financial Statements reflect all liabilities of the
Company, accrued, contingent or otherwise that would be required to be
reflected thereon, or in the notes thereto, prepared in accordance with GAAP,
except for liabilities and obligations incurred in the ordinary course of
business since the Company Balance Sheet Date. Except as set forth in the
Financial Statements or on Schedule 3.7, the Company is not liable upon or with
respect to, or obligated in any other way to provide funds in respect of or to
guarantee or assume in any manner, any debt, obligation or dividend of any
person, corporation, association, partnership, joint venture, trust or other
entity, and the Company does not know of any valid basis for the assertion of
any other claims or liabilities of any nature or in any amount.
3.8. Employee Matters.
a. Cash Compensation. Schedule 3.8(a)
contains a complete and accurate list of the names, titles and annual cash
compensation as of the Closing Date, including without limitation wages,
salaries, bonuses (discretionary and formula) and other cash compensation (the
"Cash Compensation") of all employees of the Company. In addition, Schedule
3.8(a) contains a complete and accurate description of (i) all increases in
Cash Compensation of employees of the Company during the current fiscal year
and the immediately preceding fiscal year and (ii) any promised increases in
Cash Compensation of employees of the Company that have not yet been effected.
b. Compensation Plans. Schedule 3.8(b)
contains a complete and accurate list of all compensation plans, arrangements
or practices (the "Compensation Plans") sponsored by the Company or to which
the Company contributes on behalf of its employees, other than Employment
Agreements listed on Schedule 3.8(c) and Employee Benefit
13
<PAGE> 28
Plans listed on Schedule 3.9(a). The Compensation Plans include without
limitation plans, arrangements or practices that provide for performance
awards, and stock ownership or stock options. The Company has provided or made
available to Vision 21 a copy of each written Compensation Plan and a written
description of each unwritten Compensation Plan. Except as set forth on
Schedule 3.8(b), each of the Compensation Plans can be terminated or amended at
will by the Company.
c. Employment Agreements. Except as set
forth on Schedule 3.8(c), the Company is not a party to any employment
agreement ("Employment Agreements") with respect to any of its employees.
Employment Agreements include without limitation employee leasing agreements,
employee services agreements and non-competition agreements.
d. Employee Policies and Procedures.
Schedule 3.8(d) contains a complete and accurate list of all employee manuals
and all material policies, procedures and work-related rules (the "Employee
Policies and Procedures") that apply to employees of the Company. The Company
has provided or made available to Vision 21 a copy of all written Employee
Policies and Procedures and a written description of all material unwritten
Employee Policies and Procedures.
e. Unwritten Amendments. Except as
described on Schedule 3.8(b), 3.8(c), or 3.8(d), no material unwritten
amendments have been made, whether by oral communication, pattern of conduct or
otherwise, with respect to any Compensation Plans or Employee Policies and
Procedures.
f. Labor Compliance. To the best
knowledge of the Company and the Optometrist, the Company has been and is in
compliance with all applicable laws, rules, regulations and ordinances
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except for any such failures to be in
compliance that, individually or in the aggregate, would not result in a
Material Adverse Effect, and the Company is not liable for any arrearages of
wages or penalties for failure to comply with any of the foregoing. The
Company has not, to the best of Optometrist's and the Company's knowledge,
engaged in any unfair labor practices or discriminated on the basis of race,
color, religion, sex, national origin, age, disability or handicap in its
employment conditions or practices that would, individually or in the
aggregate, result in a Material Adverse Effect. Except as set forth on
Schedule 3.10(f), there are no (i) unfair labor practice charges or complaints
or racial, color, religious, sex, national origin, age, disability or handicap
discrimination charges or complaints pending or, to the actual knowledge of the
Company and the Optometrist, threatened against the Company before any federal,
state or local court, board, department, commission or agency (nor, to the best
knowledge of the Company and the Optometrist, does any valid basis therefor
exist) or (ii) existing or, to the actual knowledge of the Company, threatened
labor strikes, disputes, grievances, controversies or other labor troubles
affecting the Company (nor, to the best knowledge of the Company and the
Optometrist, does any valid basis therefor exist).
14
<PAGE> 29
g. Unions. The Company has never been a
party to any agreement with any union, labor organization or collective
bargaining unit. No employees of the Company are represented by any union,
labor organization or collective bargaining unit. Except as set forth on
Schedule 3.8(g), to the actual knowledge of the Company, none of the employees
of the Company has threatened to organize or join a union, labor organization
or collective bargaining unit.
h. Aliens. All employees of the Company
are, to the best knowledge of the Company, citizens of, or are authorized in
accordance with federal immigration laws to be employed in, the United States.
3.9. Employee Benefit Plans.
a. Identification. Schedule 3.9(a)
contains a complete and accurate list of all employee benefit plans (within the
meaning of Section 3(3) of ERISA sponsored by the Company or to which the
Company contributes on behalf of its employees and all employee benefit plans
previously sponsored or contributed to on behalf of its employees within the
three (3) years preceding the date hereof (the "Employee Benefit Plans"). The
Company has provided or made available to Vision 21 copies of all plan
documents, determination letters, pending determination letter applications,
trust instruments, insurance contracts, administrative services contracts,
annual reports, actuarial valuations, summary plan descriptions, summaries of
material modifications, administrative forms and other documents that
constitute a part of or are incident to the administration of the Employee
Benefit Plans. In addition, the Company has provided or made available to
Vision 21 a written description of all existing practices engaged in by the
Company that constitute Employee Benefit Plans. Except as set forth on
Schedule 3.9(a) and subject to the requirements of the Code and ERISA, each of
the Employee Benefit Plans can be terminated or amended at will by the Company.
Except as set forth on Schedule 3.9(a), no unwritten amendment exists with
respect to any Employee Benefit Plan. Except as set forth on Schedule
3.9(b)-(l), each of the following paragraphs is true and correct.
b. Administration. To the best knowledge
of the Company and the Optometrist, each Employee Benefit Plan has been
administered and maintained in compliance with all applicable laws, rules and
regulations, except where the failure to be in compliance would not,
individually or in the aggregate, result in a Material Adverse Effect. The
Company and the Optometrist have (i) made all necessary filings with respect to
such Employee Benefit Plans, including the timely filing of Form 5500 if
applicable, and (ii) made all necessary filings, reports and disclosures
pursuant to and have complied with all requirements of the IRS Voluntary
Compliance Resolution Program, if applicable, with respect to all profit
sharing retirement plans and pension plans in which employees of the Company
participate.
c. Examinations. Except as set forth on
Schedule 3.9(c), the Company has not received any notice that any Employee
Benefit Plan is currently the subject
15
<PAGE> 30
of an audit, investigation, enforcement action or other similar proceeding
conducted by any state or federal agency.
d. Prohibited Transactions. To the best
knowledge of the Company and the Optometrist, no prohibited transactions
(within the meaning of Section 4975 of the Code or Sections 406 and 407 of
ERISA) have occurred with respect to any Employee Benefit Plans.
e. Claims and Litigation. No pending or,
to the actual knowledge of the Company and the Optometrist, threatened, claims,
suits, or other proceedings exist with respect to any Employee Benefit Plan
other than normal benefit claims filed by participants or beneficiaries.
f. Qualification. As set forth in more
detail on Schedule 3.9(f), the Company has received a favorable determination
letter or ruling from the IRS for each of the Employee Benefit Plans intended
to be qualified within the meaning of Section 401(a) of the Code and/or
tax-exempt within the meaning of Section 501(a) of the Code. Except as set
forth on Schedule 3.9(e), no proceedings exist or, to the actual knowledge of
the Company have been threatened that could result in the revocation of any
such favorable determination letter or ruling.
g. Funding Status. To the best knowledge
of the Company and the Optometrist, no accumulated funding deficiency (within
the meaning of Section 412 of the Code), whether or not waived, exists with
respect to any Employee Benefit Plan or any plan sponsored by any member of a
controlled group (within the meaning of Section 412(n)(6)(B) of the Code) in
which the Company is a member ("Controlled Group"). With respect to each
Employee Benefit Plan subject to Title IV of ERISA, the assets of each such
plan are at least equal in value to the present value of accrued benefits
determined on an ongoing basis as of the date hereof. The Company does not
sponsor any Employee Benefit Plan described in Section 501(c)(9) of the Code.
None of the Employee Benefit Plans are subject to actuarial assumptions.
h. Excise Taxes. Neither the Company nor
any member of a Controlled Group has any liability to pay excise taxes with
respect to any Employee Benefit Plan under applicable provisions of the Code or
ERISA.
i. Multiemployer Plans. Neither the
Company nor any member of a Controlled Group is or ever has been obligated to
contribute to a multiemployer plan within the meaning of Section 3(37) of
ERISA.
j. Pension Benefit Guaranty Corporation.
None of the Employee Benefit Plans are subject to the requirements of Title IV
of ERISA.
k. Retirees. The Company has no
obligation or commitment to provide medical, dental or life insurance benefits
to or on behalf of any of its employees who
16
<PAGE> 31
may retire or any of its former employees who have retired except as may be
required pursuant to the continuation of coverage provisions of Section 4980B
of the Code and Sections 501 through 508 of ERISA.
l. Other Compensation. Except as set
forth on Schedule 3.8(a), 3.8(b), 3.8(c), 3.8(d) and 3.9(a), neither the
Company, the Optometrist nor any Professional Employee is a party to any
compensation or debt arrangement with any person relating to the provision of
healthcare related services other than arrangements with the Company or the
Optometrist.
3.10. Absence of Certain Changes. Except as set forth
on Schedule 3.10 or as contemplated by this Agreement, since the Company
Balance Sheet Date, the Company has not:
a. suffered a Material Adverse Effect,
whether or not caused by any deliberate act or omission of the Company or the
Optometrist;
b. contracted for the purpose of
acquiring any capital asset having a cost in excess of $5,000 or made any
single expenditure in excess of $5,000;
c. incurred any indebtedness for borrowed
money (other than short-term borrowings in the ordinary course of business), or
issued or sold any debt securities;
d. incurred or discharged any material
liabilities or obligations except in the ordinary course of business;
e. paid any amount on any indebtedness
prior to the due date, forgiven or cancelled any claims or any debt in excess
of $5,000, or released or waived any rights or claims except in the ordinary
course of business;
f. mortgaged, pledged or subjected to any
security interest, lien, lease or other charge or encumbrance any of its
properties or assets (other than statutory liens arising in the ordinary course
of business or other liens that do not materially detract from the value or
interfere with the use of such properties or assets);
g. suffered any damage or destruction to
or loss of any assets (whether or not covered by insurance) that has,
individually or in the aggregate, resulted in a Material Adverse Effect;
h. acquired or disposed of any assets
having an aggregate value in excess of $5,000, except in the ordinary course of
business;
i. written up or written down the
carrying value of any of its assets, other than accounts receivable in the
ordinary course of business;
17
<PAGE> 32
j. changed the costing system or
depreciation methods of accounting for its assets in any material respect;
k. lost or terminated any employee,
patient, customer or supplier that has, individually or in the aggregate,
resulted in a Material Adverse Effect;
l. increased the compensation of any
director, officer, key employee or consultant, except as disclosed on Schedule
3.8(a);
m. increased the compensation of any
employee (except for increases in the ordinary course of business consistent
with past practice) or hired any new employee who is expected to receive
annualized compensation of at least $15,000;
n. made any payments to or loaned any
money to any person or entity referred to in Section 3.22;
o. formed or acquired or disposed of any
interest in any corporation, partnership, joint venture or other entity;
p. redeemed, purchased or otherwise
acquired, or sold, granted or otherwise disposed of, directly or indirectly,
any of its capital stock or securities, or agreed to change the terms and
conditions of any such capital stock, securities or rights;
q. entered into any agreement providing
for total payments in excess of $5,000 in any twelve (12) month period with any
person or group, or modified or amended in any material respect the terms of
any such existing agreement, except in the ordinary course of business;
r. entered into, adopted or amended any
Employee Benefit Plan, except as contemplated hereby or the other agreements
contemplated hereby; or
s. entered into any other commitment or
transaction or experienced any other event that would materially interfere with
its performance under this Agreement or any other agreement or document
executed or to be executed pursuant to this Agreement, or otherwise has,
individually or in the aggregate, resulted in a Material Adverse Effect.
3.11. Title; Leased Assets.
a. Real Property. The Company does not
own any interest (other than leasehold interests referred to on Schedule
3.11(c)) in real property. The leased real property referred to on Schedule
3.11(c) constitutes the only real property necessary for the conduct of the
Company's business.
18
<PAGE> 33
b. Personal Property. Except as set
forth on Schedule 3.11(b), the Company and/or the Optometrist has good, valid
and marketable title to all the personal property constituting the
Non-optometric Assets. The personal property constituting the Non-optometric
Assets constitute the only personal property necessary for the conduct of the
Company's business (except for the Optometric Assets). Upon consummation of
the transactions contemplated hereby, such interest in the Non-optometric
Assets shall be free and clear of all security interests, liens, claims and
encumbrances, other than those set forth on Schedule 3.11(b) (the "Permitted
Encumbrances") and statutory liens arising in the ordinary course of business
or other liens that do not materially detract from the value or interfere with
the use of such properties or assets.
c. Leases. A list and brief description
of (i) all leases of real property and (ii) leases of personal property
involving rental payments within any twelve (12) month period in excess of
$12,000, in either case to which the Company is a party, either as lessor or
lessee, are set forth on Schedule 3.11(c). All such leases are valid and, to
the knowledge of the Company, enforceable in accordance with their respective
terms except as may be limited by applicable bankruptcy, insolvency or similar
laws affecting creditors' rights generally or the availability of equitable
remedies.
3.12. Commitments.
a. Commitments; Defaults. Except as set
forth on Schedule 3.12 or as otherwise disclosed pursuant to this Agreement,
the Company is not a party to nor bound by, nor are the Non-optometric Assets
or the assets or the business of the Company bound by, whether or not in
writing, any of the following (collectively, "Commitments"):
i) partnership or joint
venture agreement;
ii) guaranty or suretyship,
indemnification or contribution agreement or performance bond;
iii) debt instrument, loan
agreement or other obligation relating to indebtedness for borrowed money or
money lent or to be lent to another;
iv) contract to purchase real
property;
v) agreement with dealers or
sales or commission agents, public relations or advertising agencies,
accountants or attorneys (other than in connection with this Agreement and the
transactions contemplated hereby) involving total payments within any twelve
(12) month period in excess of $2,000 and which is not terminable on thirty
(30) days' notice or without penalty;
19
<PAGE> 34
vi) agreement relating to any
material matter or transaction in which an interest is held by a person or
entity that is an Affiliate of the Company or the Optometrist;
vii) agreement for the
acquisition of services, supplies, equipment, inventory, fixtures or other
property involving more than $2,000 in the aggregate;
viii) powers of attorney;
ix) contracts containing
non-competition covenants;
x) agreement providing for the
purchase from a supplier of all substantially all of the requirements of the
Company of a particular product or services;
xi) agreements regarding
clinical research;
xii) agreements with Payors and
contracts to provide optometric or health care services; or
xiii) any other agreement or
commitment not made in the ordinary course of business or that is material to
the business, operations, condition (financial or otherwise) or results of
operations of the Company.
True, correct and complete copies of the written Commitments, and true, correct
and complete written descriptions of the oral Commitments, have heretofore been
delivered or made available to Vision 21. Except as set forth on Schedule 3.12
and to the Company's best knowledge, there are no existing or asserted
defaults, events of default or events, occurrences, acts or omissions that,
with the giving of notice or lapse of time or both, would constitute defaults
by the Company or, to the best knowledge of the Company, any other party to a
material Commitment, and no penalties have been incurred nor are amendments
pending, with respect to the material Commitments, except as described on
Schedule 3.12. The Commitments are in full force and effect and are valid and
enforceable obligations of the Company, and to the best knowledge of the
Company, are valid and enforceable obligations of the other parties thereto, in
accordance with their respective terms, and no defenses, off-sets or
counterclaims have been asserted or, to the best knowledge of the Company, may
be made by any party thereto (other than the Company), nor has the Company
waived any rights thereunder, except as described on Schedule 3.12. Except as
set forth on Schedule 3.12, no consents or approvals are required under the
terms of any agreement listed on Schedule 3.12 in connection with the
transactions contemplated herein, including, without limitation, the transfer
of any such agreement pursuant to this Agreement.
b. No Cancellation or Termination of
Commitment. Except as disclosed pursuant to this Agreement or contemplated
hereby and except where such default
20
<PAGE> 35
would not have a Material Adverse Effect on the Practice, (i) neither the
Company nor the Optometrist has received notice of any plan or intention of any
other party to any Commitment to exercise any right to cancel or terminate any
Commitment, and the Company does not know of any fact that would justify the
exercise of such a right; and (ii) neither the Company nor the Optometrist
currently contemplates, or has reason to believe any other person currently
contemplates, any amendment or change to any Commitment.
3.13. Insurance. The Company, the Optometrist and each
Professional Employee carries property, liability, malpractice, workers'
compensation and such other types of insurance pursuant to the insurance
policies listed and briefly described on Section 3.13 (the "Insurance
Policies"). The Insurance Policies are all of the insurance policies of the
Company, the Optometrist and each Professional Employee relating to the
business of the Company and the Non-optometric Assets. All of the Insurance
Policies are issued by insurers of recognized responsibility, and, to the best
knowledge of the Company, are valid and enforceable policies, except as may be
limited by applicable bankruptcy, insolvency or similar laws affecting
creditors' rights generally or the availability of equitable remedies. Except
as set forth in Schedule 3.13, no consent or approval is required for, and no
other impediment or restriction exists that will prohibit or limit, the
transfer of any such Insurance Policies included within the Non-optometric
Assets in accordance with the terms of this Agreement. All Insurance Policies
shall be maintained in force without interruption up to and including the
Closing Date. True, complete and correct copies of all Insurance Policies have
been provided or made available to Vision 21. Except as set forth on Schedule
3.13, neither the Company nor the Optometrist has received any notice or other
communication from any issuer of any Insurance Policy cancelling such policy,
materially increasing any deductibles or retained amounts thereunder, and to
the actual knowledge of the Company, no such cancellation or increase of
deductibles, retainages or premiums is threatened. Except as set forth on
Schedule 3.13, neither the Company, the Optometrist nor any Professional
Employee has any outstanding claims, settlements or premiums owed against any
Insurance Policy, and the Company, the Optometrist and each Professional
Employee has given all notices or has presented all potential or actual claims
under any Insurance Policy in due and timely fashion. Except as set forth on
Schedule 3.13, since January 1, 1994, neither the Company, the Optometrist nor
any Professional Employee has filed a written application for any professional
liability insurance coverage which has been denied by an insurance agency or
carrier, and the Company, the Optometrist and each Professional Employee has
been continuously insured for professional malpractice claims for at least the
past seven (7) years (or such shorter periods of time that any Professional
Employee has been licensed to practice optometry). Schedule 3.13 also sets
forth a list of all claims under any Insurance Policy in excess of $10,000 per
occurrence filed by the Company, the Optometrist and each Professional Employee
since January 1, 1994.
3.14. Proprietary Rights and Information. Set forth on
Schedule 3.14 is a true and correct description of the following ("Proprietary
Rights"):
a. all trademarks, trade-names, service
marks and other trade designations, including common law rights, registrations
and applications therefor, and all
21
<PAGE> 36
patents and applications therefor currently owned, in whole or in part, by the
Company, and all licenses, royalties, assignments and other similar agreements
relating to the foregoing to which the Company is a party (including the
expiration date thereof if applicable); and
b. all agreements relating to technology,
know-how or processes that the Company is licensed or authorized to use by
others (other than technology, know-how or processes generally available to
other healthcare providers), or which it licenses or authorizes others to use.
The Company owns or has the legal right to use the Proprietary Rights, and to
the knowledge of the Company, such ownership or use does not conflict,
infringe or violate the rights of any other person. Except as disclosed on
Schedule 3.14, no consent of any person will be required for the use thereof by
Vision 21 upon consummation of the transactions contemplated hereby and the
Proprietary Rights are freely transferable. No claim has been asserted by any
person to the ownership of or for infringement by the Company of the
proprietary right of any other person, and the Company does not know of any
valid basis for any such claim. To the best knowledge of the Company and the
Optometrist, the Company has the right to use, free and clear of any adverse
claims or rights of others, all trade secrets, customer lists and proprietary
information required for the marketing of all merchandise and services formerly
or presently sold or marketed by it.
3.15. Taxes.
a. Filing of Tax Returns. The Company
has duly and timely filed (in accordance with any extensions duly granted by
the appropriate governmental agency, if applicable) with the appropriate
governmental agencies all federal, state, local or foreign income, excise,
corporate, franchise, property, sales, use, payroll, withholding, provider,
value added and other tax returns and reports (collectively the "Tax Returns")
required to be filed by the United States or any state or any political
subdivision thereof or any foreign jurisdiction. All such Tax Returns or
reports are complete and accurate in all material respects and properly reflect
the taxes of the Company for the periods covered thereby.
b. Payment of Taxes. Except for such
items as the Company may be disputing in good faith by proceedings in
compliance with applicable law, which are described on Schedule 3.15, (i) the
Company has paid all taxes, penalties, assessments and interest that have
become due with respect to any Tax Returns that it has filed and has properly
accrued on its books and records for all of the same that have not yet become
due, and (ii) the Company is not delinquent in the payment of any tax,
assessment or governmental charge.
c. No Pending Deficiencies,
Delinquencies, Assessments or Audits. Except as set forth on Schedule 3.15,
the Company has not received any notice that any tax deficiency or delinquency
has been asserted against the Company. There is no unpaid assessment, proposal
for additional taxes, deficiency or delinquency in the payment of any of the
taxes of the Company that could be asserted by any taxing authority. There is
no taxing
22
<PAGE> 37
authority audit of the Company pending, or to the actual knowledge of the
Company, threatened, and the results of any completed audits are properly
reflected in the Financial Statements. The Company has not, to its best
knowledge, violated any federal, state, local or foreign tax law.
d. No Extension of Limitation Period.
The Company has not granted an extension to any taxing authority of the
limitation period during which any tax liability may be assessed or collected.
e. All Withholding Requirements
Satisfied. All monies required to be withheld by the Company and paid to
governmental agencies for all income, social security, unemployment insurance,
sales, excise, use, and other taxes have been collected or withheld and paid to
the respective governmental agencies.
f. Foreign Person. Neither the Company
nor the Optometrist is a foreign person, as such term is referred to in Section
1445(f)(3) of the Code.
3.16. Compliance with Laws. The Company has not
failed, and neither the Company nor the Optometrist is aware of any failure by
the Optometrist or any Professional Employee to comply with all applicable
laws, regulations and licensing requirements relating to the operation of the
Practice or failure to file with the proper authorities all necessary
statements and reports except where the failure to so comply or file would not,
individually or in the aggregate, result in a Material Adverse Effect. There
are no existing violations by the Company, and neither the Company nor the
Optometrist is aware of any existing violations by the Optometrist or any
Professional Employee of any federal, state or local law or regulation that
could, individually or in the aggregate, result in a Material Adverse Effect.
The Company, the Optometrist and each Professional Employee possesses all
necessary licenses, franchises, permits and governmental authorizations for the
conduct of the Company's business as now conducted, all of which are listed
(with expiration dates, if applicable) on Schedule 3.16. Except as set forth
on Schedule 3.16, the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded by any such licenses, franchises, permits or
government authorizations, except for any such default, breach or violation
that would not, individually or in the aggregate, have a Material Adverse
Effect. Except as set forth on Schedule 3.16, since January 1, 1993, neither
the Company, the Optometrist nor, to the knowledge of the Company based on a
certificate in writing obtained from each Professional Employee, any
Professional Employee has received any notice from any federal, state or other
governmental authority or agency having jurisdiction over its, his or her
properties or activities, or any insurance or inspection body, that its, his or
her operations or any of its, his or her properties, facilities, equipment, or
business practices fail to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public or
quasi-public authority or body, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect.
23
<PAGE> 38
3.17. Finder's Fee. Except as set forth on Schedule
3.17, the Company has not incurred any obligation for any finder's, brokers or
agent's fee in connection with the transactions contemplated hereby.
3.18. Litigation. Except as described on Schedule 3.18
or otherwise disclosed pursuant to this Agreement, there are no legal actions
or administrative proceedings or investigations instituted, to the actual
knowledge of the Company or the Optometrist, which affect or could affect the
Practice, the Non-optometric Assets or the operation, business, condition
(financial or otherwise), or results of operations of the Company which (i) if
successful could, individually or in the aggregate, have a Material Adverse
Effect or (ii) could adversely affect the ability of the Company or the
Optometrist to effect the transactions contemplated hereby. Neither the
Company nor the Optometrist is (a) subject to any continuing court or
administrative order, judgment, writ, injunction or decree applicable
specifically to the Non-optometric Assets, the Company or to its business,
assets, operations or employees or (b) in default with respect to any such
order, judgment, writ, injunction or decree. The Company has no knowledge of
any valid basis for any such action, proceeding or investigation. Except as
set forth on Schedule 3.18, all medical malpractice claims asserted, general
liability incidents and incident reports have been submitted to the Company's
insurer therefor. All claims made or threatened against the Company in excess
of its deductible are covered under its Insurance Policies.
3.19. Condition of Fixed Assets. All of the fixtures,
structures and equipment reflected in the Financial Statements and used by the
Company in its business, are in good condition and repair, subject to normal
wear and tear, and conform in all material respects with all applicable
ordinances, regulations and other laws, and the Company has no actual knowledge
of any latent defects therein.
3.20. Distributions and Repurchases. No distribution,
payment or dividend of any kind has been declared or paid by the Company on any
of its capital stock since the Company Balance Sheet Date. No repurchase of
any of the Company's capital stock has been approved, effected or is pending,
or is contemplated by the Board of Directors of the Company.
3.21. Banking Relations. Set forth on Schedule 3.21 is
a complete and accurate list of all borrowing and investing arrangements that
the Company has with any bank or other financial institution, indicating with
respect to each relationship the type of arrangement maintained (such as
checking account, borrowing arrangements, safe deposit box, etc.) and the
person or persons authorized in respect thereof.
3.22. Ownership Interests of Interested Persons;
Affiliations. Except as set forth on Schedule 3.22, no officer, supervisory
employee or director of the Company, or their respective spouses, children or
Affiliates, owns directly or indirectly, on an individual or joint basis, any
interest in, has a compensation or other financial arrangement with, or serves
as an officer or director of, any customer or supplier of the Company or any
organization that has a material contract or arrangement with the Company.
Except as may be disclosed pursuant to
24
<PAGE> 39
this Agreement, neither the Company, nor any of its directors, officers,
employees or consultants, nor any Affiliate of such person is, or within the
last three (3) years was, a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or consulting
agreement with any optometrist, hospital, pharmacy, home health agency or other
person which is in a position to make or influence referrals to, or otherwise
generate business for, the Company.
3.23. Investments in Competitors. Except as disclosed
on Schedule 3.23, neither the Company nor the Optometrist owns directly or
indirectly any interests or has any investment in any person that is a
Competitor of the Company.
3.24. Environmental Matters.
a. Environmental Laws. To the best
knowledge of the Company and the Optometrist, neither the Company nor any of
the Non-optometric Assets (including the leased real property described on
Schedule 3.11(c)) are currently in violation of, or subject to any existing,
pending or, to the actual knowledge of the Company threatened, investigation or
inquiry by any governmental authority or to any remedial obligations under, any
federal, state or local laws or regulations pertaining to health or the
environment ("Environmental Laws"), except for any such violations,
investigations or inquiries that would not, individually or in the aggregate,
result in a Material Adverse Effect.
b. Permits. The Company is not required
to obtain, and has no knowledge of any reason Vision 21 will be required to
obtain, any permits, licenses or similar authorizations to occupy, operate or
use any buildings, improvements, fixtures and equipment owned or leased by the
Company by reason of any Environmental Laws.
c. Superfund List. To the best knowledge
of the Company, none of the Non-optometric Assets (including the Company's
leased real property described on Schedule 3.11(c)) are on any federal or state
"Superfund" list or subject to any environmentally related liens, except such
liens as would not, individually or in the aggregate, result in a Material
Adverse Effect.
3.25. Certain Payments. Neither the Company nor any
director, officer or employee of the Company acting for or on behalf of the
Company, has paid or caused to be paid, directly or indirectly, in connection
with the business of the Company:
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds of directors, officers or
employees not reimbursed by their respective employers or as otherwise
permitted by applicable law).
25
<PAGE> 40
3.26. Medical Waste. With respect to the generation,
transportation, treatment, storage, and disposal, or other handling of medical
waste, to the best knowledge of the Company and the Optometrist, the Company
has complied with all material federal, state or local laws or regulations
pertaining to medical waste.
3.27. Medicare and Medicaid Programs. The Company, the
Optometrist and each Professional Employee is qualified for participation in
the Medicare and Medicare programs and is party to provider agreements for such
programs which are in full force and effect with no events of default having
occurred thereunder. The Company, the Optometrist and each Professional
Employee has timely filed all claims or other reports required to be filed
prior to the Closing Date with respect to the purchase of services by
third-party payors ("Payors"), including but not limited to Medicare and
Medicaid programs, except where the failure to file would not, individually or
in the aggregate, result in a Material Adverse Effect. All such claims or
reports are complete and accurate in all material respects. The Company, the
Optometrist and each Professional Employee has paid or has properly recorded on
the Financial Statements all actually known and undisputed refunds, discounts
or adjustments which have become due pursuant to such claims, and neither the
Company, the Optometrist nor any Professional Employee has any material
liability to any Payor with respect thereto, except as has been reserved for in
the Company Balance Sheet. There are no pending appeals, overpayment
determinations, adjustments, challenges, audits, litigation, or notices of
intent to reopen Medicare and/or Medicaid claims determinations or other
reports required to be filed by the Company, the Optometrist or any
Professional Employee in order to be paid by a Payor for services rendered.
Neither the Company, nor any of its directors, officers, employees, consultants
or the Optometrist has been convicted of, or pled guilty or nolo contendere to,
patient abuse or neglect, or any other Medicare or Medicaid program-related
offense. Neither the Company, nor its directors, officers, the Optometrist, or
to the best of the Company's knowledge, its employees or consultants, has
committed any offense which may serve as the basis for suspension or exclusion
from the Medicare and Medicaid programs, including but not limited to,
defrauding a government program, loss of a license to provide health services,
and failure to provide quality care.
3.28. Fraud and Abuse. To the best knowledge of the
Company and the Optometrist, the Company, its officers and directors, the
Professional Employees, and the other persons and entities providing
professional services for the Company, have not engaged in any activities which
are prohibited under 42 U.S.C. Sections 1320-7, 7a or 7b or 42 U.S.C.
Section 1395nn (subject to the exceptions set forth in such legislation), or
the regulations promulgated thereunder or pursuant to similar state or local
statutes or regulations, or which are prohibited by rules of professional
conduct, including but not limited to the following:
a. knowingly and willfully making or
causing to be made a false statement or representation of a material fact in
any application for any benefit or payment;
26
<PAGE> 41
b. knowingly and willfully making or
causing to be made a false statement or representation of a material fact for
use in determining rights to any benefit or payment;
c. failure to disclose knowledge by a
Medicare or Medicaid claimant of the occurrence of any event affecting the
initial or continued right to any benefit or payment on its own behalf or on
behalf of another, with intent to fraudulently secure such benefit or payment;
d. knowingly and willfully offering,
paying, soliciting or receiving any remuneration (including any kickback,
bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in
kind (i) in return for referring an individual to a person for the furnishing
or arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare or Medicaid, or (ii) in return for
purchasing, leasing, or ordering, or arranging for or recommending purchasing,
leasing, or ordering any good, facility, service, or item for which payment may
be made in whole or in part by Medicare or Medicaid; and
e. referring a patient for designated
health services (as defined in 42 U.S.C. Section 1395nn) to or providing
designated health services to a patient upon a referral from an entity or
person with which the Optometrist or the Professional Employee or an immediate
family member has a financial relationship, and to which no exception under 42
U.S.C. Section 1395nn applies.
3.29. Payors. Schedule 3.29 sets forth a true, correct
and complete list of the names and addresses of each Payor, including any
private pay patient as a single payor, of the Company's services which
accounted for more than 10% of the revenues of the Company in the three (3)
previous fiscal years. Except as set forth on Schedule 3.29, the Company has
good relations with such Payors and none of such Payors has notified the
Company that it intends to discontinue its relationship with the Company or to
deny any claims submitted to such Payor for payment.
3.30. Prohibitions on the Corporate Practice of
Optometry. To the best of the Company's and the Optometrist's knowledge, the
actions, transactions or relationships arising from, and contemplated by this
Agreement, do not violate any law, rule or regulation relating to the corporate
practice of optometry. The Company and the Optometrist accordingly agree that
the Company and the Optometrist will not, in an attempt to void or nullify any
document contemplated herein or any relationship involving Vision 21, the
Company or the Optometrist, sue, claim, aver, allege or assert that any such
document contemplated herein or any such relationship violates any law, rule or
regulation relating to the corporate practice of optometry and expressly
warrant that this Section is valid and enforceable by Vision 21, and recognize
that Vision 21 has relied upon the statements herein in closing this
Transaction.
27
<PAGE> 42
3.31. Acquisition Proposals. Except for the
negotiations, offers and agreements with Vision 21 and its representatives, the
Company has not received during the twelve (12) month period preceding the date
of this Agreement any proposal or offer (including, without limitation, any
proposal or offer of its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of the assets or any equity securities of, the Company (any
such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") nor has the Company or any of its employees, agents, representatives
or stockholders engaged in any negotiations concerning, or provided any
confidential information or data to, or had any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitated any effort or
attempted to make or implement an Acquisition Proposal.
3.32. Consistent Treatment of Expenses. The Company
has, in presenting information concerning the Company's expenses to Vision 21
for the purpose of determining the Company's value, separated out those
expenses which shall be borne by the Company in a manner which is consistent
with the treatment of expenses which shall be the responsibility of the Company
pursuant to the Business Management Agreement.
3.33. Accounts Receivable/Payable. The Accounts
Receivable of the Company relating to the ownership and operation of the
Practice reflected on the Company Balance Sheet, to the extent uncollected on
the date hereof, are, and the accounts receivable of the Company relating to
the ownership and operation of the Practice to be reflected on the books of the
Company on the Closing Date will be, valid, existing and collectible within six
months from the Closing Date (taking into consideration the allowance for
doubtful accounts set forth in the Financial Statements) using reasonably
diligent collection methods taking into account the size and nature of the
receivable, and represent amounts due for goods sold and delivered or services
performed. There are not, and on the date of Closing there will not be, any
refunds, discounts, set-offs, defenses, counterclaims or other adjustments
payable or assessable with respect to the Accounts Receivable. The Company has
collected Accounts Receivable only in the ordinary course and has not changed
collection procedures or methods nor accelerated the pace of such collection
efforts in anticipation of the transactions contemplated in this Agreement.
The Company has paid accounts payable in the ordinary course and has not
changed payment procedures or methods nor delayed the timing of such payments
in anticipation of the transactions contemplated in this Agreement.
3.34. Projections. There is no fact, development or
threatened development with respect to the markets, products, services,
clients, patients, facilities, personnel, vendors, suppliers, operations,
assets or prospects of the Practice which are known to the Company or the
Optometrist which would materially adversely affect the projected fiscal year
1997 earnings of the Company disclosed to Vision 21 by Optometrist, other than
such conditions as may affect as a whole the economy or the practice of
optometry generally.
3.35. Inventory. Except as set forth on Schedule 3.35,
to the best of the Company's and the Optometrist's knowledge: (i) the
Inventory is in its originally manufactured
28
<PAGE> 43
condition, fit for the use for which it was intended, free from any known
defect and in a quantity and quality usable in the ordinary course of business;
(ii) the Inventory does not contain material amounts of items that are
slow-moving, obsolete or of below-standard quality; (iii) the qualities and
quantities of Inventory are reasonable and warranted in the present and
anticipated circumstances of the Practice; and (iv) there has been no decrease
in the physical Inventory since the Company Balance Sheet Date other than in
the ordinary course of business.
3.36. Tangible Personal Property. Except as set forth
on Schedule 3.36, the Company's Tangible Personal Property is in good operating
condition, working order and repair (normal wear and tear excepted) and is
fully suitable for the uses for which it is employed in the conduct of the
Practice.
3.37. Leases. With respect to each of the Real
Property Leases and Personal Property Leases, except as set forth on Schedule
3.37:
(a) such lease is legal, valid, binding, enforceable
and in full force and effect;
(b) such lease will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the Closing;
(c) no party to such lease is in material breach or
default, and no event has occurred that, with notice or lapse of time, would
constitute a material breach or default or permit termination, modification or
acceleration thereunder;
(d) no party to such lease has repudiated in writing
any provision thereof;
(e) there are no disputes, oral agreements or
forbearance programs in effect as to such lease; and
(f) The Company has performed and satisfied in full
each material obligation to be performed by the Company under such lease.
3.38. Contract Rights. Except as set forth on Schedule
3.38, each of the Assumed Contracts is valid and enforceable and is in full
force and effect, and there is no material default or existing condition that,
with the giving of notice or the passage of time, would constitute such a
default by any parties thereto. The Company has performed and satisfied in
full each material obligation required to be performed by the Company under
each Assumed Contract. If services are to be provided to the Company under any
of such Assumed Contracts, such services have been and are being performed
satisfactorily and in a timely manner, substantially in accordance with the
terms of such Assumed Contract.
3.39. Prepaid Items. Except as described on Sechedule
3.13, each of the Prepaid Items may be transferred to Vision 21 without the
necessity of obtaining any consent or approval.
29
<PAGE> 44
3.40. Completeness of Assets. The Non-optometric
Assets, together with the Optometric Assets, include all the properties used to
conduct the Practice as presently conducted.
3.41. Disclosure. To the best of the Company's and the
Optometrist's knowledge, no representation, warranty or statement made by the
Company or the Optometrist in this Agreement or any of the exhibits or
schedules hereto, or any agreements, certificates, documents or instruments
delivered or to be delivered to Vision 21 in accordance with this Agreement or
the other documents contemplated herein, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading. The Company and the
Optometrist do not know of any fact or condition (other than general economic
conditions or legislative or administrative changes in health-care delivery)
which materially adversely affects, or in the future may materially affect, the
condition, properties, assets, liabilities, business, operations or prospects
of the Practice which has not been set forth herein or in the Schedules
provided herewith.
4. REPRESENTATIONS AND WARRANTIES OF THE OPTOMETRIST. The
Optometrist represents and warrants to Vision 21 that the following are true
and correct as of the date hereof, and shall be true and correct through the
Closing Date as if made on that date:
4.1. Validity; Optometrist Capacity. This Agreement,
the Optometrist Employment Agreement, and each other agreement contemplated
hereby or thereby have been, or will be as of the Closing Date, duly executed
and delivered by the Optometrist and constitute or will constitute legal, valid
and binding obligations of the Optometrist, enforceable against the Optometrist
in accordance with their respective terms, except as may be limited by
applicable bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the availability of equitable remedies. The Optometrist has legal
capacity to enter into and perform this Agreement and his Optometrist
Employment Agreement.
4.2. No Violation. Except as set forth on Schedule
4.2, neither the execution, delivery or performance of this Agreement, other
agreements of the Optometrist contemplated hereby or thereby, nor the
consummation of the transactions contemplated hereby or thereby, will (a)
conflict with, or result in a violation or breach of the terms, conditions or
provisions of, or constitute a default under, any agreement, indenture or other
instrument under which the Optometrist is bound or to which any of his property
or the shares of common stock of the Company are subject, or result in the
creation or imposition of any security interest, lien, charge or encumbrance
upon any of his property or the shares of common stock of the Company or (b) to
the best knowledge of the Optometrist, violate or conflict with any judgment,
decree, order, statute, rule or regulation of any court or any public,
governmental or regulatory agency or body.
4.3. Consents. Except as may be required under the
Exchange Act, the Securities Act, the Corporation Law and state securities
laws, or otherwise disclosed pursuant
30
<PAGE> 45
to this Agreement, no consent, authorization, approval, permit or license of,
or filing with, any governmental or public body or authority, or any other
person is required to authorize, or is required in connection with, the
execution, delivery and performance of this Agreement or the agreements
contemplated hereby on the part of the Optometrist.
4.4. Certain Payments. The Optometrist has not paid
or caused to be paid, directly or indirectly, in connection with the business
of the Company:
a. to any government or agency thereof or
any agent of any supplier or customer any bribe, kick-back or other similar
payment; or
b. any contribution to any political
party or candidate (other than from personal funds not reimbursed by the
Company or as otherwise permitted by applicable law).
4.5. Finder's Fee. Except as set forth on Schedule
4.5, the Optometrist has not incurred any obligation for any finder's, broker's
or agent's fee in connection with the transactions contemplated hereby.
4.6. Ownership of Interested Persons; Affiliations.
Except as set forth on Schedule 4.6, neither the Optometrist nor his spouse,
children or Affiliates, owns directly or indirectly, on an individual or joint
basis, any interest in, has a compensation or other financial arrangement with,
or serves as an officer or director of, any customer or supplier of the Company
or any organization that has a material contact or arrangement with the
Company. Neither the Optometrist nor any of his Affiliates is, or with the
last three (3) years was, a party to any contract, lease, agreement or
arrangement, including, but not limited to, any joint venture or consulting
agreement with any optometrist, hospital, pharmacy, home health agency or other
person which is in a position to make or influence referrals to, or otherwise
generate business for, the Company.
4.7. Investments in Competitors. Except as disclosed
on Schedule 4.7, the Optometrist does not own directly or indirectly any
interests or have any investment in any person that is a Competitor of the
Company.
4.8. Litigation. Except as disclosed on Schedule 4.8,
there are no claims, actions, suits, proceedings (arbitration or otherwise) or
investigations pending or, to the Optometrist's knowledge, threatened against
the Optometrist at law or at equity in any court or before or by any
Governmental Authority, and, to the Optometrist's knowledge, there are no, and
have not been any, facts, conditions or incidents that may result in any such
actions, suits, proceedings (arbitration or otherwise) or investigations.
Except as set forth on Schedule 4.10, there have been no disciplinary,
revocation or suspension proceedings or similar types of claims, actions or
proceedings, hearings or investigations against the Optometrist or the Company.
31
<PAGE> 46
4.9. Permits. To the best of the Optometrist's
knowledge, the Optometrist has all permits, licenses, orders and approvals of
all Governmental Authorities necessary to perform the services performed by the
Optometrist in connection with the conduct of the Practice. All such permits,
licenses, orders and approvals are in full force and effect and no suspension
or cancellation of any of them is pending or threatened. To the best of the
Optometrist's knowledge, none of such permits, licenses, orders or approvals
will be adversely affected by the consummation of the transactions contemplated
herein. The Optometrist is a participating optometrist, as such term is
defined by the Medicare or Medicaid programs, and the Optometrist has not been
disciplined, sanctioned or excluded from either the Medicare or Medicaid
programs and has not been subject to any plan of correction imposed by any
professional review body.
4.10. Staff Privileges. Schedule 4.10 lists all
hospitals at which the Optometrist has full staff privileges. Such staff
privileges have not been revoked, surrendered, suspended or terminated, and to
the Optometrist's knowledge, there are no, and have not been any, facts,
conditions or incidents that may result in any such revocation, surrender,
suspension or termination.
4.11. Intentions. Except as set forth on Schedule
4.11, the Optometrist intends to continue practicing optometry on a full-time
basis for at least the next five (5) years with the Company and does not know
of any fact or condition that materially adversely affects, or in the future
may materially adversely affect, his ability or intention to practice optometry
on a full-time basis for the next five (5) years with the Company.
5. REPRESENTATIONS AND WARRANTIES OF VISION 21. Vision 21
represents and warrants to the Company and the Optometrist that the following
are true and correct as of the date hereof and shall be true and correct as of
the Closing Date; when used in this Section 5, the term "best knowledge" shall
mean the best knowledge of those individuals listed on Schedule 5:
5.1. Organization and Good Standing. Vision 21 is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Florida, with all requisite corporation power and
authority to carry on the business in which it is engaged, to own the
properties it owns, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. At or prior to Closing, Vision 21 will be
qualified to do business as a foreign corporation in the jurisdictions listed
on Schedule 5.1.
5.2. Capitalization. The authorized capital stock of
Vision 21 consists of 50,000,000 shares of Vision 21 Common Stock, of which
5,465,673 shares are issued and outstanding. Immediately prior to the Closing,
the authorized capital stock of Vision 21 will consist of 50,000,000 shares of
Vision 21 Common Stock, of which 5,465,673 shares will be issued and
outstanding.
5.3. Corporate Records. The copies of the Articles of
Incorporation and Bylaws, and all amendments thereto, of Vision 21 that have
been delivered or made available
32
<PAGE> 47
to the Company and the Optometrist are true, correct and complete copies
thereof, as in effect on the date hereof. The minute books of Vision 21,
copies of which have been delivered or made available to the Company and the
Optometrist, contain accurate minutes of all meetings of, and accurate consents
to all actions taken without meetings by, the Board of Directors (and any
committees thereof) and the stockholders of Vision 21, since its formation.
5.4. Authorization and Validity. The execution,
delivery and performance by Vision 21 of this Agreement and the other
agreements contemplated hereby, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by Vision 21. This
Agreement and each other agreement contemplated hereby to be executed by Vision
21 have been or will be as of the Closing Date duly executed and delivered by
Vision 21 and constitute or will constitute legal, valid and binding
obligations of Vision 21, enforceable against Vision 21 in accordance with
their respective terms, except as may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors' rights generally or the
availability of equitable remedies.
5.5. Compliance. The execution and delivery of the
documents contemplated hereunder and the consummation of the transactions
contemplated thereby by Vision 21 shall not (i) violate any provision of Vision
21's organizational documents, (ii) violate any material provision of or result
in the breach of or entitle any party to accelerate (whether after the giving
of notice or lapse of time or both) any material obligation under, any
mortgage, lien, lease, contract, license, instrument or any other agreement to
which Vision 21 is a party, (iii) result in the creation or imposition of any
material lien, charge, pledge, security interest or other material encumbrance
upon any property of Vision 21 or (iv) violate or conflict with any order,
award, judgment or decree or other material restriction or to the best of
Vision 21's knowledge violate or conflict with any law, ordinance or regulation
to which Vision 21 or its property is subject.
5.6. Consents. No consent, approval, order or
authorization of or registration, declaration, or filing with, any Governmental
Authority or other person is required in connection with the execution and
delivery of the documents contemplated herein by Vision 21 or the consummation
by such party of the transactions contemplated thereby, except for those
consents or approvals set forth on Schedule 5.6.
5.7. Finder's Fee. Except as disclosed on Schedule
5.7, Vision 21 has not incurred any obligation for any finder's, broker's or
agent's fee in connection with the transactions contemplated hereby.
5.8. Capital Stock. The issuance and delivery by
Vision 21 of shares of Vision 21 Common Stock in connection with the Note have
been duly and validly authorized by all necessary corporate action on the part
of Vision 21. The shares of Vision 21 Common Stock to be issued in connection
with the Note, when issued in accordance with the terms of this Agreement, will
be validly issued, fully paid and nonassessable and will not have been issued
in violation of any preemptive rights, rights of first refusal or similar
rights of any of
33
<PAGE> 48
Vision 21's stockholders, or any federal or state law, including, without
limitation, the registration requirements of applicable federal and state
securities laws.
5.9. Vision 21 Financial Statements; Confidential
Information Memorandum. The balance sheet of Vision 21 as of September 30,
1996 and the related statements of income of Vision 21 for the first nine (9)
months of Vision 21's 1996 fiscal year, without giving effect to the Related
Acquisitions, including the costs incurred during such fiscal year associated
with any Registration Statement, shall be contained in the Confidential
Information Memorandum to be provided to the Optometrist and the Company by
Vision 21 prior to the Closing (collectively, with the related notes thereto,
the "Vision 21 Financial Statements"). The Vision 21 Financial Statements (a)
fairly present the financial condition and results of operations of Vision 21,
without giving effect to the Related Acquisitions, as of the dates and for the
periods indicated; and (b) have been prepared in conformity with GAAP (subject
to normal year-end adjustments and the absence of notes for any unaudited
interim financial statement), except as otherwise indicated in the Vision 21
Financial Statements. Subject to the foregoing and the other qualifications
contained elsewhere in this Agreement, to the best knowledge of Vision 21, the
Confidential Information Memorandum, as amended on December, 1996, is true and
correct in all material respects.
5.10. Liabilities and Obligations. Except as disclosed
on Schedule 5.10, the Vision 21 Financial Statements shall reflect all material
liabilities of Vision 21, accrued, contingent or otherwise, that would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with GAAP. Except as set forth on Schedule 5.10 or in the Vision
21 Financial Statements, Vision 21 is not liable upon or with respect to, or
obligated in any other way to provide funds in respect of or to guarantee or
assume in any manner, any debt, obligation or dividend of any person,
corporation, association, partnership, joint venture, trust or other entity,
and Vision 21 does not know of any valid basis for the assertion of any other
claims or liabilities of any nature or in any amount.
5.11. Compliance with Laws. Vision 21 has not failed
to comply with any applicable laws, regulations and licensing requirements or
failed to file with the proper authorities any necessary statements and reports
except where the failure to so comply or file would not, individually or in the
aggregate, result in a Material Adverse Effect. There are no existing
violations by Vision 21 of any federal, state or local law or regulation that
could, individually or in the aggregate, result in a Material Adverse Effect.
Vision 21 possesses all necessary licenses, franchises, permits and
governmental authorizations for the conduct of Vision 21's business as now
conducted and after the Closing, as contemplated in this Agreement. The
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any such licenses, franchises, permits or government
authorizations, except for any such default, breach or violation that would
not, individually or in the aggregate, have a Material Adverse Effect. Since
January 1, 1993, Vision 21 has not received any notice from any federal, state
or other governmental authority or agency having jurisdiction over its
properties or activities, or any insurance or inspection body, that its
operations or any of its properties, facilities, equipment,
34
<PAGE> 49
or business practices fail to comply with any applicable law, ordinance,
regulation, building or zoning law, or requirement of any public or
quasi-public authority or body, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect.
5.12. Insolvency Proceedings. Vision 21 is not
currently under the jurisdiction of a Federal or state court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
5.13. Employment of Company's Employees. Vision 21
does not currently intend to change the existing composition or employment
terms of any of the non-professional personnel which have employment
arrangements with the Company on the effective date of this Agreement (except
as is necessary for Vision 21 to employ such individuals pursuant to the
Business Management Agreement). Vision 21 reserves the right, however, to
change the number, composition or employment terms of such non-professional
personnel in the future.
6. SECURITIES LAW MATTERS.
6.1. Investment Representations and Covenants of
Optometrist.
a. Optometrist understands that the
Securities will not be registered under the Securities Act or any state
securities laws on the grounds that the issuance of the Securities is exempt
from registration pursuant to Section 4(2) of the Securities Act under the
Securities Act and applicable state securities laws, and that the reliance of
Vision 21 on such exemptions is predicated in part on the Optometrist's
representations, warranties, covenants and acknowledgements set forth in this
Section.
b. Except as disclosed on Schedule 6.1(b)
attached hereto, Optometrist represents and warrants that Optometrist is an
"accredited investor" or "sophisticated investor" as defined under the
Securities Act and state "Blue Sky" laws, or that Optometrist has utilized, to
the extent necessary to be deemed a sophisticated investor under the Securities
Act and State "Blue Sky" laws, the assistance of a professional advisor.
c. Optometrist represents and warrants
that the Securities to be acquired by Optometrist upon consummation of the
transactions described in this Agreement will be acquired by Optometrist for
Optometrist's own account, not as a nominee or agent, and without a view to
resale or other distribution within the meaning of the Securities Act and the
rules and regulations thereunder, except as contemplated in this Agreement, and
that Optometrist will not distribute any of the Securities in violation of the
Securities Act. All Securities shall bear a restrictive legend in
substantially the following form:
35
<PAGE> 50
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY ONLY BE SOLD OR OTHERWISE
TRANSFERRED IF THE HOLDER HEREOF COMPLIES WITH THE ACT AND APPLICABLE
SECURITIES LAWS."
In addition, the Securities shall bear any legend required by the
securities or "Blue Sky" laws of any state where Optometrist resides as well as
any other legend deemed appropriate by Vision 21 or its counsel.
d. Optometrist represents and warrants
that the address set forth below Optometrist's name on Schedule 6.1(d) is
Optometrist's principal residence.
e. Optometrist (i) acknowledges that the
Securities issued to Optometrist at the Closing must be held indefinitely by
Optometrist unless subsequently registered under the Securities Act or an
exemption from registration is available, (ii) is aware that any routine sales
of Securities made pursuant to Rule 144 under the Securities Act may be made
only in limited amounts and in accordance with the terms and conditions of that
Rule and that in such cases where the Rule is not applicable, compliance with
some other registration exemption will be required, (iii) is aware that Rule
144 is not currently available for use by Optometrist for resale of any of the
Securities to be acquired by Optometrist upon consummation of the transactions
described in this Agreement, and (iv) acknowledges and agrees that the transfer
of the Securities shall be further restricted by the "lock-up" provisions
contained in the Registration Rights Agreement in the form of Exhibit 14(e),
whereby Optometrist shall be treated as an "affiliate" of Vision 21 under Rule
144.
f. Optometrist represents and warrants to
Vision 21 that Optometrist, either alone or together with the assistance of
Optometrist's own professional advisor, has such knowledge and experience in
financial and business matters such that Optometrist is capable of evaluating
the merits and risks of Optometrist's investment in any of the Securities to be
acquired by Optometrist upon consummation of the transactions described in this
Agreement.
g. Optometrist confirms that Optometrist
has received and read the Confidential Information Memorandum of Vision 21
dated September 27, 1996 and the December, 1996 Supplement thereto.
Optometrist also confirms that Optometrist has had the opportunity to ask
questions of and receive answers from Vision 21 concerning the terms and
conditions of Optometrist's investment in the Securities, and the Optometrist
has received to Optometrist's satisfaction, such additional information, in
addition to that set forth herein, about Vision 21's operations and the terms
and conditions of the offering as Optometrist has requested.
h. In order to ensure compliance with the
provisions of paragraph (c) hereof, Optometrist agrees that after the Closing
Optometrist will not sell or otherwise transfer or dispose of Securities or any
interest therein (unless such shares have been
36
<PAGE> 51
registered under the Securities Act) without first complying with either of the
following conditions, the expenses and costs of satisfaction of which shall be
fully borne and paid for by Optometrist:
i) Vision 21 shall have
received a written legal opinion from legal counsel, which opinion and counsel
shall be satisfactory to Vision 21 in the exercise of its reasonable judgment,
or a copy of a "no-action" or interpretive letter of the Securities and
Exchange Commission specifying the nature and circumstances of the proposed
transfer and indicating that the proposed transfer will not be in violation of
any of the registration provisions of the Securities Act and the rules and
regulations promulgated thereunder; or
ii) Vision 21 shall have
received an opinion from its own counsel to the effect that the proposed
transfer will not be in violation of any of the registration provisions of the
Securities Act and the rules and regulations promulgated thereunder.
Optometrist also agrees that the certificates or instruments representing the
Securities to be issued to Optometrist pursuant to this Agreement may contain a
restrictive legend noting the restrictions on transfer described in this
Section and required by federal and applicable state securities laws, and that
appropriate "stop-transfer" instructions will be given to Vision 21's transfer
agent, if any, provided that this Section 6.1(h) shall no longer be applicable
to any Securities following their transfer pursuant to a registration statement
effective under the Securities Act or in compliance with Rule 144 or if the
opinion of counsel referred to above is to the further effect that transfer
restrictions and the legend referred to herein are no longer required in order
to establish compliance with any provisions of the Securities Act.
i. Optometrist understands that although
an Initial Public Offering is contemplated by Vision 21, there are no
assurances that an Initial Public Offering will occur or if it does occur that
it will be successful.
j. Optometrist agrees that he shall be
considered an "affiliate" of Vision 21 for purposes of Rule 144 and agrees to
the restrictions and limitations imposed by Rule 144 on affiliates.
Optometrist further agrees that he shall be considered an affiliate of Vision
21 for Rule 144 purposes even if he does not meet the technical definition of
"affiliate" under Rule 144.
6.2. Current Public Information. At all times
following the registration of any of Vision 21's securities under the
Securities Act or Exchange Act pursuant to which Vision 21 becomes subject to
the reporting requirements of the Exchange Act, Vision 21 shall use
commercially reasonable efforts to comply with the requirements of Rule 144
under the Securities Act, as such Rule may be amended from time to time (or any
similar rule or regulation hereafter adopted by the SEC) regarding the
availability of current public information to the extent required to enable any
holder of shares of Common Stock to sell such shares
37
<PAGE> 52
without registration under the Securities Act pursuant to Rule 144 (or any
similar rule or regulation).
7. COVENANTS OF THE COMPANY AND THE OPTOMETRIST. The Company
and the Optometrist, jointly and severally, agree that between the date hereof
and the Closing (with respect to the Company's covenants, the Optometrist
agrees to use his best efforts to cause the Company to perform):
7.1. Consummation of Agreement. The Company and the
Optometrist shall use their best efforts to cause the consummation of the
transactions contemplated hereby in accordance with their terms and conditions;
provided, however, that this covenant shall not require the Company or the
Optometrist to make any expenditures that are not expressly set forth in this
Agreement or otherwise contemplated herein.
7.2. Business Operations. The Company shall operate
its business in the ordinary course. The Company and the Optometrist shall use
their best efforts to preserve the business of the Company intact. Neither the
Company nor the Optometrist shall take any action that would, individually or
in the aggregate, result in a Material Adverse Effect.
7.3. Access. The Company and the Optometrist shall,
at reasonable times during normal business hours and on reasonable notice,
permit Vision 21 and its authorized representatives, including without
limitation, the Accountants, reasonable access to, and make available for
inspection, all of the assets and business of the Company, including its
employees, customers and suppliers, and permit Vision 21 and its authorized
representatives to inspect and, at Vision 21's sole cost and expense, make
copies of all documents, records (other than patient optometric records) and
information with respect to the affairs of the Company, including, without
limitation, the Financial Statements, as Vision 21 and its representatives may
request, all for the sole purpose of permitting Vision 21 to become familiar
with the business and assets and liabilities of the Company.
7.4. Notification of Certain Matters. The Company and
the Optometrist shall promptly inform Vision 21 in writing of (a) any notice
of, or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by the Company or the
Optometrist subsequent to the date of this Agreement and prior to the Closing
Date under any Commitment material to the Company's condition (financial or
otherwise), operations, assets, liabilities or business and to which it is
subject; or (b) any material adverse change in the Company's condition
(financial or otherwise), operations, assets, liabilities or business.
7.5. Approvals of Third Parties. As soon as
practicable after the date hereof, the Company and the Optometrist shall secure
all necessary approvals and consents of landlords with respect to the real
property described on Schedule 2.1(d) to the consummation of the transactions
contemplated hereby and shall use their best efforts to secure all necessary
approvals and consents of other third parties to the consummation of the
transactions
38
<PAGE> 53
contemplated hereby; provided, however, that this covenant shall not require
the Company or the Optometrist to make any material expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
7.6. Employee Matters. Except as set forth in
Schedule 3.8(a) or as otherwise contemplated by this Agreement, the Company
shall not, without the prior written approval of Vision 21, except as required
by law:
a. increase the cash compensation of the
Optometrist or any other employees of the Company (other than in the ordinary
course of business and consistent with past practice);
b. adopt, amend or terminate any
Compensation Plan;
c. adopt, amend or terminate any
Employment Agreement;
d. adopt, amend or terminate any
Employee Policies and Procedures;
e. adopt, amend or terminate any
Employee Benefit Plan;
f. take any action that could deplete the
assets of any Employee Benefit Plan, other than payment of benefits in the
ordinary course to participants and beneficiaries;
g. fail to pay any premium or
contribution due or with respect to any Employee Benefit Plan;
h. fail to file any return or report
with respect to any Employee Benefit Plan;
i. institute, settle or dismiss any
employment litigation except as could not, individually or in the aggregate,
result in a Material Adverse Effect;
j. enter into, modify, amend or terminate
any agreement with any union, labor organization or collective bargaining unit;
or
k. take or fail to take any action with
respect to any past or present employee of the Company that would, individually
or in the aggregate, result in a Material Adverse Effect.
7.7. Contracts. Except with Vision 21's prior written
consent, the Company shall not assume or enter into any contract, lease,
license, obligation, indebtedness, commitment, purchase or sale except in the
ordinary course of business that is material to the
39
<PAGE> 54
Company's business, nor will it waive any material right or cancel any material
contract, debt or claim.
7.8. Capital Assets; Payments of Liabilities. The
Company shall not, without the prior written approval of Vision 21 (a) acquire
or dispose of any capital asset having a fair market value of $5,000 or more,
or acquire or dispose of any capital asset outside of the ordinary course of
business or (b) discharge or satisfy any lien or encumbrance or pay or perform
any obligation or liability other than (i) liabilities and obligations
reflected in the Financial Statements or (ii) current liabilities and
obligations incurred in the usual and ordinary course of business since the
Company Balance Sheet Date and, in either case (i) or (ii) above, only as
required by the express terms of the agreement or other instrument pursuant to
which the liability or obligation was incurred.
7.9. Mortgages, Liens and Guaranties. The Company
shall not, without the prior written approval of Vision 21, enter into or
assume any mortgage, pledge, conditional sale or other title retention
agreement, permit any security interest, lien, encumbrance or claim of any kind
to attach to any of its assets (other than statutory liens arising in the
ordinary course of business and other liens that do not materially detract from
the value or interfere with the use of such assets), whether now owned or
hereafter acquired, or guarantee or otherwise become contingently liable for
any obligation of another, except obligations arising by reason of endorsement
for collection and other similar transactions in the ordinary course of
business, or make any capital contribution or investment in any person.
7.10. Acquisition Proposals. The Company and the
Optometrist agree that from the date of this Agreement through the earlier of
the Closing Date or January 1, 1997, (a) neither the Optometrist nor the
Company nor any of its officers and directors shall, and the Optometrist and
the Company shall direct and use their best efforts to cause the Company's
employees, agents, and representatives not to, initiate, solicit or encourage,
directly or indirectly, any inquiries or the making or implementation of any
Acquisition Proposal or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (b) the Optometrist and
the Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and each will take the necessary steps to
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 7.10; and (c) the Optometrist and
the Company will notify Vision 21 immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, the
Company or the Optometrist.
7.11. Distributions and Repurchases. No distribution,
payment or dividend of any kind will be declared or paid by the Company with
respect of its capital stock, nor will any repurchase of any of the Company's
capital stock be approved or effected.
40
<PAGE> 55
7.12. Requirements to Effect the Transaction. The
Company and the Optometrist shall use their best efforts to take, or cause to
be taken, all actions necessary to effect the Transaction under applicable law.
7.13. Optometrist Accounts Payable and Optometrist
Retained Equity. The Company shall, and the Optometrist shall cause the
Company, to pay in a timely manner the accounts payable of the Optometrist.
Except as contemplated herein, the Company shall not, and the Optometrist shall
not permit the Company to, make payment of all or any portion of any retained
equity of the Company at any time prior to Closing.
7.14. Optometrist Employment Agreements. The Company
and the Optometrist shall cause, at or immediately prior to Closing, each
Optometrist Employee (except for those non-shareholder Optometrist Employees
identified on Schedule 7.14) who is then an employee of the Company and
Optometrist agrees at or immediately prior to Closing (i) to terminate his
employment agreement, if any, with the Company by mutual consent without any
liability therefor on the part of the Company and (ii) to enter into a new
Optometrist Employment Agreement with the Company in accordance with the terms
of the Business Management Agreement.
7.15. Optometrist Employment Agreements. The Company
and the Optometrist shall cause, at or immediately prior to Closing, each
Optometrist Employee who is then an employee of the Company (i) to terminate
his existing employment agreement, if any, with the Company by mutual consent
without any liability therefor on the part of the Company and (ii) to enter
into a new Optometrist Employment Agreement with the Company in accordance with
the terms of the Business Management Agreement.
7.16. Termination of Retirement Plans. Prior to
Closing, the Optometrist shall cause the Company to take all steps necessary to
discontinue benefits accruals under any Employee Benefit Plan that is intended
to be a qualified employee retirement plan under Section 401(a) of the Code (a
"Retirement Plan") effective as of Closing or as soon thereafter as may be
practical.
Subsequent to Closing, the Company and Vision 21 shall
review the extent to which the Company can resume contributions to the
Retirement Plan without violating the qualification requirements of Sections
410(b) and 401(a)(4) of the Code, taking into account any employees of Vision
21 who would be "leased employees" of the Company under Section 414(n) of the
Code. If Vision 21 and the Company mutually agree that such qualification
requirements can be satisfied, the Company may elect to continue the Retirement
Plan and make contributions in accordance with its terms, provided that the
Company shall agree to cover at its own expense any Vision 21 employees who are
leased employees if such coverage is required to maintain the tax-qualified
status of the Retirement Plan.
7.17. Delivery of Schedules. The Company and the
Optometrist shall deliver to Vision 21 all schedules required to be delivered
by them prior to the Closing.
41
<PAGE> 56
7.18. Assignment of Fees for Optometry Services. On or
prior to the Closing Date, the Company shall obtain an irrevocable assignment
from all Professional Employees of any and all of their rights to receive
payment for the provision of optometry services which are part of the Accounts
Receivable to Vision 21 existing on the Closing Date, except for those fees
specified and set forth on Schedule 7.18. Each Professional Employee shall
undertake to endorse any payments received on account of such services to the
order of Vision 21 and to take such other action as may be necessary to confirm
to Vision 21 the rights to collect and retain for its own account such Accounts
Receivable. The Company shall cause its Professional Employees to agree that
such security interest of such lender(s) is intended to be a first priority
security interest and is superior to any right, title or interest which may be
asserted by such Professional Employees with respect to the Accounts Receivable
or the proceeds thereof. In the event that the assignment of rights described
in this Section shall be deemed, for any reason, to be ineffective as an
outright assignment, the Company shall cause each Professional Employee to
agree that such Professional Employee shall be deemed, effective as of the
Closing Date, to have granted to Vision 21 a first priority lien on and
security interest in and to any and all interests of such Professional Employee
in any of the Accounts Receivable, and all proceeds with respect thereto, to
secure the collection by Vision 21 of all Accounts Receivable, and this
Agreement shall be deemed to be a security agreement to the extent necessary to
give effect to the foregoing. The Company shall cause each Professional
Employee to execute and deliver, all such financing statements as the Company
or Vision 21 may request in order to perfect such security interest. The
Company shall not suffer any Professional Employee to grant any other lien on
or security interest in or to such Accounts Receivable or any proceeds thereof.
8. COVENANTS OF VISION 21. Vision 21 agrees that between the
date hereof and the Closing:
8.1. Consummation of Agreement. Vision 21 shall use
its best efforts to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions and take all corporate and
other actions necessary to approve the Transaction; provided, however, that
this covenant shall not require Vision 21 to make any expenditures that are not
expressly set forth in this Agreement or otherwise contemplated herein.
8.2. Notification of Certain Matters. Vision 21 shall
promptly inform the Company and the Optometrist in writing of (a) any notice
of, or other communication relating to, a default or event that, with notice or
lapse of time or both, would become a default, received by Vision 21 subsequent
to the date of this Agreement and prior to the Closing Date under any Vision 21
Commitment material to Vision 21's condition (financial or otherwise),
operations, assets, liabilities or business and to which it is subject; or (b)
any material adverse change in Vision 21's condition (financial or otherwise),
operations, assets, liabilities or business.
8.3. Licenses and Permits. Vision 21 shall use its
best efforts to obtain all licenses, permits, approvals or other authorizations
required under any law, statute, rule,
42
<PAGE> 57
regulation or ordinance, or otherwise necessary or desirable to consummate the
Transaction or provide the services contemplated by the Business Management
Agreement and to conduct the intended business of Vision 21.
8.4. Release of Optometrist From Practice Liabilities.
Vision 21 shall use its best efforts to obtain from third party creditors the
release of Optometrist from any personal liabilities relating to the Practice
which are identified on Schedule 8.4 and assumed by Vision 21 pursuant to the
terms of this Agreement.
9. COVENANTS OF VISION 21, THE COMPANY AND THE OPTOMETRIST.
Vision 21, the Company and the Optometrist agree as follows:
9.1. Filings; Other Action.
a. Vision 21, the Company and the
Optometrist shall cooperate to promptly prepare and file at Vision 21's expense
with the SEC, a Registration Statement on Form S-1 (or other appropriate form)
to be filed by Vision 21 in connection with any Initial Public Offering of
Vision 21 (including the prospectus constituting a part thereof, the
"Registration Statement"). Vision 21 shall obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement, and the Company and the
Optometrist shall furnish all information concerning the Company, the
Non-optometric Assets and the Optometrist as may be reasonably requested in
connection with any such action.
b. Each of the Company, the Optometrist
and Vision 21 represents and warrants that none of the information or documents
supplied or to be supplied by it specifically for inclusion in a Registration
Statement, by exhibit or otherwise, will, at the time the Registration
Statement and each amendment and supplement thereof, if any, becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company, the Optometrist, and Vision 21 shall
agree as to the information and documents supplied by the Company and the
Optometrist for inclusion in the Registration Statement and shall indicate such
information and documents in a letter to be delivered at least ten (10) days
prior to the initial filing of the Registration Statement with the SEC. The
Company and the Optometrist shall be entitled to review the Registration
Statement and each amendment thereto, if any, prior to the time each becomes
effective under the Securities Act.
c. The Optometrist and the Company shall,
upon request, furnish Vision 21 with all information concerning himself,
itself, their respective partners, the Company's subsidiaries, directors,
officers, and stockholders, and including financial statements with respect to
the same, any consents (and information necessary to obtain such consents) and
such other matters as may be reasonably requested by Vision 21 in connection
with the preparation of the Registration Statement and each amendment or
supplement thereto, or any
43
<PAGE> 58
other statement, filing, notice or application made by or on behalf of each
such party or any of the Company's subsidiaries to any governmental entity in
connection with the Transaction, any Initial Public Offering and the other
transactions contemplated by this Agreement.
9.2. Amendment of Schedules. Each party hereto agrees
that, with respect to the representations and warranties of such party
contained in this Agreement, such party shall have the continuing obligation
until the Closing to attach, supplement or amend promptly the Schedules with
respect to any matter that would have been or would be required to be set forth
or described in the Schedules in order to not materially breach any
representation, warranty or covenant of such party contained herein; provided
that no amendment or supplement to a Schedule that constitutes or reflects a
material adverse change to the Company or the Non-optometric Assets may be made
unless Vision 21 consents to such amendment or supplement, and no amendment or
supplement to a Schedule that constitutes or reflects a material adverse change
to Vision 21 may be made unless the Company and the Optometrist consent to such
amendment or supplement. For all purposes of this Agreement, including without
limitation for purposes of determining whether the conditions set forth in
Sections 10.1 and 11.1 have been fulfilled, the Schedules hereto shall be
deemed to be the Schedules as amended or supplemented pursuant to this Section
9.2. In the event that the Company is required to amend or supplement a
Schedule in accordance with this Section 9.2 and Vision 21 does not consent to
such amendment or supplement, or Vision 21 is required to amend or supplement a
Schedule in accordance with this Section 9.2 and the Company and the
Optometrist do not consent, this Agreement shall be deemed terminated by mutual
consent as set forth in Section 15.1(d) or Section 15.1(e) as appropriate.
9.3. Fees and Expenses.
a. Vision 21 shall pay all costs of the
Audit of the Company's Financial Statements and financial records by Vision
21's auditors (or auditors designated by Vision 21's auditors). All items
prepared by Vision 21's auditors in connection with the Audit ("Prepared Audit
Materials") shall be for use solely by Vision 21; provided, however, that the
Company may utilize the Prepared Audit Materials solely in connection with its
review of Vision 21's calculation of the Purchase Price. The Prepared Audit
Materials shall not be deemed to include those items which customarily remain
the property of auditors such as their working papers and memos.
b. In the event the Transaction is not
consummated, the Company and Optometrist shall not be entitled to copies or
originals of the Prepared Audit Materials unless the Company or Optometrist pay
for or reimburses Vision 21 for all expenses of the auditor in connection with
the Audit in advance of receiving the Prepared Audit Materials (either from
Vision 21 or its auditor). For purposes of this Agreement, Audit expenses
shall include all expenses related to the Audit as well as expenses incurred to
present the financial statements in accordance with GAAP and all schedules
related thereto.
44
<PAGE> 59
c. Each of the Company and Vision 21
shall pay the costs and expenses of their own legal counsel with respect to
legal services rendered in connection with the preparation and negotiation of
this Agreement and the transactions contemplated hereby.
d. In the event that an Initial Public
Offering does not take place for any reason whatsoever, Vision 21 (but not the
Company or the Optometrist) shall have sole responsibility for the payment of
all legal fees (except as set forth in Section 9.3(c)), accounting fees (except
as set forth in Section 9.3(c)), underwriters' expenses and other fees, costs
and expenses associated solely in connection with the preparation of any
Registration Statement relating to such Initial Public Offering.
e. If any Initial Public Offering is
consummated as contemplated by this Agreement, all legal fees, audit fees,
printing costs, filing fees, blue sky fees and underwriters' discounts and fees
associated solely with the Initial Public Offering shall be paid by Vision 21
from the proceeds of the Initial Public Offering, except for those expenses,
fees and underwriters' discounts related to any shares sold by the Optometrist.
9.4. Release of Optometrist From Practice Liabilities.
Vision 21 shall use its best efforts to obtain the release of the Optometrist
from any liabilities relating to the Practice of which the Optometrist and the
Company are jointly obligated which are set forth on Schedule 9.4.
10. CONDITIONS PRECEDENT OF VISION 21. Except as may be waived
in writing by Vision 21, the obligations of Vision 21 hereunder are subject to
the fulfillment at or prior to the Closing Date of each of the following
conditions precedent:
10.1. Representations and Warranties. The
representations and warranties of the Company and the Optometrist contained
herein shall have been true and correct in all material respects when initially
made and shall be true and correct in all material respects as of the Closing
Date.
10.2. Covenants. The Company and the Optometrist shall
have performed and complied in all material respects with all covenants
required by this Agreement to be performed and complied with by the Company or
the Optometrist prior to the Closing Date.
10.3. Legal Opinion. Counsel to the Company and the
Optometrist shall have delivered to Vision 21 their opinions, dated as of the
Closing Date, in form and substance substantially similar to Exhibit 10.3 which
Vision 21, Vision 21's counsel, the underwriters of the Initial Public Offering
and their counsel shall be permitted to rely upon.
10.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened orally or
in writing, asserted, instituted or entered to restrain or prohibit the
carrying out of the transactions contemplated hereby.
45
<PAGE> 60
10.5. No Material Adverse Change. No material adverse
change in the condition (financial or otherwise), operations, assets,
liabilities or business of the Company shall have occurred since the Company
Balance Sheet Date, whether or not such change shall have been caused by the
deliberate act or omission of the Company or the Optometrist.
10.6. Government Approvals and Required Consents. The
Company, the Optometrist and Vision 21 shall have obtained all necessary
government and other third-party approvals and consents (other than consents
technically required as a result of the transactions contemplated hereby under
the terms of managed care contracts to which the Company or any of its
employees are a party).
10.7. Certification. Neither the Company nor the
Optometrist shall have received any notice of or been made a party to any
judicial or administrative proceeding, or threatened to so be made a party, in
any action or proceeding that seeks to deny the continued use or receipt of any
necessary permit, license, authorization, certification or approval under the
Medicare and Medicaid programs to provide optometry services.
10.8. Closing Deliveries. Vision 21 shall have
received all documents and agreements, duly executed and delivered in form
reasonably satisfactory to Vision 21, referred to in Section 12.1.
10.9. Due Diligence. Vision 21 shall have completed to
its satisfaction a due diligence review of the Company and the Optometrist.
10.10. Financial Audit. Vision 21 shall have approved
in Vision 21's sole discretion an audit of the Company and the Practice which
audit shall have been performed by an accounting firm designated by Vision 21
at the sole expense of Vision 21.
10.11. Medicare Audit. Vision 21 shall have approved in
Vision 21's sole discretion a Medicare audit of the Company and the Practice
which audit shall be at the sole expense of Vision 21.
10.12. Exemption Under State Securities Laws. The
transfer of Vision 21's Securities to the Optometrist as contemplated in this
Agreement shall qualify for one or more exemptions from registration under the
State's securities laws. Vision 21 shall pay all filing fees in connection
with any filing required to qualify the transfer of the Securities for such
exemption(s).
10.13. Assignment of Professional Employees' Rights in
Accounts Receivable. The Company shall have caused the Professional Employees
to assign any and all of their rights with respect to Accounts Receivable to
Vision 21 and shall cause such Professional Employees to execute such other
agreements and instruments as contemplated in Section 7.18.
46
<PAGE> 61
11. CONDITIONS PRECEDENT OF THE COMPANY AND THE OPTOMETRIST.
Except as may be waived in writing by the Company and the Optometrist, the
obligations of the Company and the Optometrist hereunder are subject to
fulfillment at or prior to the Closing Date of each of the following conditions
precedent:
11.1. Representations and Warranties. The
representations and warranties of Vision 21 contained herein shall be true and
correct in all respects when initially made and shall be true and correct in
all material respects as of the Closing Date.
11.2. Covenants. Vision 21 shall have performed and
complied in all material respects with all covenants and conditions required by
this Agreement to be performed and complied with by it prior to the Closing
Date.
11.3. Legal Opinions. Counsel to Vision 21 shall have
delivered to the Company and the Optometrist their opinion, dated as of the
Closing Date, in form and substance substantially similar to Exhibit 11.3.
11.4. Proceedings. No action, proceeding or order by
any court or governmental body or agency shall have been threatened in writing,
asserted, instituted or entered to restrain or prohibit the carrying out of the
transactions contemplated hereby.
11.5. Government Approvals and Required Consents. The
Company, the Optometrist and Vision 21 shall have obtained all necessary
government and other third-party approvals and consents (other than consents
technically required as a result of the transactions contemplated hereby under
the terms of managed care contracts to which the Company or any of its
employees are a party).
11.6. Closing Deliveries. The Company and the
Optometrist shall have received all documents, instruments and agreements, duly
executed and delivered in form reasonably satisfactory to the Company, referred
to in Section 12.2.
11.7. No Change in Voting or Ownership Control. There
shall have been no changes in the voting or ownership control of Vision 21 from
the date first above written to the Closing Date.
11.8. No Material Adverse Change; Delivery of Amended
Confidential Information Memorandum. No material adverse change in the
condition (financial or otherwise), operations, assets, liabilities or business
of Vision 21 shall have occurred since the end of the last fiscal period
reported in the Vision 21 Financial Statements, whether or not such change
shall have been caused by the deliberate act or omission of Vision 21. Vision
21 shall deliver an amended Confidential Information Memorandum updating the
information contained in the initial Confidential Information Memorandum on or
before December, 1996, and the Company and the Optometrist shall have the right
not to close the transactions contemplated in this Agreement if they determine,
based upon their review of the amended Confidential Information
47
<PAGE> 62
Memorandum, that a material adverse change has occurred with respect to the
condition (financial or otherwise), operations, assets, liabilities or business
of Vision 21.
12. CLOSING DELIVERIES; ESCROW OF DOCUMENTS.
12.1. Deliveries of the Company and the Optometrist.
At or prior to December ___, 1996, the Company and the Optometrist shall
deliver to Vision 21, c/o Shumaker, Loop & Kendrick, LLP, counsel to Vision 21,
the following, all of which shall be in a form reasonably satisfactory to
Vision 21 and shall be held by Shumaker, Loop & Kendrick, LLP in escrow pending
Closing, pursuant to an escrow agreement or letter in form and substance
mutually acceptable to the parties hereto:
a. a copy of resolutions of the Board of
Directors of the Company authorizing (i) the execution, delivery and
performance of this Agreement and all related documents and agreements, and
(ii) the consummation of the Transaction, certified by the Secretary of the
Company as being true and correct copies of the originals thereof subject to no
modifications or amendments;
b. a certificate of the President of the
Company, and of the Optometrist, dated the Closing Date, as to the truth and
correctness of the representations and warranties of the Company and the
Optometrist contained herein, on and as of the Closing Date;
c. a certificate of the President of the
Company, and of the Optometrist, dated the Closing Date, (i) as to the
performance of and compliance in all material respects by the Company and the
Optometrist with all covenants contained herein on and as of the Closing Date
and (ii) certifying that all conditions precedent of the Company and the
Optometrist to the Closing have been satisfied;
d. a certificate of the Secretary of the
Company certifying as to the incumbency of the directors and officers of each
such corporation and as to the signatures of such directors and officers who
have executed documents delivered pursuant to the Agreement on behalf of each
such corporation;
e. a certificate, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the state of
incorporation for the Company establishing that the Company is in existence,
has paid all franchise or similar taxes, if any, and, if applicable, otherwise
is in good standing to transact business in its state of organization;
f. certificates, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the states in
which the Company is qualified to do business, to the effect that the Company
is qualified to do business and, if applicable, is in good standing as a
foreign corporation in each of such states;
48
<PAGE> 63
g. an opinion of counsel to the Company
and Optometrists dated as of the Closing Date, in form and substance
satisfactory to Vision 21, which Vision 21, Vision 21's counsel and the
underwriters of any Initial Public Offering and their counsel are permitted to
rely upon and which shall include an opinion, subject to normal and customary
exceptions that to the best of their knowledge the transactions and
arrangements contemplated by this Agreement are in conformity with State laws,
rules and regulations governing the practice of optometry.
h. such appropriate documents of
transfer, including bills of sale, endorsements, assignments, drafts, checks or
other instruments, as to all of the Non-optometric Assets, and any other
appropriate instruments in such reasonable or customary form as shall be
requested by Vision 21 and its counsel;
i. such instruments satisfactory to
Vision 21 that all liens, claims, pledges, security interests and other
encumbrances on all of the Non-optometric Assets have been released;
j. all authorizations, consents, permits
and licenses referenced in Section 3.5;
k. the executed Business Management
Agreement in substantially the form attached hereto as Exhibit 12.1 (k), as
revised in accordance with changes reasonably deemed necessary or advisable by
legal counsel retained by Vision 21 in the State to address regulatory and
compliance issues;
l. an executed Optometrist Employment
Agreement between the Company and the Optometrist in substantially the form
attached hereto as Exhibit 12.1 (l);
m. an executed Optometrist Employment
Agreement between the Company and each Optometrist Employee who is then an
employee of the Company in substantially the form attached hereto as Exhibit
12.1 (m);
n. an executed Optometrist Employment
Agreement between the Company and each Optometrist Employee who is then an
employee of the Company in substantially the form attached hereto as Exhibit
12.1 (n);
o. an executed Registration Rights
Agreement between Vision 21 and the Optometrist in substantially the form
attached hereto as Exhibit 12.1 (o) (the "Registration Rights Agreement");
p. a non-foreign affidavit, as such
affidavit is referred to in Section 1445 (b) (2) of the Code, of the
Optometrist, signed under a penalty of perjury and dated as of the Closing
Date, to the effect that the Optometrist is a United States citizen or a
resident
49
<PAGE> 64
alien (and thus not a foreign person) and providing the Optometrist's United
States taxpayer identification number;
q. an assignment to Vision 21 of each
lease for real property described on Schedule 2.1(d) (the "Lease Assignments"),
or if desired by Vision 21, a new lease or leases between the landlords under
such leases and Vision 21 in form and substance reasonably satisfactory to
Vision 21;
r. an executed Agreement to Continue
Practice After Transfer Event and Stock Pledge Agreement substantially in the
form of Exhibit 12.1(r); and
s. such other instrument or instruments
of transfer prepared by Vision 21 as shall be necessary or appropriate, as
Vision 21 or its counsel shall reasonably request, to carry out and effect the
purpose and intent of this Agreement.
12.2. Deliveries of Vision 21. At or prior to December
___, 1996, Vision 21 shall deliver to the Company and the Optometrist, c/o
Shumaker, Loop & Kendrick, LLP, counsel to Vision 21, the following, all of
which shall be in a form reasonably satisfactory to the Company and the
Optometrist and shall be held by Shumaker, Loop & Kendrick, LLP in escrow
pending Closing, pursuant to an escrow agreement or letter in form and
substance mutually acceptable to the parties hereto:
a. a copy of the resolutions of the Board
of Directors of Vision 21 authorizing (i) the execution, delivery and
performance of this Agreement, and all related documents and agreements, and
(ii) the consummation of the Transaction, certified by Vision 21's Secretary as
being true and correct copies of the originals thereof subject to no
modifications or amendments;
b. a certificate of an officer of Vision
21 dated the Closing Date as to the truth and correctness of the
representations and warranties of Vision 21 contained herein, on and as of the
Closing Date;
c. a certificate of an officer of Vision
21 dated the Closing Date, (i) as to the performance and compliance of Vision
21 with all covenants contained herein on and as of the Closing Date and (ii)
certifying that all conditions precedent of Vision 21 to the Closing have been
satisfied;
d. a certificate, dated within ten (10)
days prior to the Closing Date, of the Secretary of State of the State of
Florida establishing that Vision 21 is in existence, has paid all franchise or
similar taxes, if any, and, if applicable, otherwise is in good standing to
transact business in such state;
e. certificates (or photocopies thereof),
dated within ten (10) days prior to the Closing Date, of the Secretary of State
of each state in which Vision 21 is
50
<PAGE> 65
qualified to do business, to the effect that Vision 21 is qualified to do
business and, if applicable, is in good standing as a foreign corporation in
each of such states;
f. an opinion of Shumaker, Loop &
Kendrick, LLP, counsel to Vision 21, dated as of the Closing Date, pursuant to
Section 11.3;
g. the executed Registration Rights
Agreement;
h. the executed Lease Assignments;
i. the Note in the original principal
amount set forth in the Agreement;
j. the Agreement to Continue Practice
After Transfer Event and Stock Pledge; and
k. such other instrument or instruments
of transfer, prepared by the Company or the Optometrist as shall be necessary
or appropriate, as the Company, the Optometrist or their counsel shall
reasonable request, to carry out and effect the purpose and intent of this
Agreement.
12.3. Release of Escrow Materials. Shumaker, Loop &
Kendrick, LLP shall release the agreements, certificates, instruments,
documents and other materials described in Sections 12.1 and 12.2 to the
appropriate parties to effectuate the transactions contemplated in this
Agreement only after all such materials have been delivered by all applicable
parties (or the parties receiving such documents have waived in writing such
delivery requirement) and after counsel for the Optometrist and the Company
have sent written notice to Shumaker, Loop & Kendrick, LLP stating that the
Optometrist and the Company have reviewed the amended Confidential Information
Memorandum and have decided, based upon such review, to consummate the
transactions contemplated in this Agreement. In the event that the Optometrist
and the Company elect not to consummate the transactions contemplated in this
Agreement based upon their review of the amended Confidential Information
Memorandum, and counsel for the Optometrist and the Company informs Shumaker,
Loop & Kendrick, LLP in writing as to such decision, Shumaker, Loop & Kendrick,
LLP shall promptly return the foregoing materials to the parties sending such
materials.
13. POST CLOSING MATTERS.
13.1. Further Instruments of Transfer. From and after
the Closing Date, at the request of Vision 21 and at Vision 21's sole cost and
expense, the Optometrist and the Company shall deliver any further instruments
of transfer and take all reasonable action as may be necessary or appropriate
to carry out the purpose and intent of this Agreement.
51
<PAGE> 66
13.2. Practice Advisory Council; Local Advisory
Council; National Appeals Council. Vision 21 and the Company shall establish a
practice advisory council composed of delegates from Vision 21 and the Company
which shall advise Vision 21 and the Company and determine certain issues as
more fully described in the Business Management Agreement. Vision 21 shall
also establish a local advisory council composed of delegates from certain
practice groups acquired by Vision 21 in connection with the Related
Acquisitions. Such delegates shall be appointed from practice groups which are
located in a market area to be identified by Vision 21 and in which the Company
is located. The local advisory council board shall advise Vision 21 and the
practice groups within the market area as to policy and strategy issues and
shall determine certain types of issues and disputes between Vision 21 and such
practice groups which issues and disputes are identified in the Business
Management Agreement and other management agreements entered into between
Vision 21 and practice groups. The Company shall have the right to appoint one
(1) member to a local advisory council who shall serve an initial two (2) year
term. After the initial two-year term, election of members to the local
advisory council shall be in accordance with by-laws which shall be adopted and
amended by the local advisory council. Vision 21 shall also establish a
national appeals council which shall have, among other duties and
responsibilities, the power to adopt and amend its by-laws, to review and
approve as limited herein certain decisions of the local advisory councils, and
to resolve deadlocks among the members of such local advisory councils.
14. REMEDIES.
14.1. Indemnification by the Company and Optometrist.
Subject to the terms and conditions of this Agreement, the Company and the
Optometrist, jointly and severally, agree to indemnify, defend and hold Vision
21 and its directors, officers, members, managers, employees, agents, attorneys
and affiliates harmless from and against all losses, claims, obligations,
demands, assessments, penalties, liabilities, costs, damages, reasonable
attorneys' fees and expenses (collectively, "Damages") asserted against or
incurred by such entities and individuals (including, but not limited to, any
reduction in payments to or revenues of the Company) arising out of or
resulting from:
a. a breach of any representation,
warranty or covenant of the Company or the Optometrist contained herein or in
any schedule or certificate delivered hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, (i) arising out of or based upon
any untrue statement or alleged untrue statement of a material fact relating to
the Optometrist or the Company (including its subsidiaries, if any), and
provided to Vision 21 or its counsel by the Company or the Optometrist,
specifically for inclusion in a Registration Statement or any prospectus
forming a part thereof, or any amendment thereof or supplement thereto, (ii)
arising out of or based upon any omission or alleged omission to state therein
a material fact relating to the Optometrist or the Company (including its
subsidiaries, if any) required to be stated therein or necessary to make the
52
<PAGE> 67
statements therein not misleading, and not provided to Vision 21 or its counsel
by the Company or the Optometrist, provided, however, that such indemnity shall
not inure to the benefit of Vision 21 to the extent that such untrue statement
(or alleged untrue statement) was made, in, or omission (or alleged omission)
occurred in, any preliminary prospectus, and such information was not so
included by Vision 21 and properly delivered to shareholders of Vision 21 who
acquire Vision 21 Common Stock in any Initial Public Offering;
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable; and
d. any liability arising from any alleged
unlawful sale or offer to sell or transfer any of the Common Stock by
Optometrist.
14.2. Indemnification by Vision 21. Subject to the
terms and conditions of this Agreement, Vision 21 hereby agrees to indemnify,
defend and hold the Company and the Optometrist harmless from and against all
damages asserted against or incurred by it or him arising out of or resulting
from:
a. a breach by Vision 21 of any
representation, warranty or covenant of Vision 21 contained therein or in any
schedule or certificate delivered hereunder;
b. any liability under the Securities
Act, the Exchange Act or any other federal or state "Blue Sky" or securities
law or regulation, at common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact relating to
Vision 21, contained in any preliminary prospectus, Registration Statement or
any prospectus forming a part thereof, or any amendment thereof or supplement
thereto, arising out of or based upon any omission or alleged omission to state
therein a material fact relating to Vision 21 (including its subsidiaries),
required to be stated therein or necessary to make the statements therein not
misleading; and
c. any filings, reports or disclosures
made pursuant to the IRS Voluntary Compliance Resolution Program, if
applicable.
Notwithstanding anything in this Section 14.2, Vision 21 shall not be
liable for any Damages resulting from any matter not disclosed to Vision 21 by
any of the third parties to be acquired by Vision 21 in connection with the
Related Acquisitions.
14.3. Conditions of Indemnification. All claims for
indemnification under this Agreement shall be asserted and resolved as follows:
a. A party claiming indemnification under
this Agreement (an "Indemnified Party") shall promptly (and, in any event, at
least ten (10) days prior to the due date for any responsive pleadings, filings
or other documents) (i) notify the party from whom indemnification is sought
(the "Indemnifying Party") of any third-party claim or claims asserted
53
<PAGE> 68
against the Indemnified Party ("Third Party Claim") that could give rise to a
right of indemnification under this Agreement and (ii) transmit to the
Indemnifying Party a written notice ("Claim Notice") describing in reasonable
detail the nature of the Third Party Claim, a copy of all papers served with
respect to such claim (if any), an estimate of the amount of damages
attributable to the Third Party Claim and the basis of the Indemnified Party's
request for indemnification under this Agreement. Except as set forth in
Section 14.6, the failure to promptly deliver a Claim Notice shall not relieve
the Indemnifying Party of its obligations to the Indemnified Party with respect
to the related Third Party Claim except to the extent that the resulting delay
is materially prejudicial to the defense of such claim. Within thirty (30)
days after receipt of any Claim Notice (the "Election Period"), the
Indemnifying Party shall notify the Indemnified Party (i) whether the
Indemnifying Party disputes its potential liability to the Indemnified Party
under this Article 14 with respect to such Third Party Claim and (ii) whether
the Indemnifying Party desires, at the sole cost and expense of the
Indemnifying Party, to defend the Indemnified Party against such Third Party
Claim.
b. If the Indemnifying Party notifies the
Indemnified Party within the Election Period that the Indemnifying Party elects
to assume the defense of the Third Party Claim, then the Indemnifying Party
shall have the right to defend, at its sole cost and expense, such Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted
diligently by the Indemnifying Party to a final conclusion or settled at the
discretion of the Indemnifying Party in accordance with this Section 14.3(b).
The Indemnifying Party shall have full control of such defense and proceedings,
including any compromise or settlement thereof. The Indemnified Party is
hereby authorized, at the sole cost and expense of the Indemnifying Party (but
only if the Indemnified Party is entitled to indemnification hereunder), to
file, during the Election Period, any motion, answer or other pleadings that
the Indemnified Party shall deem necessary or appropriate to protect its
interests or those of the Indemnifying Party and not prejudicial to the
Indemnifying Party (it being understood and agreed that if an Indemnified Party
takes any such action that is prejudicial and causes a final adjudication that
is adverse to the Indemnifying Party, the Indemnifying Party shall be relieved
of its obligations hereunder with respect to such Third Party Claim). If
requested by the Indemnifying Party, the Indemnified Party agrees, at the sole
cost and expense of the Indemnifying Party, to cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, including, without limitation, the making of any
related counterclaim against the person asserting the Third Party Claim or any
cross-complaint against any person. The Indemnified Party may participate in,
but not control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to Section 14.3(b) and shall bear its own
costs and expenses with respect to such participation; provided, however, that
if the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party, and the
Indemnified Party has been advised by counsel that there may be one or more
legal defenses available to it that are different from or additional to those
available to the Indemnifying Party, then the Indemnified Party may employ
separate counsel at the expense of the Indemnifying Party, and upon written
notification thereof, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of the Indemnified Party; provided further
that the Indemnifying Party
54
<PAGE> 69
shall not, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the reasonable fees and
expenses of more than one separate firm of attorneys at any time for the
Indemnified Party, which firm shall be designated in writing by the Indemnified
Party.
c. If the Indemnifying Party fails to
notify the Indemnified Party within the Election Period that the Indemnifying
Party elects to defend the Indemnified Party pursuant to Section 14.3(b), or if
the Indemnifying Party elects to defend the Indemnified Party pursuant to
Section 14.3(b) but fails diligently and promptly to prosecute or settle the
Third Party Claim, then the Indemnified Party shall have the right to defend,
at the sole cost and expense of the Indemnifying Party (if the Indemnified
Party is entitled to indemnification hereunder), the Third Party Claim by all
appropriate proceedings, which proceedings shall be promptly and vigorously
prosecuted by the Indemnified Party to a final conclusion or settled. The
Indemnified Party shall have full control of such defense and proceedings,
provided, however, that the Indemnified Party may not enter into, without the
Indemnifying Party's consent, which shall not be unreasonably withheld, any
compromise or settlement of such Third Party Claim. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article 14 and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnifying
Party's defense pursuant to this Section or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Party in full for all costs and expenses
of such litigation. The Indemnifying Party may participate in, but not control
any defense or settlement controlled by the Indemnified Party pursuant to this
Section 14.3(c), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation; provided, however, that if the
named parties to any such action (including any impleaded parties) include both
the Indemnifying Party and the Indemnified Party, and the Indemnifying Party
has been advised by counsel that there may be one or more legal defenses
available to the Indemnified Party, then the Indemnifying Party may employ
separate counsel and upon written notification thereof, the Indemnified Party
shall not have the right to assume the defense of such action on behalf of the
Indemnifying Party.
d. In the event any Indemnified Party
should have a claim against any Indemnifying Party hereunder that does not
involve a Third Party Claim, the Indemnified Party shall transmit to the
Indemnifying Party a written notice (the "Indemnity Notice") describing in
reasonable detail the nature of the claim, an estimate of the amount of damages
attributable to such claim and the basis of the Indemnified Party's request for
indemnification under this Agreement. If the Indemnifying Party does not
notify the Indemnified Party within sixty (60) days from its receipt of the
Indemnity Notice that the Indemnifying Party disputes such claim, the claim
specified by the Indemnified Party in the Indemnity Notice shall be deemed a
liability of the Indemnifying Party hereunder. If the Indemnifying Party has
timely disputed such claim, as provided above, such dispute shall be resolved
by mediation or
55
<PAGE> 70
arbitration as provided in Section 18.1 if the parties do not reach a
settlement of such dispute within thirty (30) days after notice of a dispute is
given.
e. Payments of all amounts owing by an
Indemnifying Party pursuant to this Article 14 relating to a Third Party Claim
shall be made within thirty (30) days after the latest of (i) the settlement of
such Third Party Claim, (ii) the expiration of the period for appeal of a final
adjudication of such Third Party Claim or (iii) the expiration of the period
for appeal of a final adjudication of the Indemnifying Party's liability to the
Indemnified Party under this Agreement. Payments of all amounts owing by an
Indemnifying Party pursuant to Section 14.3(d) shall be made within thirty (30)
days after the later of (i) the expiration of the sixty (60) day Indemnity
Notice period or (ii) the expiration of the period for appeal, if any, of a
final adjudication or arbitration of the Indemnifying Party's liability to the
Indemnified Party under this Agreement.
14.4. Remedies Not Exclusive. The remedies provided in
this Agreement shall not be exclusive of any other rights or remedies available
to one party against the other, either at law or in equity. This Article 14
regarding indemnification shall survive Closing.
14.5. Costs, Expenses and Legal Fees. Each party
hereto agrees to pay the costs and expenses (including attorneys' fees and
expenses) incurred by the other parties in successfully (a) enforcing any of
the terms of this Agreement, or (b) proving that another party breached any of
the terms of this Agreement.
14.6. Indemnification Limitations. Notwithstanding the
provisions of Sections 14.1 and 14.2, (a) no party shall be required to
indemnify another party with respect to a breach of a representation, warranty
or covenant unless the claim for indemnification is brought within two (2)
years after the Closing Date, except that a claim for indemnification for a
breach of the representations and warranties contained in Sections 3.1, 3.2.,
3.3, 3.11, 3.14, 3.20, 4.3, 4.5, 4.8, 5.1, 5.2, 5.3, 5.4 and 6.1 may be made at
any time, and a claim for indemnification for a breach of the representations
and warranties contained in Sections 3.9, 3.15, 3.17, 3.18, 3.24, 3.25, 3.26,
3.27, 3.28, 3.30, 4.1, 4.4, 4.6, 5.6 and 5.7 may be made at any time within the
applicable statute of limitations; (b) indemnification based upon Sections
14.1(b) through (d) and 14.2(b) may be made at any time within the applicable
statute of limitations; and (c) the Optometrist shall not be required to
indemnify Vision 21 pursuant to Section 16.1 unless, and to the extent that,
the aggregate amount of Damages incurred by Vision 21 shall exceed an amount
equal to two percent (2%) of the total Purchase Price; and (c) the Optometrist
shall not be required to indemnify Vision 21 with respect to a breach of a
representation, warranty or covenant for Damages in excess of the aggregate
Purchase Price received by the Optometrist (other than pursuant to a
requirement to indemnify Vision 21 under Sections 3.27 or 3.28, or unless the
breach involves an intentional breach or fraud by the Optometrist or the
Company which shall be unlimited).
14.7. Tax Benefits; Insurance Proceeds. The total
amount of any indemnity payments owed by one party to another party to this
Agreement shall be reduced by any
56
<PAGE> 71
correlative tax benefit received by the party to be indemnified or the net
proceeds received by the party to be indemnified with respect to recovery from
third parties or insurance proceeds and such correlative insurance benefit
shall be net of the insurance premium, if any, that becomes due as a result of
such claim.
14.8. Payment of Indemnification Obligation. In the
event that the Optometrist has an indemnification obligation to Vision 21
hereunder, subject to Vision 21's approval as set forth below, the Optometrist
may satisfy such obligation by transferring to Vision 21 such number of shares
of Vision 21 Common Stock owned by the Optometrist having an aggregate fair
market value (which is prior to any Initial Public Offering based upon the
valuation given at Closing hereof or after an Initial Public Offering the fair
market value at such time based on the last reported sale price of Vision 21
Common Stock on a principal national securities exchange or other exchange on
which the Vision 21 Common Stock is then listed or the last quoted ask price on
any over-the-counter market through which the Vision 21 Common Stock is then
quoted on the last trading day immediately preceding the day on which the
Optometrist transfers shares of Vision 21 Common Stock to Vision 21 hereunder)
equal to the indemnification obligation, provided that each of the following
conditions are satisfied:
a. The Optometrist shall transfer to
Vision 21 good, valid and marketable title to the shares of Vision 21 Common
Stock, free and clear of all adverse claims, security interests, liens, claims,
proxies, options, stockholders' agreements and encumbrances;
b. The Optometrist shall make such
representation and warranties as to title to the stock, absences of security
interests, liens, claims, proxies, stockholders' agreements and other
encumbrances and other matters as reasonably requested by Vision 21; and
c. The other terms and conditions of any
transaction contemplated pursuant to this Section and the effects thereof,
including any legal or tax consequences, shall be reasonably satisfactory to
Vision 21.
15. TERMINATION.
15.1. Termination. This Agreement may be terminated
and the Transaction may be abandoned:
a. at any time prior to the Closing Date
by mutual agreement of all parties;
b. at any time prior to the Closing Date
by Vision 21 if any representation or warranty of the Company or the
Optometrist contained in this Agreement or in any certificate or other document
executed and delivered by the Company or the Optometrist pursuant to this
Agreement is or becomes untrue or breached in any material respect or if the
Company or the Optometrist fails to comply in any material respect with any
covenant or
57
<PAGE> 72
agreement contained herein, and any such misrepresentation, noncompliance or
breach is not cured, waived or eliminated within twenty (20) days after receipt
of written notice thereof;
c. at any time prior to the Closing Date
by the Company if any representation or warranty of Vision 21 contained in this
Agreement is or becomes untrue in any material respect or if Vision 21 fails to
comply in any material respect with any covenant or agreement contained herein,
and any such misrepresentation, noncompliance or breach is not cured, waived or
eliminated within twenty (20) days after receipt or written notice thereof;
d. at any time prior to the Closing Date
by the Company in the event of the failure of any of the conditions precedent
set forth in Article 13 of this Agreement;
e. at any time prior to the Closing Date
by Vision 21 in the event of the failure of any of the conditions precedent set
forth in Article 12 of this Agreement;
f. by Vision 21 if at any time prior to
the Closing Date, Vision 21 deems termination to be advisable, provided,
however, that if Vision 21 exercises its right to terminate this Agreement
under this subsection, Vision 21 shall reimburse the Company and the
Optometrist for all reasonable attorneys' and accountants' fees incurred by the
Company and the Optometrist in connection with this Agreement; provided that
Vision 21 shall only reimburse the Company and the Optometrist up to an
aggregate maximum amount of One Hundred Thousand and No/100 Dollars
($100,000.00) for such fees; or
g. by Vision 21 or the Company if the
Transaction shall not have been consummated by December 5, 1996.
15.2. Effect of Termination. In the event this
Agreement is terminated pursuant to Section 15.1, Vision 21, the Company and
the Optometrist, shall each be entitled to pursue, exercise and enforce any and
all remedies, rights, powers and privileges available at law or in equity,
subject to the limitations set forth in Section 15.1. In the event of a
termination of this Agreement under the provisions of this Article 15, a party
not then in material breach of this Agreement shall stand fully released and
discharged of any and all obligations under this Agreement.
16. OPTOMETRIST EMPLOYMENT AGREEMENT.
16.1. Optometrist Employment Agreement. The parties
acknowledge that in accordance with the terms of this Agreement, Optometrist,
as employee, and the Company, as employer, have entered into the Optometrist
Employment Agreement and that Vision 21 is entitled to enforce such Optometrist
Employment Agreement as an intended third party beneficiary. Optometrist and
Vision 21 acknowledge that Vision 21 would suffer severe harm in the event of
Optometrist's resignation prior to the expiration of the five (5) year term of
such Optometrist Employment Agreement (without first obtaining the written
consent of Vision 21) or a breach or default of Optometrist's obligations under
such Optometrist Employment
58
<PAGE> 73
Agreement, and Optometrist, the Company and Vision 21 agree that Vision 21
shall be entitled to recover from Optometrist any and all damages incurred by
Vision 21 caused by such resignation, breach or default. Notwithstanding the
foregoing, Vision 21 shall not be entitled to recover its damages caused by
such resignation, breach or default if such resignation, breach or default was
caused by: (i) the death or disability of Optometrist, (ii) circumstances not
caused by an act or omission of Optometrist and which circumstances are beyond
his control, or (iii) loss of Optometrist's license to practice as an
optometrist, unless such loss of license is due to an act or omission of
Optometrist. Notwithstanding the foregoing, Optometrist shall have no
obligation to pay the damages contemplated in this Section 16.1 if (a) the
Business Management Agreement has been terminated pursuant to a material breach
by Vision 21, or (b) Optometrist cures any such breach or default of the
Optometrist Employment Agreement within a period of thirty (30) days after
notice from Vision 21 of such breach or default.
16.2. Survival. The parties acknowledge and agree that
this Article 16 shall survive the Closing of the transactions contemplated
herein.
17. NON-COMPETITION AND CONFIDENTIALITY COVENANTS.
17.1. Optometrist and Company Non-Competition Covenant.
a. The Optometrist and the Company
recognize that the covenants of the Optometrist and the Company contained in
this Section 17.1 are an essential part of this Agreement and that, but for the
agreement of the Optometrist and the Company to comply with such covenants,
Vision 21 would not have entered into this Agreement. The Optometrist and the
Company acknowledge and agree that the Optometrist's and the Company's
covenants not to compete are necessary to ensure the continuation of the
Management Business (as defined below) and are necessary to protect the
reputation of Vision 21, and that irreparable and irrevocable harm and damage
will be done to Vision 21 if the Optometrist or the Company compete with the
Management Business or Vision 21. The Optometrist and the Company accordingly
agree that for the periods set forth in the Business Management Agreement the
Optometrist and the Company shall not:
i) directly or indirectly,
either as principal, agent, independent contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Optometrist's
or the Company's own benefit or for the benefit of any other person or entity
knowingly (A) hire, attempt to hire, contact or solicit with respect to hiring
any employee of Vision 21 (or of any of its direct or indirect subsidiaries) or
(B) induce or otherwise counsel, advise or encourage any employee of Vision 21
(or of any of its direct or indirect subsidiaries) to leave the employment of
Vision 21;
ii) act or serve, directly or
indirectly, as a principal, agent, independent contractor, consultant,
director, officer, employee, employer or advisor or in any other position or
capacity with or for, or acquire a direct or indirect ownership interest
59
<PAGE> 74
in or otherwise conduct (whether as stockholder, partner, investor, joint
venturer, or as owner of any other type of interest), any Competing Management
Business as such term is defined herein; provided, however, that this clause
(ii) shall not prohibit the Optometrist or the Company from being the owner of
up to 1% of any class of outstanding securities of any company or entity if
such class of securities is publicly traded; or
iii) directly or indirectly,
either as principal, agent, independent, contractor, consultant, director,
officer, employee, employer, advisor, stockholder, partner or in any other
individual or representative capacity whatsoever, either for the Optometrist's
or the Company's own benefit or for the benefit of any other person or entity,
call upon or solicit any customers or clients of the Management Business;
provided however, that the Optometrist may send out a general notice to the
customers or clients of the Management Business announcing the termination of
his arrangement with Vision 21 and may advertise in a general manner without
violating this covenant. The parties hereto acknowledge and agree that for
purposes of this Section, patients which have in the past received optometric
care from the Company and/or shall in the future receive optometric care from
the Company are not deemed to be customers or clients of the Management
Business.
b. For the purposes of this Section 17.1,
the following terms shall have the meaning set forth below:
i) "Management Business" shall
mean management and administration of the non-optometric and non-medical
aspects of medical, ophthalmology and optometry practices.
ii) "Competing Management
Business" shall mean an individual, business, corporation, association, firm,
undertaking, company, partnership, joint venture, organization or other entity
that either (A) conducts a business substantially similar to the Management
Business within the State, or (B) provides or sells a service which is the same
or substantially similar to, or otherwise competitive with the services
provided by the Management Business within the State; provided, however, that
"Competing Management Business" shall not include Vision 21, or the
Optometrist's internal management and administration of the Optometrist's or
the Company's optometric practice or participation in the management and
administration of a optometrist group in which the Optometrist or the Company
devote a significant amount of time to the practice of optometry.
c. Should any portion of this Section
17.1 be deemed unenforceable because of the scope, duration or territory
encompassed by the undertakings of the Optometrist or the Company hereunder,
and only in such event, then the Optometrist, the Company and Vision 21 consent
and agree to such limitation on scope, duration or territory as may be finally
adjudicated as enforceable by a court of competent jurisdiction after the
exhaustion of all appeals.
60
<PAGE> 75
d. This covenant shall be construed as an
agreement ancillary to the other provisions of this Agreement, and the
existence of any claim or cause of action of the Optometrist or the Company
against Vision 21, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Vision 21 of this covenant;
provided, however, that the Optometrist and the Company shall not be bound by
this covenant and shall not be obligated to pay the liquidated damages
contemplated in this Section 17.1 if at the time of a breach of this covenant
the Business Management Agreement has already been terminated pursuant to
Section 6.2(a) thereof. Without limiting other possible remedies to Vision 21
for breach of this covenant, the Optometrist and the Company agree that
injunctive or other equitable relief will be available to enforce the covenants
of this provision, such relief to be without the necessity of posting a bond,
cash or otherwise. The Optometrist, the Company and Vision 21 further
expressly acknowledge that the damages that would result from a violation of
this non-competition covenant would be impossible to predict with any degree of
certainty, and agree that liquidated damages in the aggregate amount of the
aggregate consideration received by the Optometrist pursuant to this Agreement
is reasonable in light of the severe harm to the Management Business and Vision
21 which would result in the event that a violation of this non- competition
covenant were to occur. For purposes of calculation of the liquidated damages
contemplated in this Section and for purposes of calculation of the liquidated
damages contemplated in the Business Management Agreement and the Optometrist
Employment Agreement between the Optometrist and the Company, the aggregate
consideration received by Optometrist and the Company pursuant to this
Agreement shall be in those amounts and in such form as set forth in Schedule
17.1. If the Optometrist violates this non-competition covenant, Vision 21
shall, in addition to all other rights and remedies available at law or equity,
be entitled to (a) cancel the number of shares of Common Stock held by the
Optometrist or the Company or, with respect to shares of Common Stock entitled
to be received by the Optometrist or the Company, terminate its obligation to
deliver such number of shares of Common Stock, valued as set forth in Section
6.6(a) of the Business Management Agreement, (b) set off all or any of such
liquidated damages sum against amounts payable under the Note held by the
Optometrist or the Company, and (c) repayment by Optometrist to Vision 21 of
the fair market value as described above, of Vision 21 Common Stock sold by
Optometrist; but in no event shall Vision 21 be entitled to offset amounts in
excess of the liquidated damages sum pursuant to this Section 17.1. The
Optometrist and the Company agree to deliver to Vision 21 the certificates
representing any such shares canceled by Vision 21 or the Note. Payment and
satisfaction by Optometrist shall be made within sixty (60) days of
notification to Optometrist by Vision 21 that Optometrist has violated this
non-competition covenant.
e. Notwithstanding anything contained
herein, this Section 17.1 shall not be construed to (i) limit the freedom of
any patient of the Optometrist or the Company to choose the facility or
optometrist from whom such patient shall receive health-care services or (ii)
limit or interfere with the Optometrist's ability to exercise his professional
judgment in treating his patients or his ability to provide optometric services
to his patients.
17.2. Optometrist and Company Confidentiality Covenant.
From the date hereof, the Optometrist and the Company shall not, directly or
indirectly, use for any purpose,
61
<PAGE> 76
other than in connection with the performance of the Optometrist's duties under
the Optometrist Employment Agreement with the Company, or disclose to any third
party, any information of Vision 21 or the Company, as appropriate (whether
written or oral), including any business management or economic studies,
patient lists, proprietary forms, proprietary business or management methods,
marketing data, fee schedules, or trade secrets of Vision 21 or of the Company,
as applicable, and including the terms and provisions of this Agreement and any
transaction or document executed by the parties pursuant to this Agreement.
Notwithstanding the foregoing, the Optometrist and the Company may disclose
information that the Optometrist or the Company can establish (a) is or becomes
generally available to and known by the public or optometric community (other
than as a result of an unpermitted disclosure directly or indirectly by the
Optometrist or the Company or their respective Affiliates, advisors, or
representatives); (b) is or becomes available to the Optometrist or the Company
on a nonconfidential basis from a source other than Vision 21 or its
Affiliates, advisors or representatives, provided that such source is not and
was not bound by a confidentiality agreement with or other obligation of
secrecy to Vision 21 or its Affiliates, advisors or representatives of which
the Optometrist or the Company has knowledge; or (c) has already been or is
hereafter independently acquired or developed by the Optometrist or the Company
without violating any confidentiality agreement with or other obligation of
secrecy to Vision 21, the Company or their respective Affiliates, advisors or
representatives. Without limiting the other possible remedies to Vision 21 for
the breach of this covenant, the Optometrist and the Company agree that
injunctive or other equitable relief shall be available to enforce this
covenant, such relief to be without the necessity of posting a bond, cash or
otherwise. The Optometrist and the Company further agree that if any
restriction contained in this Section 17.2 is held by any court to be
unenforceable or unreasonable, a lesser restriction shall be enforced in its
place and the remaining restrictions contained herein shall be enforced
independently of each other.
17.3. Survival. The parties acknowledge and agree that
this Article 17 shall survive the Closing of the transactions contemplated
herein.
18. DISPUTES.
18.1. Mediation and Arbitration. Any dispute,
controversy or claim (excluding claims arising out of an alleged breach of
Article 17 of this Agreement) arising out of this Agreement, or the breach
thereof, that cannot be settled through negotiation shall be settled (a) first,
by the parties trying in good faith to settle the dispute by mediation under
the Commercial Mediation Rules of the AAA (such mediation session to be held in
Tampa, Florida, and to commence within 15 days of the appointment of the
mediator by the AAA), and (b) if the controversy, claim or dispute cannot be
settled by mediation, then by arbitration administered by the AAA under its
Commercial Arbitration Rules (such arbitration to be held in Tampa, Florida,
before a single arbitrator and to commence within 15 days of the appointment of
the arbitrator by the AAA), and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
62
<PAGE> 77
19. MISCELLANEOUS
19.1. Taxes. Optometrist and the Company shall pay all
transfer taxes, sales and other taxes and charges, imposed by the State, if
any, which may become payable in connection with the transactions and documents
contemplated hereunder (excluding any of such taxes which may be attributable
to services to be provided by Vision 21 under the Business Management
Agreement). Vision 21 shall pay all transfer taxes, sales and other taxes and
charges imposed by the State of Florida, if any, which may become payable in
connection with the transactions and documents contemplated hereunder
(excluding any of such taxes which may be attributable to services to be
provided by Vision 21 under the Business Management Agreement).
19.2. Remedies Not Exclusive. No remedy conferred by
any of the specific provisions of this Agreement or any document contemplated
by this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise. The election of any one or more remedies by any party hereto
shall not constitute a waiver of the right to pursue other available remedies.
19.3. Parties Bound. Except to the extent otherwise
expressly provided herein, this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, representatives,
administrators, guardians, successors and assigns; and no other person shall
have any right, benefit or obligation hereunder.
19.4. Notices. All notices, reports, records or other
communications that are required or permitted to be given to the parties under
this Agreement shall be sufficient in all respects if given in writing and
delivered in person, by telecopy, by overnight courier or by registered or
certified mail, postage prepaid, return receipt requested, to the receiving
party at the following address:
If to Vision 21 addressed to:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34777
Attn: Richard T. Welch, Chief Financial Officer
63
<PAGE> 78
With copies to:
Shumaker, Loop & Kendrick
Post Office Box 172609
101 E. Kennedy Boulevard, Suite 2800
Tampa, Florida 33672-0609
Facsimile No. (813) 229-1660
Attn: Darrell C. Smith, Esquire
If to the Company and the Optometrist addressed to:
Dr. Smith & Associates, P.A.
7209 Bryan Dairy Road
Largo, Florida 34777
Attn: Paul Smith, O.D.
With copies to:
MacFarlane, Ausley, Ferguson & McMullen
400 North Cleveland Street
9th Floor
Clearwater, Florida 34617-1669
Attn: Paul J. Raymond, Esquire
or to such other address as such party may have given to the other parties by
notice pursuant to this Section 19.4. Notice shall be deemed given on the date
of delivery, in the case of personal delivery or telecopy, or on the delivery
or refusal date, as specified on the return receipt, in the case of overnight
courier or registered or certified mail.
19.5. Choice of Law. This Agreement shall be
construed, interpreted, and the rights of the parties determined in accordance
with, the laws of the State of Florida except with respect to matters of law
concerning the internal affairs of any corporate or partnership entity which is
a party to or the subject of this Agreement, and as to those matters the law of
the state of incorporation or organization of the respective entity shall
govern.
19.6. Entire Agreement; Amendments and Waivers. This
Agreement, together with the documents contemplated by this Agreement and all
Exhibits and Schedules hereto and thereto, constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter hereof. No supplement, modification or
waiver of any of the provisions of this Agreement shall be binding unless it
shall be specifically designated to be a supplement, modification or waiver of
this Agreement and shall be executed in writing by the party to be bound
thereby. No waiver
64
<PAGE> 79
of any of the provisions of this Agreement shall be deemed or shall constitute
a waiver of any other provision hereof (whether or not similar), nor shall such
waiver constitute a continuing waiver unless otherwise expressly provided.
19.7. Confidentiality Agreements. The provisions of
any prior confidentiality agreements and letters of intent between or among
Vision 21, the Company and the Optometrist, as amended, shall terminate and
cease to be of any force or effect at and upon the Closing.
19.8. Reformation Clause. It is the intention of the
parties hereto to conform strictly to applicable laws regarding the practice
and regulation of optometry, whether such laws are now or hereafter in effect,
including the laws of the United States of America, the State or any other
applicable jurisdiction, and including any subsequent revisions to, or judicial
interpretations of, those laws, in each case to the extent they are applicable
to this Agreement (the "Applicable Laws"). Accordingly, if the ownership of
any Non-optometric Asset by Vision 21 violates any Applicable Law, then the
parties hereto agree as follows: (a) the provisions of this section 19.8 shall
govern and control; (b) if none of the parties hereto are materially
economically disadvantaged, then any Non-optometric Asset, the ownership of
which violates any Applicable Law, shall be deemed to have never been owned by
Vision 21; (c) if one or more of the parties hereto is materially economically
disadvantaged, then the parties hereto agree to negotiate in good faith such
changes to the structure and terms of the transactions provided for in this
Agreement as may be necessary to make these transactions, as restructured,
lawful under applicable laws and regulations, without materially disadvantaging
either party; (d) this Agreement shall be deemed reformed; and (e) the parties
to this Agreement shall execute and deliver all documents or instruments
necessary to effect or evidence the provisions of this Section 19.8.
19.9. Assignment. The Agreement may not be assigned by
operation of law or otherwise except that Vision 21 shall have the right to
assign this Agreement, at any time, to any Affiliate or direct or indirect
wholly-owned subsidiary. In the event of such assignment, Vision 21 shall
remain liable hereunder.
19.10. Attorneys' Fees. Except as otherwise
specifically provided herein, if any action or proceeding is brought by any
party with respect to this Agreement or the other documents contemplated with
respect to the interpretation, enforcement or breach hereof, the prevailing
party in such action shall be entitled to an award of all reasonable costs of
litigation or arbitration, including, without limitation, attorneys' fees, to
be paid by the losing party, in such amounts as may be determined by the court
having jurisdiction of such action or proceeding or by the arbitrators deciding
such action or proceeding.
19.11. Further Assurances. From time to time hereafter
and without further consideration, each of the parties hereto shall execute and
deliver such additional or further instruments of conveyance, assignment and
transfer and take such other actions as any of the other parties hereto may
reasonably request in order to more effectively consummate the
65
<PAGE> 80
transactions contemplated hereunder or as shall be reasonably necessary or
appropriate in connection with the carrying out of the parties' respective
obligations hereunder for the purposes of this Agreement.
19.12. Announcements and Press Releases. Any press
releases or any other public announcements concerning this Agreement or the
transactions contemplated hereunder shall be approved in advance by Vision 21
and the Company; provided, however, that such approval shall not be
unreasonably withheld and if any party reasonably believes that it has a legal
obligation to make a press release and the consent of the other party cannot be
obtained, then the release may be made without such approval.
19.13. No Tax Representations. Each party acknowledges
that it is relying solely on its advisors to determine the tax consequences of
the transactions contemplated hereunder and that no representation or warranty
has been made by any party as to the tax consequences of such transactions
except as otherwise specifically set forth in this Agreement.
19.14. No Rights as Stockholder. The Optometrist shall
have no rights as a stockholder with respect to any shares of Common Stock
until the issuance of a stock certificate evidencing such shares. Except as
otherwise provided in the Agreement, no adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to such
date any stock certificate is issued.
19.15. Multiple Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
19.16. Headings. The headings of the several articles
and sections herein are inserted for convenience of reference only and are not
intended to be part of or to affect the meaning or interpretation of this
Agreement.
19.17. Severability. Each article, section and
subsection of this Agreement constitutes a separate and distinct undertaking,
covenant or provision of this Agreement. If any such provision shall finally
be determined to be unlawful, such provision shall be deemed severed from this
Agreement, but every other provision of this Agreement shall remain in full
force and effect.
19.18. Form of Transaction. If after the execution
hereof, Vision 21 determines that the sale of the Non-optometric Assets of the
Company can be better achieved through a different form of transaction without
economic injury to the Company or the Optometrist, or delay of the consummation
of the transaction, the Company and the Optometrist shall cooperate in revising
the structure of the transaction and shall negotiate in good faith to so amend
this Agreement; provided, that Vision 21 shall reimburse the Company and the
Optometrist at Closing for all reasonable additional expenses incurred by the
Company and the Optometrist as a result of such change in form.
66
<PAGE> 81
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
"COMPANY"
DR. SMITH & ASSOCIATES, #6966, P.A.
/s/ By: /s/ Paul Smith
- ------------------------------------- ----------------------------------
Witness Paul Smith, O.D., President
/s/
- -------------------------------------
Witness
"OPTOMETRIST"
/s/ /s/ Paul Smith
- ------------------------------------- -------------------------------------
Witness Paul Smith, O.D.
/s/
- -------------------------------------
Witness
"VISION 21"
VISION 21, INC.
/s/ By: /s/ Theodore N. Gillette
- ------------------------------------- ----------------------------------
Witness Theodore N. Gillette, President
/s/
- -------------------------------------
Witness
67
<PAGE> 82
Schedule 2.1(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Personal Property Leases
None.
<PAGE> 83
Schedule 2.1(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Real Property Leases
1. Lease Agreement with Visionworks.
<PAGE> 84
Schedule 2.1(e)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Assumed Contracts
1. Real Property Lease in Schedule 2.1(d)
<PAGE> 85
Schedule 2.1(f)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Tangible Personal Property
Hergen Humphrey Auto Refractor - Serial - 560002452
Humphrey Auto Keratometer - Serial - 1402
Allergan Humphrey Lens Analyzer Mod. 330 - Serial - 330-9261
Humphrey field Analyzer - Serial - 610 - 2486
with Reliance stand - Serial - 0099610 MO 1479
Panasonic KX-P2130 Printer - Serial # 6GECJBO7543
WYSE Monitor Model W4-530-04 - Serial - 2181017737
Zeros Keyboard - Serial # 10019622
Tandy 100 DT 100 Keyboard - Serial # 0119423
Tandy DT 100 Monitor - Serial - 3001704
Hard Drive & Tape Back up - unknown brand
AO NCT
Reliance Chair Model 880 - Serial - 13681
Reliance Stand Mod 7700 - Serial - 31855 with lamp
Topcon ID-5BIO
Reichert Pharopter MOD 11625 - Serial - 19846-4
Topcon SL2E SIA Lamp Biomicroscope with PS-20A Power Supply and Hang Streit
Tonometer Reichart Project-O-Chart - Serial - 11608-7 - Mod. 11082
with Mirror System
with Stand (Vision 21 1172 Sticker)
Reichert Project-O-Chart Slide
Nikon 200 lens
Volk Double Asphene 780 Lens
Welch Allyn
1. Ophthalmoscope 11620
2. Transilluminator
(each with handle - Battery)
Copeland - Optec - 360 Streak Retinoscope
Doctor Chair Reliance - Serial #5-2947
Lens Kit with Wooden Case Marco
Reliance Chair Model 880H - Serial - 10394
Reliance Stand Model 7700 - Serial - 28558 with lamp
Topcon ID-5 B10
American Optical Phoropter Mod 11625 - Serial - BA34047
Topcon with DS20A power supply and Haag Streit tonometer SL2E SL lamp - Serial
- 622241 Vision 21 sticker 1187
Morco Lensmeter Model 101 - Serial - 10842
AO Projector with Reichert stand, with mirror system, 2 slides, standard,
tumbling E's
<PAGE> 86
Volk 90D lens
Nikon 20 D Lens
Haag Streit 4 mirror lens
Vigor Lens Clock
Welsh Allyn
Opthalmolscope Med. 11720
Transilluminator
Retinoscope Mod 18200
Each with handle and battery
Doctor chair - Reliance - Serial - 0133548 - Model #5346
Marco Lens Kit Black Case
Trial Lens Frame
Exhibit 2.1(f) - Page 2
<PAGE> 87
Schedule 2.1(h)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Franchises, Licenses, Permits, etc. Relating to Non-Optometric Assets
None.
<PAGE> 88
Schedule 2.2
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometric Assets
The following constitute the Optometric Assets:
Optometric records;
Patient lists;
Third-party payer contracts (except for rights to purchased accounts
receivable);
Licenses, certificates of need, Medicare/Medicaid certifications and
other governmental authorizations necessary to provide Professional
Eye Care Services and to be paid therefor by applicable third-party
payers; and
Any other asset that legally cannot be owned by a party that is not
optometrist-owned.
<PAGE> 89
Schedule 2.2(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Personal Effects
None.
<PAGE> 90
Schedule 2.3
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Assumed Obligations
1. Real Property Lease in Schedule 2.1(d)
<PAGE> 91
Schedule 2.4A
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Purchase Price
$72,421 in cash and 103,138 shares of Vision 21 common stock payable
pursuant to the terms of the Subordinated Promissory Note.
<PAGE> 92
Schedule 2.8
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Purchase Price Allocation
to be completed after Purchase Price Adjustment
<PAGE> 93
Schedule 3
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Individuals - Best Knowledge
Representations and Warranties of the Company
1. Paul R. Smith, O.D.
2. April K. Smith
<PAGE> 94
Schedule 3.1
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Capital Stock or Other Interest Owned By the Company,
the Optometrist or Any Professional Employee in Any Competitor
None.
<PAGE> 95
Schedule 3.2
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Sale, Distribution, or Spin-Off of Significant Assets
of the Company or Its Affiliates within the Last Two Years
None.
<PAGE> 96
Schedule 3.4
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Violations or Conflicts Resulting from Execution,
Delivery and Consummation of Transaction By the Company
None.
<PAGE> 97
Schedule 3.5
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Consents Required for Company from
Governmental Authority or Any Other Persons
None.
<PAGE> 98
Schedule 3.7
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Liabilities of the Company
Not Reflected in Financial Statements
None.
<PAGE> 99
Schedule 3.8(a)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Compensation of All Employees of the Company
See chart attached hereto and made a part hereof.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 100
Schedule 3.8(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Compensation Plans, Arrangements or Practices Sponsored By the
Company or to which the Company Contributes On Behalf of Its
Employees (Other than Employment Agreements and Employee Benefit Plans)
None.
<PAGE> 101
Schedule 3.8(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employment Agreements
Laurie Lesser, O.D.
All part-time Optometrists work on an independent contractor basis.
<PAGE> 102
Schedule 3.8(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Policies and Procedures
The Employee Policies and Procedures for Dr. Smith & Associates #6950,
#6958 and #6966 are identical to those for Vision 21 and Dr. Gillette's O.D.
practices. We do not have our own individual Policies and Procedures Manual.
The manuals in each office say Vision 21 Policies and Procedures.
<PAGE> 103
Schedule 3.8(f)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to Labor Compliance
None.
<PAGE> 104
Schedule 3.8(g)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Union Participation of Company Employees
None.
<PAGE> 105
Schedule 3.9(a)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plans Sponsored By the Company or to which the
Company Contributes On Behalf of Its Employees in the Past Three Years
Group medical and life insurance plans.
<PAGE> 106
Schedule 3.9(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Exceptions to Employee Benefit Plan Compliance
None.
<PAGE> 107
Schedule 3.9(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Audits, Investigations or Enforcement Actions
None.
<PAGE> 108
Schedule 3.9(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Prohibited Transactions
None.
<PAGE> 109
Schedule 3.9(f)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Determination Letter or IRS Ruling
Not applicable.
<PAGE> 110
Schedule 3.9(g)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Accumulated Funding Deficiency
Not applicable.
<PAGE> 111
Schedule 3.9(h)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Employee Benefit Plan Excise Taxes
None.
<PAGE> 112
Schedule 3.10
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Changes to Company since Balance Sheet Date
None.
<PAGE> 113
Schedule 3.11(b)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Permitted Encumbrances on Personal Property
None. Any liens or security interests are to be released within thirty (30)
days.
<PAGE> 114
Schedule 3.11(c)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Real Property Leases and Personal Property Leases
See Schedules 2.1(c) and 2.1(d)
<PAGE> 115
Schedule 3.12
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Commitments of the Company
None.
<PAGE> 116
Schedule 3.13
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Insurance Policies; Cancellations; Outstanding Claims,
Settlements or Premiums Owed; Professional Liability Insurance
Denials since January 1, 1994; and All Claims since January 1, 1994
See chart attached hereto and made a part hereof.
* * *
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 117
SMITH & ASSOCIATES - SCHEDULE 3.13 RE: INSURANCE
<TABLE>
<CAPTION>
================================================================================================
Insured Paul Smith Laurie Lesser
Optometrist Optometrist
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Liability limits $5 million / $5 million $2 million / $4 million
Professional liability Professional liability
- ------------------------------------------------------------------------------------------------
Expiration date 2-2-97 10-29-97
Retroactive N/A N/A
date
- ------------------------------------------------------------------------------------------------
Occurrence vs. Occurrence Occurrence
Claims Made
- ------------------------------------------------------------------------------------------------
Claims Same as Dr. Smith & Laurie Lesser, along with
Associates a primary care physician
and an opthamologist, is
being sued for failure to
diagnose a condition that
left an 80 year old man
blind. The
opthamologist testified
that Lesser would not
have been able to
diagnose the problem at
the time that she saw the
patient.
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
================================================================================================
Arsenio Arabitg Jose Macedo Smith & Associates
Optometrist Optometrist (Policy issued in name
of Paul R. Smith, O.D.)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
$1 million / $3 million $1 million / $3 million $5 million / $5 million
Professional liability Professional Liability Commercial general
- ------------------------------------------------------------------------------------------------
12-18-96 10-2-97 2-2-97
- ------------------------------------------------------------------------------------------------
N/A N/A N/A
- ------------------------------------------------------------------------------------------------
Occurrence Occurrence Occurrence
- ------------------------------------------------------------------------------------------------
None None Named as defendant
through vicarious
liability claim in the
Lesser suit. The
insurance company
believes that Laurie
Lesser is an independent
contractor, and believes
that no recovery against
the professsional
association will occur.
=============================== =============================== ===============================
</TABLE>
<PAGE> 118
Schedule 3.14
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Description of Proprietary Rights; Consents
None.
<PAGE> 119
Schedule 3.15
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Good Faith Disputes Over Payment of
Taxes; Tax Deficiency or Delinquency
None.
<PAGE> 120
Schedule 3.16
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A.
(the "Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21,
Inc. ("Vision 21")
List of Licenses, Franchises, Permits and Governmental
Authorizations for Conduct of the Company's Business; Notices of Noncompliance
1. State Board License for Paul Smith, O.D.
2. State Board License for Laurie Lesser, O.D.
3. State Board License for Arsenio Arabitg, O.D.
4. State Board License for Jose Santiago Macedo, O.D.
5. Dade County Occupational License Tax for Paul Smith, O.D.
6. Dade County Occupational License Tax for Laurie Lesser, O.D.
7. Dade County Occupational License Tax for Dr. Smith & Associates.
8. N. Miami Beach Occupational License for Paul Smith, O.D.
9. N. Miami Beach Occupational License for Laurie Lesser, O.D.
<PAGE> 121
Schedule 3.17
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Finder's, Broker's or Agent's Fee Owed By the Company
None.
<PAGE> 122
Schedule 3.18
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Company Litigation
None.
<PAGE> 123
Schedule 3.21
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
List of Company Borrowing and Investing Arrangements
None.
<PAGE> 124
Schedule 3.22
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Ownership Interests of Interested Persons and
Material Affiliations in the Last Three Years
None.
<PAGE> 125
Schedule 3.23
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Company Investments in Competitors
None.
<PAGE> 126
Schedule 3.29
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Description of and Relationship with Payors
None.
<PAGE> 127
Schedule 3.35
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Inventory Exceptions
None.
<PAGE> 128
Schedule 3.36
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Tangible Personal Property Exceptions
None.
<PAGE> 129
Schedule 3.37
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Real Property Lease and Personal Property Leases Exceptions
None.
<PAGE> 130
Schedule 3.38
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Assumed Contract Exceptions
None.
<PAGE> 131
Schedule 4.2
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Violations or Conflicts Resulting from Execution,
Delivery or Consummation of Transaction By the Optometrist
None.
<PAGE> 132
Schedule 4.5
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Finder's, Broker's or Agent's Fees Owed By the Optometrist
None.
<PAGE> 133
Schedule 4.6
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Optometrist Ownership of Interested Persons and Material Affiliations
None.
<PAGE> 134
Schedule 4.7
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Optometrist Investments in Competitors
None.
<PAGE> 135
Schedule 4.8
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A.
(the "Company"), Paul Smith, O.D. (the "Optometrist") and Vision
21, Inc. ("Vision 21")
Optometrist Litigation
1. Jose Fraga v. Paul Smith, O.D., Case No. 95-13958. Vicarious
liability claim for actions of Dr. Lesser. Dr. Lesser has
primary insurance coverage. Legal Counsel for Optometrist
estimates no "potential loss which will effect the financial
statement greater than $5,000.00".
<PAGE> 136
Schedule 4.10
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
List of Hospitals at which Optometrist Has Full Staff Privileges
Not applicable.
<PAGE> 137
Schedule 4.11
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A.
(the "Company"), Paul Smith, O.D. (the "Optometrist") and Vision
21, Inc. ("Vision 21")
Exceptions to Continued Optometrist Intent to Practice
Consistent with activity of Optometrist in prior twelve (12) months.
<PAGE> 138
Schedule 5
to Asset Purchase Agreement among Dr. Smith & Associates, #6966,
P.A. (the "Company"), Paul Smith, O.D. (the "Optometrist") and Vision
21, Inc. ("Vision 21")
Individuals - Best Knowledge
Representations and Warranties of Vision 21
1. Theodore N. Gillette
2. Richard L. Sanchez
3. Richard T. Welch
4. Nicholas M. Arfaras
<PAGE> 139
Schedule 5.1
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A.
(the "Company"), Paul Smith, O.D. (the "Optometrist") and
Vision 21, Inc. ("Vision 21")
Jurisdictions where Vision 21 is Qualified to Do Business
1. Florida
2. Arizona
3. Minnesota
4. New York
<PAGE> 140
Schedule 5.6
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Finder's, Brokers or Agent's Fees Owed By Vision 21
None.
<PAGE> 141
Schedule 5.9
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Liabilities of Vision 21 Not Reflected in Financial Statements
None.
<PAGE> 142
Schedule 6.1(b)
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Exception to Optometrist "Accredited Investor"
or "Sophisticated Investor" Representation
None.
<PAGE> 143
Schedule 6.1(d)
to Asset Purchase Agreement among Dr. Smith & Associates,
#6966, P.A. (the "Company"), Paul Smith, O.D. (the
"Optometrist") and Vision 21, Inc. ("Vision 21")
Optometrist's Principal Residence
[IN ACCORDANCE WITH RULE 406 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
CONFIDENTIAL PORTIONS OF THIS AGREEMENT (INCLUDING THE INFORMATION ON THE CHART
CALLED FOR BY THIS SCHEDULE) HAVE BEEN OMITTED HEREFROM AND FILED SEPARATELY
WITH THE SECURITIES EXCHANGE COMMISSION.]
<PAGE> 144
Schedule 7.14
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Optometrist Employment Agreement
None.
<PAGE> 145
Schedule 7.18
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Assignment of Fees for Optometry Services
None.
<PAGE> 146
Schedule 8.4
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Personal Liabilities of Optometrist for which
Vision 21 Will Use Best Efforts to Obtain Release
None.
<PAGE> 147
Schedule 11.5
to Asset Purchase Agreement among Dr. Smith & Associates, #6966, P.A. (the
"Company"), Paul Smith, O.D. (the "Optometrist") and Vision 21, Inc. ("Vision
21")
Joint Personal Liabilities of Optometrist and Company
to which Vision 21 Will Use Best Efforts to Obtain Release
None.
<PAGE> 148
Schedule 12.1(o)
to Asset Purchase Agreement among Dr. Smith & Associates, #6966,
P.A. (the "Company"), Paul Smith, O.D. (the "Optometrist") and Vision
21, Inc. ("Vision 21")
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement"), dated as of
_____________, 1996, is by and between Vision 21, Inc., a Florida corporation
and any successor ("Vision 21"), and Dr. Smith & Associates, #6966, P.A., a
Florida professional association located at 7209 Bryan Dairy Road, Largo,
Florida 34647 ("Shareholder").
1. Registration Rights.
(a) In the event that Vision 21 proposes to file a
registration statement under the Securities Act for purposes of effecting an
underwritten public offering of shares of Vision 21 common stock for cash
(including, but not limited to, a registration statement relating to a
secondary offering of Vision 21 common stock, but excluding registration
statements relating to any employee benefit plan or a corporate
reorganization), Vision 21 shall give written notice of such proposed filing to
the Shareholder at least fifteen (15) days before the anticipated filing date,
and such notice shall offer Shareholder the opportunity to register such number
of the Shareholder's shares of common stock as Shareholder may request in
writing within ten (10) days after receipt of such notice; provided, however,
that the maximum number of shares of common stock that such Shareholder may
request to include in any registration statement shall be limited as provided
in Section 1(c).
(b) In the event that (i) one (1) year has elapsed from
the date of effectiveness of the registration statement filed in connection
with an underwritten initial public offering of shares of Vision 21 common
stock, and (ii) Vision 21 receives a written request from holders holding in
the aggregate a minimum of 300,000 shares of Vision 21 common stock issued to
the founding practices described in Vision 21's Confidential Information
Memorandum dated September 27, 1996, as amended, and issued to certain
professionals owning equity interests in such founding practices (the founding
practices and professionals of such practices holding share's of common stock
of Vision 21 are collectively referred to as the "Founding Shareholders"), that
Vision 21 file a registration statement under the Securities Act effecting an
offering of shares of Vision 21 common stock; then Vision 21 shall as soon as
practicable file a registration statement at its own expense effecting a public
offering of shares of Vision 21 common stock held by Founding Shareholders, as
well as any other Vision 21 shares owned by any other shareholders which Vision
21 wishes to include in the offering (which offering may be an underwritten
offering at Vision 21's sole discretion); provided however that Vision 21 shall
be obligated to effect only one registration statement containing each
Shareholder, and Vision 21 shall be obligated to file only two (2) registration
statements in the aggregate, pursuant to this Section 1(b).
(c) The maximum aggregate number of shares of common
stock that Shareholder may request to be registered under this Agreement shall
be sixty percent (60%) of Shareholder's original shares of Vision 21 common
stock. In no event shall the total number of Shareholder's shares of common
stock that Vision 21 is obligated to register under this Agreement exceed sixty
percent (60%) of Shareholder's original shares of Vision 21 common stock, and
in no event shall Vision 21 be obligated to register more than (i) in an
initial offering, thirty percent (30%) of Shareholder's original shares of
Vision 21 common stock or (ii) in a second offering, sixty percent (60%) of the
Shareholder's original shares minus the percent of the Shareholder's original
<PAGE> 149
shares that the Shareholder registered in the first offering. The "original
shares" of Vision 21 as described herein shall be deemed to be the 103,138
shares of common stock received by the Shareholder on the date of this
Agreement.
(d) Vision 21 shall have the sole and exclusive right to
select the underwriters of any public offering of shares of Vision 21 common
stock, including any public offering conducted pursuant to the demand
registration right set forth in Section 1(b) above. The use of underwriters in
any demand registration right set forth in Section 1(b) above is subject to
Vision 21's ability to engage underwriters under terms and conditions deemed
reasonable by Vision 21.
(e) If the managing underwriter of any offering advises
Vision 21 that the total number of shares of Vision 21's common stock which
Vision 21, the Shareholder and any other persons intend to include in such
offering would adversely affect the success of such offering, then the amount
of shares of common stock to be offered for the account of Shareholder shall be
reduced to the extent necessary to reduce the total number of shares of common
stock to be included in such offering to the amount recommended by such
managing underwriter.
(f) Vision 21 shall not be required to (i) reduce the
amount of shares of common stock to be offered by Vision 21 in such offering
for any reason or (ii) include any shares of common stock of Shareholder in any
public offering for which a registration statement is or is proposed to be
filed if such shares of common stock are, at the time of effectiveness of such
registration statement, eligible to be sold under Rule 144 under the Securities
Act or otherwise eligible for sale to the public without registration.
(g) Vision 21 shall have the right to extend or delay the
effectiveness of any registration statement for a period of up to ninety (90)
days if, upon the advice of counsel, such delay is advisable and in the best
interests of Vision 21 because of the existence of non-public material
information, or to allow Vision 21 to complete any pending audit of its
financial statements, any public financing plan, any pending acquisition, or to
release audited financial statements for any pending acquisition as required by
the Securities and Exchange Commission.
(h) Shareholder agrees to cooperate with Vision 21 in all
respects in connection with registration of the common stock, including timely
supplying all information and executing and returning all documents requested
by Vision 21 and its managing underwriter.
(i) Vision 21 shall not be required to include any of
Shareholder's shares of common stock in any registration statement unless
Shareholder accepts the terms of the underwriting as agreed upon between Vision
21 and its underwriters.
(j) Vision 21 shall have the right to defer the filing of
any registration statement if the Board of Directors of Vision 21 determines in
good faith that it would be seriously detrimental to Vision 21 and its
shareholders for such registration statement to be filed.
Exhibit 12.1(o) - Page 2
<PAGE> 150
(k) This Agreement shall expire two (2) years from the
date of an initial public offering of Vision 21 common stock.
2. Covenants of Vision 21. Vision 21 hereby covenants and
agrees:
(a) To take such steps as may be necessary to comply with
the Blue Sky laws of such states as the managing underwriter may reasonably
request; provided that in no event shall Vision 21 be obligated to qualify to
do business in any state where it is not so qualified or to take any action
which would subject it to unlimited service of process in any state where it is
not at such time so subject;
(b) To use reasonable efforts to cause the registration
statement to become effective and to keep the registration statement effective
for such period as may be required under the terms of the underwriting
agreement relating thereto but no longer than for a period of forty-five (45)
days, to file such post-effective amendments as may be necessary to keep any
prospectus contained in such registration statement true and complete during
such period as the registration statement shall be effective, and to furnish
and file such other amendments, supplements, and other documents the managing
underwriter may reasonably request;
(c) To supply such numbers of prospectuses as may be
reasonably required by the managing underwriter;
(d) To pay the reasonable costs and expenses of the
registration statement including without limitation all registration and Blue
Sky filing fees, all fees and expenses of Vision 21's counsel (but not the fees
and expenses of counsel for Shareholder), all accounting costs (including costs
associated with the preparation of interim period financial statements), NASD
fees, printing costs, experts' fees, expenses, costs of post-effective
amendments, and all other usual and customary expenses in connection with the
registration statement, except for Shareholder's pro rata share of underwriting
discounts, fees, and selling commissions (calculated in the manner set forth in
Section 3(a)(ii) of this Agreement); and
(e) With respect to any registration statement filed
pursuant to this Agreement, where underwriters are utilized, to cooperate with
the underwriters to the best of its abilities and to enter into an underwriting
agreement with such underwriters containing such representations, warranties,
and covenants on the part of Vision 21 as are usual and customary in an
underwritten public sale of common stock.
3. Covenants of Shareholder.
(a) Shareholder hereby covenants and agrees:
(i) To cooperate with Vision 21 in its compliance
with all federal and state securities laws, including without limitation
providing such information and signing such documents as are necessary to
effect a registration or reasonably requested by underwriters pursuant to this
Agreement;
(ii) To pay his pro rata portion (calculated on
the basis of the ratio of the aggregate offering price attributable to the
shares of Shareholder being registered and sold in relation to the aggregate
Exhibit 12.1(o) - Page 3
<PAGE> 151
offering price attributable to the total number of securities being registered
and sold, including securities being registered and sold by other selling
stockholders) of the underwriting discounts and selling commissions and to pay
all the fees and disbursements of his counsel; and
(iii) To the entry of stop transfer instructions
with the Company's transfer agent against the transfer of any shares of
Shareholder's Vision 21 common stock except in compliance with the restrictions
as set forth in this Section 3.
(b) Shareholder shall be considered an "affiliate" of
Vision 21 for purposes of Rule 144 under the Securities Act, even in the event
Shareholder is not technically an affiliate of Vision 21 as defined in Rule
144, and the Vision 21 common stock owned by Shareholder shall be subject to
the restrictions and limitations on resale imposed by Rule 144 on affiliates of
Vision 21. Shareholder shall not sell any of his shares of Vision 21 common
stock under Rule 144 unless Shareholder would be eligible to do so under the
provisions applicable to affiliates.
(c) In addition to the transfer restrictions otherwise
provided for herein, Shareholder shall not, whether or not Shareholder elects
to cause the registration of his shares pursuant to this Agreement, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise dispose of any shares of Vision 21 common stock
(other than the shares covered by such registration, which may be sold in
accordance with the plan or plans of distribution described in the registration
statement) owned by Shareholder for a period of one hundred eighty (180) days
or such shorter period as negotiated by the Company following the effective
date of such registration statement without the prior written consent of Vision
21. In the event that Shareholder is a corporation, professional corporation
or professional limited liability company, Shareholder may after receiving the
written approval of Vision 21 (which approval shall not be unreasonably
withheld) transfer its shares of Vision 21 Common Stock to any of the
individuals and/or trusts described in Sections 7(a), (b) and (c) hereof. Such
transferee shall, for purposes of the transfer restrictions contained in this
Agreement, be deemed to have held such transferred shares for the same period
as Shareholder.
4. Indemnification of Shareholder.
Whenever registration with respect to any shares of Shareholder's
common stock is effected under the Securities Act pursuant hereto, Vision 21
will indemnify and hold harmless Shareholder, each underwriter, the directors,
officers, employees and agents of each underwriter, and each person, if any,
who controls each underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, (including any securities law
violations) insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged omission to state
in such document a material fact required to be stated in it or necessary to
make the statements in it not misleading, provided that Vision 21 will not be
liable to Shareholder to the extent that such loss, claim, liability, expense
or damage is based on an untrue statement or omission made in reliance on and
in conformity with information furnished to Vision 21 by
Exhibit 12.1(o) - Page 4
<PAGE> 152
Shareholder, or by Shareholder through any attorney-in-fact, expressly for
inclusion in the registration statement or any prospectus included in such
registration statement.
5. Indemnification of Vision 21.
Whenever registration with respect to any shares of Shareholder's
common stock is effected under the Securities Act pursuant hereto, Shareholder
will indemnify and hold harmless Vision 21, each of Vision 21's directors and
officers, each person who controls Vision 21 within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, each underwriter, the
directors, officers, employees and agents of each underwriter, and each person,
if any, who controls each underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, liabilities, expenses and damages (including any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims,
liabilities, expenses or damages arise out of or are based on any untrue
statement or alleged untrue statement of a material fact required to be stated
in it or necessary to make the statements in it not misleading; provided that
Shareholder will not be liable except to the extent that such loss, claim,
liability, expense or damage arises from or is based upon an untrue statement
or omission or alleged untrue statement or omission made in reliance on and in
conformity with information furnished to Vision 21 by the Shareholder, or by
Shareholder through any attorney-in-fact, expressly for inclusion in the
registration statement or any prospectus included in such registration
statement.
6. Defense of Claim.
Promptly after receipt by an indemnified party of notice of the
commencement of any action, the indemnified party shall notify the indemnifying
party in writing of the commencement thereof if a claim in respect thereof is
to be made against an indemnifying party under this Agreement, but the omission
of such notice shall not relieve the indemnifying party from liability which it
may have to the indemnified party under this Agreement, except to the extent
that the indemnifying party is actually prejudiced by such failure to give
notice, and shall not relieve the indemnifying party from any liability which
it may have to any indemnified party otherwise than under this Agreement. In
case any action is brought against the indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and to the extent that it chooses, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party to the
indemnified party that it so chooses, the indemnifying party shall not be
liable for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof; provided however that (i) if the
indemnifying party fails to take reasonable steps necessary to defend
diligently the claim within twenty (20) days after receiving notice from the
indemnified party that the indemnified party believes the indemnifying party
has failed to diligently defend such claim, or (ii) if the indemnified party
who is a defendant in any action or proceeding which is also brought against
the indemnifying party reasonably shall have concluded that there are legal
defenses available to the indemnified party which conflict with the defense
strategy of the indemnifying party, or (iii) if representation under applicable
standards of professional conduct require separate representation of the
Exhibit 12.1(o) - Page 5
<PAGE> 153
indemnified party and the indemnifying party, then the indemnified party shall
have the right to assume or continue its own defense as set forth above and the
indemnifying party shall reimburse the indemnified party for the costs of such
defense as provided in Section 4 and 5. In no event shall the indemnifying
party be responsible for the fees of more than one firm for all indemnified
parties.
7. Non-Transferability.
The registration rights and benefits set forth herein, including
indemnification by Vision 21 are granted for the sole and personal benefit of
Shareholder and may not be transferred or assigned except for (a) gifts to
his/her family members (b) assignment to a trust controlled by the Shareholder,
(c) transfers to Shareholder;s heirs which occur by operation of law as a
result of the death of the Shareholder, or (d) if the Shareholder is a
corporation, professional corporation or professional limited liability
company, transfers or assignments to the individuals who are current equity
holders of Shareholder and by such equity holders to the individuals and/or
trusts described in subsection (i) and (ii) of this Section.
8. Survival of Indemnity.
The indemnifications provided by this Agreement shall be a continuing
right to indemnification and shall survive the registration and sale of any
securities by any person entitled to indemnification hereunder and the
expiration or termination of this Agreement.
9. Delay of Registration.
Shareholder agrees that he shall have no right to obtain or seek an
injunction restraining or otherwise delaying any registration statement filed
by Vision 21.
10. Notices.
(a) All communications under this Agreement shall be in
writing and shall be sufficient in all respects if when personally delivered
or mailed by prepaid certified or registered mail, return receipt requested,
addressed as follows:
(i) If to Vision 21, at:
Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Theodore N. Gillette,
Chief Executive Officer
Exhibit 12.1(o) - Page 6
<PAGE> 154
With a copy to:
Darrell C. Smith, Esquire
c/o Shumaker, Loop & Kendrick, LLP 101
E. Kennedy Boulevard Suite 2800
Tampa, Florida 33602
or at such other address as Vision 21 may have furnished in writing to
Shareholder at the time outstanding, or
(ii) If to Shareholder at:
Dr. Smith & Associates, #6966, P.A.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Paul Smith, O.D., President
With a copy to:
Paul J. Raymond, Esquire
MacFarlane, Ausley, Ferguson & McMullen
400 North Cleveland Street, 9th
Floor Clearwater, Florida 34617-1669
(b) Any notice so addressed, when mailed by registered or
certified mail shall be deemed to be given three days after so mailed, and when
delivered by hand shall be deemed to be given immediately.
11. Counterparts.
One or more counterparts of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12. Governing Law.
This Agreement shall be construed in accordance with and governed by
the internal laws of the State of Florida, which shall prevail in all matters
arising under or in connection with this Agreement.
13. Headings.
The headings in this Agreement are for convenience of reference only
and shall not be deemed to alter or affect the meaning or interpretation of any
provisions hereof.
14. Stock Lettering.
Exhibit 12.1(o) - Page 7
<PAGE> 155
The Company shall have the right to provide a legend on the shares of
stock covered hereunder reflecting the restriction described hereunder.
Exhibit 12.1(o) - Page 8
<PAGE> 156
IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the date and year first above written.
"VISION 21"
VISION 21, INC.
By:
---------------------------------
Theodore N. Gillette,
Chief Executive Officer
"SHAREHOLDER"
DR. SMITH & ASSOCIATES, #6966, P.A.
------------------------------------
Paul Smith, O.D., President
Exhibit 12.1(o) - Page 9
<PAGE> 157
Schedule 12.1(r)
to Asset Purchase Agreement among Dr. Smith & Associates, #6966,
P.A. (the "Company"), Paul Smith, O.D. (the "Optometrist") and Vision
21, Inc. ("Vision 21")
AGREEMENT TO CONTINUE PRACTICE AFTER
TRANSFER EVENT AND STOCK PLEDGE
This Agreement to Continue Practice after Transfer Event and Stock
Pledge (the "Agreement") is made as of _______________, 1996 by and between
PAUL SMITH, O.D. ("Optometrist"), an individual licensed to practice optometry
in the State of Florida (the "State") whose mailing address is 7209 Bryan Dairy
Road, Largo, Florida 34647, and VISION 21, INC. ("Business Manager"), a Florida
corporation whose mailing address is 7209 Bryan Dairy Road, Largo, Florida
34647.
RECITALS
A. Dr. Smith & Associates, #6966, P.A. ("P.C.") is a Florida
professional association which employs optometrists.
B. Optometrist is the sole shareholder of P.C.
C. Pursuant to that certain Business Management Agreement (the
"Business Management Agreement") dated December 1, 1996, the Business Manager
provides certain services and support to the optometry practices of P.C.'s
employed optometrists.
D. Optometrist has agreed to sell all of P.C.'s shares owned by
him to the Business Manager's designee for value if certain events occur, and
the Business Manager desires its designee to purchase such shares if certain
events occur.
E. Optometrist desires to pledge all of P.C.'s shares owned by
him to secure the promise referenced in Paragraph D above and Business Manager
desires to accept such security interest.
NOW, THEREFORE, for and in consideration of the mutual agreements,
terms, covenants and conditions contained herein and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions.
1.1. "Collateral" means the _____ shares of P.C. stock
owned by Optometrist consisting of all of the validly issued and
outstanding shares of P.C.
1.2. "Transferee" means an optometrist chosen by the
Business Manager who is licensed to practice optometry in the State.
<PAGE> 158
2. Conditional Agreement to Transfer Stock. Optometrist shall
immediately transfer the Collateral to the Transferee for the Purchase Price
set forth in Section 5 below if any of the following occurs (collectively,
"Events of Transfer"):
(a) Optometrist dies,
(b) Optometrist loses his State license to
practice optometry for any reason, or
(c) Optometrist is adjudicated incompetent by any
court of law.
3. Grant of Security Interest. Optometrist grants to Business
Manager a security interest in the Collateral to secure the promise set forth
in Section 2 above.
4. Designation of Transferee. The Business Manager shall
designate the Transferee to purchase the Collateral upon an Event of Transfer.
5. Payment of Purchase Price. The purchase price for the
Collateral purchased by the Transferee (the "Purchase Price") shall be an
amount equal to the fair market value of the Collateral as of the date of the
transfer, determined by the accounting firm of Ernst & Young, LLP (or any
successor to Ernst & Young LLP) acting through the personnel at its office in
Tampa, Florida, if that firm is willing to make the determination; or, if not,
any nationally recognized firm of independent certified public accountants
agreed to by Business Manager and Optometrist (or by Optometrist's guardian or
personal representative, if an Event of Transfer occurs pursuant to Sections
2(a) or (c)). Any determination of the Collateral's fair market value by such
firm shall be deemed a final determination of the fair market value as of the
determination date and shall be conclusive upon all parties for purposes of
this Agreement as a commercially reasonable price. The Purchase Price shall be
payable by cashier's check to Optometrist or his guardian or personal
representative (as the case may be) within thirty (30) days after the Business
Manager's receipt of the accounting firm's Purchase Price determination.
6. Commercially Reasonable Disposition. The parties acknowledge
that it would be impossible to realize a commercially reasonable price in the
event of the disposition of the pledged stock by public sale and very difficult
to do so by private sale, except on the terms and conditions in Sections 4 and
5 hereto. Therefore, the parties acknowledge that a disposition of the
Collateral under Sections 4 and 5 hereto is a commercially reasonable
disposition, and agree that the determination of the Purchase Price under
Section 5 is commercially reasonable and that they will be bound by the
Purchase Price determination.
7. Term. This Agreement shall continue for as long as the
Business Management Agreement and any renewals thereof are in effect.
8. Representations and Warranties. Optometrist represents and
warrants the following:
Exhibit 12.1(r) - Page 2
<PAGE> 159
8.1. Optometrist. There is no provision of any agreement
to which Optometrist is a party or of any law that would be contravened by the
execution, delivery, or performance of this Agreement; Optometrist's name and
the description of the legal status of the P.C. in the Preamble and the
information contained in the Recitals hereto are correct.
8.2. Collateral. As to each item of Collateral,
Optometrist has good title, free and clear of all claims, charges, liens,
encumbrances, restrictions, options, calls and defects of any kind or nature
whatsoever, except for the security interest granted hereby; no other person,
entity, or governmental authority has or claims any lien or other interest in
the Collateral; no adverse financing statements are on file; and there is no
litigation nor are there any proceedings by any public body, agency, or
authority presently pending or threatened against Optometrist, the outcome of
which might materially and adversely affect the Collateral.
8.3. P.C. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require P.C. to issue,
sell, or otherwise cause to become outstanding any of its capital stock; and
there is no litigation nor are there any proceedings by any public body,
agency, or authority presently pending or threatened against P.C. or
Optometrist, the outcome of which might materially and adversely affect the
continued operations of P.C.
8.4. Survival of Warranties. All representations and
warranties shall survive the execution and delivery of this Agreement.
9. Affirmative Covenants.
9.1. No Agency and Defense Against Claims. Nothing in
this Agreement shall make Optometrist an agent of Business Manager for any
purpose whatsoever. Optometrist shall defend the Collateral against all
claims, demands, and defenses affecting Business Manager's security interest,
regardless of merit, and shall hold Business Manager harmless therefrom,
including, without limitation, holding Business Manager harmless from all
attorneys' fees and other litigation expenses arising out of any such claims,
demands, or defenses.
9.2. Disposition and Issuances of P.C. Common Stock. P.C.
shall not, and during the term of this Agreement Optometrist shall not cause
the P.C. to issue, sell or otherwise cause to be outstanding any additional
capital stock, except for (a) sales of such stock made to successor
shareholders pursuant to Section 4.1 of the Business Management Agreement,
provided that if there shall be only one shareholder holding the P.C.'s stock
following such transfer, such successor shareholder shall execute an agreement
in substantially the same form as this Agreement; (b) issuances of additional
stock to individuals licensed to practice optometry in the State who are
competent and capable and who are approved by Business Manager; provided that
Business Manager shall not unreasonably withhold its approval to the sale of
such additional stock to such individual, and after the sale of such additional
stock, this Agreement shall be terminated and the Collateral pledged hereby
shall be returned to Optometrist free of the restrictions imposed by this
Agreement; (c) the transfer without consideration of
Exhibit 12.1(r) - Page 3
<PAGE> 160
such stock to a revocable trust created by the Optometrist, provided that any
and all trustees of such trust first agrees in writing to hold such stock so
transferred subject to this Agreement; and (d) the transfer of such stock upon
the occurrence of an Event of Transfer by any other means as determined by
Optometrist and agreed to in writing by Business Manager, which agreement shall
not be unreasonably withheld.
10. Custody and Handling of Collateral and Records.
10.1. Protection of Secured Party's Security Interest.
Upon execution of this Agreement, Optometrist shall give the Business Manager
the share certificate(s) representing the Collateral, duly endorsed in blank
or, if not endorsed in blank, Optometrist shall give the Business Manager a
duly executed stock power in blank.
10.2. No Authority to Sell. Optometrist shall not sell,
assign, pledge, hypothecate, encumber, or otherwise transfer any item of
Collateral except as expressly provided in this Agreement. If any item of
Collateral or any right therein is transferred contrary to this Agreement,
Business Manager retains a security interest in such item and in the proceeds
of such disposition.
11. Default and Remedies.
11.1. Remedies Upon Default. Upon the occurrence of any
breach of any covenant or warranty contained in this Agreement by Optometrist
and continuously thereafter until waived in writing, Business Manager shall
have the right and option to immediately sell the Collateral to Transferee
subject to a subsequent determination of the Purchase Price to be paid later or
to exercise any other remedy available to Business Manager as a secured party
under law or equity. Optometrist acknowledges that Business Manager shall be
entitled upon any breach or threatened breach of this Agreement to the granting
of a temporary restraining order, a temporary or permanent injunction, or any
other equitable remedy which may then be available.
11.2. Construction of Rights and Remedies and Waiver of
Notice and Consent.
(a) This Section 11 applies to all rights and
remedies provided by this Agreement or at law or in equity.
(b) Unless otherwise expressly provided herein,
any right or remedy may be pursued without notice to or
further consent of Optometrist, both of which Optometrist
waives.
(c) No forbearance in exercising any right or
remedy shall operate as a waiver thereof; no forbearance in
exercising any right or remedy on any one or more occasions
shall operate as a waiver thereof on any future occasion; and
no single or partial exercise of any right or remedy shall
preclude any other exercise thereof or the exercise of any
other right or remedy.
Exhibit 12.1(r) - Page 4
<PAGE> 161
12. Miscellaneous.
12.1. Notices. Any notices, statements, requests, demands,
consents, or other documents ("notices") shall be in writing and shall
be delivered personally, by certified mail, postage prepaid, return
receipt requested, or by overnight courier (prepaid) to the addresses
set forth in the Preamble hereof. When personally delivered, all
notices shall be deemed given when actually received. When mailed,
all notices shall be deemed given three (3) days after mailing by
certified mail and one (1) day after mailing by overnight courier.
12.2. Governing Law. This Agreement shall be construed and
interpreted under the laws of the State of Florida.
12.3. Binding Effect. This Agreement shall be binding upon
Optometrist, Optometrist's personal representatives, heirs,
successors, and assigns, as the case may be, and shall be binding upon
and inure to the benefit of Business Manager and its successors and
assigns. Optometrist may not assign this Agreement.
12.4. Amendment. This Agreement may be amended, but only
by a written amendment signed by Business Manager and Optometrist.
12.5. Severability. If any provision of this Agreement or
the application of any provision to any party or circumstance shall be
adjudged invalid or unenforceable to any extent, the remainder of this
Agreement shall not be affected thereby. Each provision of this
Agreement shall be valid and enforceable to the fullest extent
permitted by law.
12.6. Headings. The headings in this Agreement are for
convenience of reference only and shall not be used in interpreting
this Agreement.
12.7. Number; Gender. Where appropriate, the number of all
words in this Agreement shall be both singular and plural and the
gender of all pronouns shall be masculine, feminine, neuter, or any
combination thereof.
"OPTOMETRIST"
-------------------------------
Paul A. Smith, O.D.
"BUSINESS MANAGER"
VISION 21, INC.
Exhibit 12.1(r) - Page 5
<PAGE> 162
By:
--------------------------------
Theodore N. Gillette
Its: Chief Executive Officer
Exhibit 12.1(r) - Page 6
<PAGE> 163
Schedule 16.1
to Asset Purchase Agreement among Dr. Smith & Associates, #6966,
P.A. (the "Company"), Paul Smith, O.D. (the "Optometrist") and Vision
21, Inc. ("Vision 21")
Liquidated Damages for Optometrist
Breaching Optometrist Employment Agreement
Liquidated damages for Paul Smith, O.D., shall equal: (i) $72,421 in
cash; plus (ii) $2.77 per share of Vision 21 common stock times 103,138 shares
of Vision 21 common stock granted to Paul Smith, O.D., in connection with the
Acquisition, which stock total equals $285,692. The total of the foregoing
liquidated damages equals $358,113.
<PAGE> 1
EXHIBIT 10.34
THIS SUBORDINATED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK WHICH SHALL BE
DELIVERED IN ACCORDANCE WITH THE TERMS OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAW. NO SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS
NOTE OR ANY SUCH SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL,
SATISFACTORY TO MAKER, IS OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE
OR TRANSFER IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
SUBORDINATED PROMISSORY NOTE
$72,421 December 1, 1996
103,138 Shares of Common Stock
of Vision 21, Inc.
FOR VALUE RECEIVED, VISION 21, INC., a Florida corporation ("Maker"),
hereby promises to pay DR. SMITH & ASSOCIATES, #6966, P.A., a Florida
professional association ("Payee") (i) the principal amount of Seventy-Two
Thousand Four Hundred Twenty-One Dollars ($72,421), together with interest
thereon at a per annum rate equal to eight percent (8%), and (ii) One Hundred
Three Thousand One Hundred Thirty-Eight (103,138) shares of Maker's common
stock (the "Shares"). Interest shall be computed on the basis of the actual
number of days elapsed in a year of 360 days from and including the date hereof
through March 1, 1998.
Subject to the stock payment rights described herein, principal and
interest on this Note shall be payable in full, in one installment, in arrears,
on that date which is the earlier of (i) fifteen business days after the
closing date of an initial public offering of shares of common stock of Maker
and (ii) March 1, 1998 (the "Cash Payment Due Date"). If this Note or any
installment of principal or interest hereon becomes due and payable on
Saturday, Sunday or other day on which commercial banks are authorized or
permitted to close under the laws of the State of Florida, the maturity of this
Note or such installment shall be extended to the next succeeding business day.
All payments under this Note and deliveries of shares of Maker's common stock
described below shall be delivered to the office of Payee located at 601
Belcher Road, Clearwater, Florida 34624.
Maker shall (i) on January 15, 1997, deliver to Payee the Shares; and
(ii) on or before the Cash Payment Due Date, pay the outstanding principal
balance under this Note of Seventy- Two Thousand Four Hundred Twenty-One
Dollars ($72,421) by cashier's check or money order.
<PAGE> 2
At the time of delivery of the shares referenced above, Maker shall
deliver to Payee a certificate evidencing the number of fully paid and
nonassessable shares issuable upon payment. The certificate evidencing the
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE
CORPORATION THAT SUCH TRANSACTION WILL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS."
Payee by its acceptance hereof acknowledges that it is aware that
neither this Note nor the Shares issuable to Payee in connection with this Note
have been registered under the Securities Act of 1933, as amended.
This Note is being delivered to Payee by Maker pursuant to that
certain Asset Purchase Agreement effective as of December 1, 1996 between Payee
and Maker (the "Purchase Agreement") and is subject to the terms and provisions
thereof. The principal amount of this Note shall be automatically and
permanently reduced by set-off in amounts determined under and in accordance
with the terms of the Purchase Agreement.
This Note is not transferable or assignable by Payee. If this Note is
collected by law or through an attorney at law, or under advice therefrom, the
Maker agrees to pay all costs of collection, including reasonable attorneys'
fees. Reasonable attorneys' fees are defined to include, but not be limited
to, all fees incurred in all matters of collection and enforcement, trial
proceedings and appeals, as well as appearances in and connected with any
bankruptcy proceedings or creditors' reorganization or similar proceedings and
any post judgment collection efforts.
Any failure to exercise any right, remedy or recourse hereunder shall
not be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written document executed by the Payee and then only
to the extent specifically recited therein. A waiver or release with reference
to any one event shall not be construed as continuing, as a bar to, or as a
waiver or release of any subsequent right, remedy or recourse as to a
subsequent event.
In no event shall the amount of interest due or payments in the nature
of interest payable hereunder exceed the maximum rate of interest allowed by
applicable law, as amended from time
-2-
<PAGE> 3
to time, and in the event any such payment is paid by the Maker or received by
the Payee, then such excess sum shall be credited as a payment of principal,
unless the Maker shall notify the Payee, in writing, that the Maker elects to
have such excess sum returned to Maker forthwith.
The Maker waives protest, demand, notice of protest, dishonor,
presentment for payment or acceptance.
The rights of Payee to receive payment on this Note is subject and
subordinate to the prior payment of the principal and interest on all senior
secured indebtedness of Maker, whether now outstanding or subsequently
incurred, and any deferrals, renewals or extensions of such indebtedness or any
debentures, bonds or notes evidencing such indebtedness (the "Senior
Indebtedness"). Upon any receivership, insolvency, assignment for the benefit
of creditors, bankruptcy, reorganization, sale of all or substantially all of
the assets, dissolution, liquidation, or any other marshalling of assets and
liabilities of Maker, or in the event this Note is declared due and payable
upon the occurrence of a default under this Note, then no amount shall be paid
by Maker with respect to principal and interest hereon unless and until the
principal of, and interest on, all Senior Indebtedness then outstanding is paid
in full. The indebtedness of Maker under this Note shall have an equal
priority with all other indebtedness relating to Maker's acquisition of, or
merger into, founding health care practices occurring on or prior to December
31, 1996.
This Note has been executed and delivered in ____________, Hawaii and
shall be governed by and construed in accordance with the laws of the State of
Florida applicable to debts and obligations incurred and to be paid solely in
such jurisdiction. This Note may not be modified or amended and no provision
hereof may be waived except by a written instrument executed by the parties to
be bound thereby.
VISION 21, INC.
By: /s/ Theodore N. Gillette
----------------------------------
Theodore N. Gillette, President
-3-
<PAGE> 4
STATE OF HAWAII )
)SS
______ OF ______ )
I, _________________, a Notary Public in and for the __________ and
State aforesaid, DO HEREBY CERTIFY that Theodore N. Gillette, personally known
to me to be the same person whose name is, as President of Vision 21, Inc.,
executed and delivered the foregoing instrument in the City of ______________,
State of Hawaii before me this day in person and acknowledged to me that he or
she, being thereunto duly authorized, signed and delivered said instrument as
the free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal on January ___, 1997.
______________________________
Notary Public
My Commission Expires:
________________________
-4-
<PAGE> 1
EXHIBIT 10.37
THIS SUBORDINATED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK WHICH SHALL BE
DELIVERED IN ACCORDANCE WITH THE TERMS OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAW. NO SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS
NOTE OR ANY SUCH SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL,
SATISFACTORY TO MAKER, IS OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE OR
TRANSFER IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
SUBORDINATED PROMISSORY NOTE
$88,614.00 December 1, 1996
107,505 Shares of Common Stock
of Vision 21, Inc.
FOR VALUE RECEIVED, VISION 21, INC., a Florida corporation ("Maker"),
hereby promises to pay EYE SPECIALISTS OF ARIZONA NETWORK, P.C., an professional
corporation ("Payee") (i) the principal amount of Eighty-Eight Thousand Six
Hundred Fourteen and No/100 Dollars ($88,614.00), together with interest thereon
at a per annum rate equal to eight percent (8%), and (ii) One Hundred Seven
Thousand Five Hundred Five (107,505) shares of Maker's common stock (the
"Shares"). Interest shall be computed on the basis of the actual number of days
elapsed in a year of 360 days from and including the date hereof through March
1, 1998.
Subject to the stock payment rights described herein, principal and
interest on this Note shall be payable in full, in one installment, in arrears,
on that date which is the earlier of (i) fifteen business days after the closing
date of an initial public offering of shares of common stock of Maker and (ii)
March 1, 1998 (the "Cash Payment Due Date"). If this Note or any installment of
principal or interest hereon becomes due and payable on Saturday, Sunday or
other day on which commercial banks are authorized or permitted to close under
the laws of the State of Florida, the maturity of this Note or such installment
shall be extended to the next succeeding business day. All payments under this
Note and deliveries of shares of Maker's
<PAGE> 2
common stock described below shall be delivered to the office of Payee located
at 4845 Thunderbird Road, Scottsdale, Arizona 85254.
Maker shall (i) on January 31, 1997, deliver to Payee the Shares; and
(ii) on or before the Cash Payment Due Date, pay all remaining outstanding
principal balance under this Note of Eighty-Eight Thousand Six Hundred Fourteen
and No/100 Dollars ($88,614.00) together with accrued interest, by cashier's
check or money order.
At the time of delivery of the shares referenced above, Maker shall
deliver to Payee a certificate evidencing the number of fully paid and
nonassessable shares issuable upon payment. The certificate evidencing the
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE
CORPORATION THAT SUCH TRANSACTION WILL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS."
Payee by its acceptance hereof acknowledges that it is aware that
neither this Note nor the Shares issuable to Payee in connection with this Note
have been registered under the Securities Act of 1933, as amended.
This Note is being delivered to Payee by Maker pursuant to that certain
Asset Purchase Agreement dated as of December 1, 1996 between Payee and Maker
(the "Purchase Agreement") and is subject to the terms and provisions thereof.
The principal amount of this Note shall be automatically and permanently reduced
by set-off in amounts determined under and in accordance with the terms of the
Purchase Agreement.
This Note is not transferable or assignable by Payee. If this Note is
collected by law or through an attorney at law, or under advice therefrom, the
Maker agrees to pay all costs of collection, including reasonable attorneys'
fees. Reasonable attorneys' fees are defined to include, but not be limited to,
all fees incurred in all matters of collection and enforcement, trial
proceedings and appeals, as well as appearances in and connected with any
bankruptcy proceedings or creditors' reorganization or similar proceedings and
any post judgment collection efforts.
-2-
<PAGE> 3
Any failure to exercise any right, remedy or recourse hereunder shall
not be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written document executed by the Payee and then only
to the extent specifically recited therein. A waiver or release with reference
to any one event shall not be construed as continuing, as a bar to, or as a
waiver or release of any subsequent right, remedy or recourse as to a subsequent
event.
In no event shall the amount of interest due or payments in the nature
of interest payable hereunder exceed the maximum rate of interest allowed by
applicable law, as amended from time to time, and in the event any such payment
is paid by the Maker or received by the Payee, then such excess sum shall be
credited as a payment of principal, unless the Maker shall notify the Payee, in
writing, that the Maker elects to have such excess sum returned to Maker
forthwith.
The Maker waives protest, demand, notice of protest, dishonor,
presentment for payment or acceptance.
The rights of Payee to receive payment on this Note is subject and
subordinate to the prior payment of the principal and interest on all senior
secured indebtedness of Maker, whether now outstanding or subsequently incurred,
and any deferrals, renewals or extensions of such indebtedness or any
debentures, bonds or notes evidencing such indebtedness (the "Senior
Indebtedness"). Upon any receivership, insolvency, assignment for the benefit of
creditors, bankruptcy, reorganization, sale of all or substantially all of the
assets, dissolution, liquidation, or any other marshalling of assets and
liabilities of Maker, or in the event this Note is declared due and payable upon
the occurrence of a default under this Note, then no amount shall be paid by
Maker with respect to principal and interest hereon unless and until the
principal of, and interest on, all Senior Indebtedness then outstanding is paid
in full. The indebtedness of Maker under this Note shall have an equal priority
with all other indebtedness relating to Maker's acquisition of, or merger into,
founding health care practices occurring on or prior to December 31, 1996.
This Note has been executed and delivered in ____________, Hawaii and
shall be governed by and construed in accordance with the laws of the State of
Florida applicable to debts and obligations incurred and to be paid solely in
such jurisdiction. This Note may not be modified or amended and no provision
hereof may be waived except by a written instrument executed by the parties to
be bound thereby.
VISION 21, INC.
By: /s/ Theodore N. Gillette
--------------------------------
Theodore N. Gillette, President
-3-
<PAGE> 4
STATE OF HAWAII )
)SS
______ OF _________ )
I, _________________, a Notary Public in and for the __________ and
State aforesaid, DO HEREBY CERTIFY that Theodore N. Gillette, personally known
to me to be the same person whose name is, as President of Vision 21, Inc.,
executed and delivered the foregoing instrument in the City of ______________,
State of Hawaii before me this day in person and acknowledged to me that he or
she, being thereunto duly authorized, signed and delivered said instrument as
the free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal on January ___, 1997.
-----------------------------------
Notary Public
My Commission Expires:
- ----------------------------
-4-
<PAGE> 1
Exhibit 10.39
THIS SUBORDINATED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK WHICH SHALL BE
DELIVERED IN ACCORDANCE WITH THE TERMS OF THIS NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAW. NO SALE, ASSIGNMENT, PLEDGE OR OTHER TRANSFER OF EITHER THIS
NOTE OR ANY SUCH SHARES MAY BE MADE EXCEPT PURSUANT TO THE PROVISIONS OF THE
ACT AND APPLICABLE STATE SECURITIES LAWS OR UNLESS AN OPINION OF COUNSEL,
SATISFACTORY TO MAKER, IS OBTAINED STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE
OR TRANSFER IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS.
SUBORDINATED PROMISSORY NOTE
$61,837.00
95,975 Shares of Common Stock
of Vision 21, Inc.
FOR VALUE RECEIVED, VISION 21, INC., a Florida corporation ("Maker"),
hereby promises to pay SHARONA OPTICAL, INC. ("Payee") the principal amount of
Sixty-One Thousand Eight Hundred Thirty-Seven and no/100 Dollars ($61,837.00),
together with interest thereon at a per annum rate equal to eight percent (8%),
and (ii) Ninety-Five Thousand Nine Hundred Seventy-Five (95,975) shares of
Maker's common stock (the "Shares"). Interest shall be computed on the basis
of the actual number of days elapsed in a year of 360 days from and including
the date hereof through March 1, 1998.
Subject to the stock payment rights described herein, principal and
interest on this Note shall be payable in full, in one installment, in arrears,
on that date which is the earlier of (i) fifteen business days after the
closing date of an initial public offering of shares of common stock of Maker
and (ii) March 1, 1998 (the "Cash Payment Due Date"). If this Note or any
installment of principal or interest hereon becomes due and payable on
Saturday, Sunday or other day on which commercial banks are authorized or
permitted to close under the laws of the State of Florida, the maturity of this
Note or such installment shall be extended to the next succeeding business day.
All payments under this Note and deliveries of shares of Maker's common stock
described below shall be delivered to the office of Payee located at 4845 E.
Thunderbird Road, Scottsdale, Arizona 85254.
<PAGE> 2
Maker shall (i) on January 31, 1997, deliver to Payee the Shares; and
(ii) on or before the Cash Payment Due Date, pay the outstanding principal
balance under this Note of Sixty-One Thousand Eight Hundred Thirty-Seven and
no/100 Dollars ($61,837.00), together with accrued interest, by cashier's check
or money order.
At the time of delivery of the shares referenced above, Maker shall
deliver to Payee a certificate evidencing the number of fully paid and
nonassessable shares issuable upon payment. The certificate evidencing the
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
THE SECURITIES LAWS OF ANY STATE. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY IN FORM AND SUBSTANCE TO COUNSEL FOR THE
CORPORATION THAT SUCH TRANSACTION WILL NOT RESULT IN A
VIOLATION OF FEDERAL OR STATE SECURITIES LAWS."
Payee by its acceptance hereof acknowledges that it is aware that
neither this Note nor the Shares issuable to Payee in connection with this Note
have been registered under the Securities Act of 1933, as amended.
This Note is being delivered to Payee by Maker pursuant to that
certain Optical Asset Purchase Agreement dated as of December 1, 1996 between
Payee and Maker (the "Purchase Agreement") and is subject to the terms and
provisions thereof. The principal amount of this Note shall be automatically
and permanently reduced by set-off in amounts determined under and in
accordance with the terms of the Purchase Agreement.
This Note is not transferable or assignable by Payee. If this Note is
collected by law or through an attorney at law, or under advice therefrom, the
Maker agrees to pay all costs of collection, including reasonable attorneys'
fees. Reasonable attorneys' fees are defined to include, but not be limited
to, all fees incurred in all matters of collection and enforcement, trial
proceedings and appeals, as well as appearances in and connected with any
bankruptcy proceedings or creditors' reorganization or similar proceedings and
any post judgment collection efforts.
Any failure to exercise any right, remedy or recourse hereunder shall
not be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written
-2-
<PAGE> 3
document executed by the Payee and then only to the extent specifically
recited therein. A waiver or release with reference to any one event shall not
be construed as continuing, as a bar to, or as a waiver or release of any
subsequent right, remedy or recourse as to a subsequent event.
In no event shall the amount of interest due or payments in the nature
of interest payable hereunder exceed the maximum rate of interest allowed by
applicable law, as amended from time to time, and in the event any such payment
is paid by the Maker or received by the Payee, then such excess sum shall be
credited as a payment of principal, unless the Maker shall notify the Payee, in
writing, that the Maker elects to have such excess sum returned to Maker
forthwith.
The Maker waives protest, demand, notice of protest, dishonor,
presentment for payment or acceptance.
The rights of Payee to receive payment on this Note is subject and
subordinate to the prior payment of the principal and interest on all senior
secured indebtedness of Maker, whether now outstanding or subsequently
incurred, and any deferrals, renewals or extensions of such indebtedness or any
debentures, bonds or notes evidencing such indebtedness (the "Senior
Indebtedness"). Upon any receivership, insolvency, assignment for the benefit
of creditors, bankruptcy, reorganization, sale of all or substantially all of
the assets, dissolution, liquidation, or any other marshalling of assets and
liabilities of Maker, or in the event this Note is declared due and payable
upon the occurrence of a default under this Note, then no amount shall be paid
by Maker with respect to principal and interest hereon unless and until the
principal of, and interest on, all Senior Indebtedness then outstanding is paid
in full. The indebtedness of Maker under this Note shall have an equal
priority with all other indebtedness relating to Maker's acquisition of, or
merger into, founding health care practices occurring on or prior to December
31, 1996.
This Note has been executed and delivered in ____________, Hawaii and
shall be governed by and construed in accordance with the laws of the State of
Florida applicable to debts and obligations incurred and to be paid solely in
such jurisdiction. This Note may not be modified or amended and no provision
hereof may be waived except by a written instrument executed by the parties to
be bound thereby.
VISION 21, INC.
By: /s/ Theodore N. Gillette
-------------------------------
Theodore N. Gillette, President
-3-
<PAGE> 4
STATE OF HAWAII )
)SS
______ OF _________ )
I, _________________, a Notary Public in and for the __________ and
State aforesaid, DO HEREBY CERTIFY that Theodore N. Gillette, personally known
to me to be the same person whose name is, as President of Vision 21, Inc.,
executed and delivered the foregoing instrument in the City of ______________,
State of Hawaii before me this day in person and acknowledged to me that he or
she, being thereunto duly authorized, signed and delivered said instrument as
the free and voluntary act, for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal on January ___, 1997.
______________________________
Notary Public
My Commission Expires:
________________________
-4-
<PAGE> 1
EXHIBIT 10.41
BUSINESS MANAGEMENT AGREEMENT
(PROFESSIONAL)
This Business Management Agreement is made and entered into effective
as of December 1, 1996, by and between DANIEL B. FELLER, M.D., P.C., an Arizona
professional corporation ("Business Manager"), and MILLENNIUM VISION, P.C., a
professional corporation, organized and existing under the laws of the State of
Arizona (the "Practice").
R E C I T A L S
A. The Practice is a professional corporation duly organized and
validly existing under the laws of the State of Arizona (the "State") which is
engaged in the provision of Professional Eye Care Services (as defined below) to
the general public in the State through individual Professionals (as defined
below) who are licensed to practice medicine or optometry in the State and who
are employed or otherwise retained by the Practice.
B. Business Manager is a professional corporation duly organized and
validly existing under the laws of the State.
C. The Practice desires to devote substantially all of its energies,
expertise and time on the delivery of Professional Eye Care Services to
patients.
D. The Practice desires to engage Business Manager to provide
facilities, equipment and such management, administrative and business services
as are necessary and appropriate for the day-to-day administration of the
non-medical and non-optometric aspects of the Practice's professional eye care
practice, and Business Manager desires to provide such, upon the terms and
conditions hereinafter set forth, for the purpose of enhancing the
cost-efficiency and quality of services rendered by the Practice to its
patients.
NOW, THEREFORE, for and in consideration of the mutual agreements,
terms, covenants and conditions contained herein and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties agree as follows:
1. DEFINITIONS. For the purposes of this Business Management
Agreement, the following terms shall have the following meanings ascribed
thereto, unless otherwise clearly required by the context in which such term
is used:
1.1. Account. The term "Account" shall mean the bank account described
in Sections 3.9 and 3.10(a) and (c).
<PAGE> 2
1.2. Acquisition Transaction. The term "Acquisition Transaction" shall
mean the completed Agreement and Plan of Reorganization entered into by and
between Business Manager and Vision 21, Inc.
1.3. Adjusted Gross Revenue. The term "Adjusted Gross Revenue" shall
mean all revenues, for Professional Eye Care Services and any other revenues,
calculated on an accrual basis under GAAP, generated by or on behalf of the
Practice and its Professionals and Capitation Revenues during the term of this
Business Management Agreement, including, without limitation, all technical fees
from ancillary services, all proceeds from key person life insurance policies
purchased by Business Manager in accordance with Section 3.15, all amounts paid
by third parties for contractual liabilities, including payments under
non-shareholder Professionals' non-competition agreements, and all medical
director, consultant, teaching and expert witness fees except for those fees set
forth in Exhibit 1.3 (unless the time and efforts of the individuals responsible
for such excluded revenues are materially greater than the historical time or
efforts expended in obtaining such revenues or if such excluded revenues
historically flowed through the Practice), minus any allowances for bad debts,
uncollectible accounts, Medicare, Medicaid and other payor contractual
adjustments, discounts, workers' compensation adjustments, reasonable
professional courtesies, and other reductions in collectible revenue that result
from activities that do not result in collectible charges.
1.4. Agreement or Business Management Agreement. The term "Agreement"
or "Business Management Agreement" shall mean this instrument as originally
executed and delivered, or, if amended or supplemented, as so amended or
supplemented.
1.5. Budget. The term "Budget" shall mean an operating budget and
capital expenditure budget for each fiscal year as prepared in accordance with
Section 3.11(a).
1.6. Business Manager. The term "Business Manager" shall have the
meaning set forth in the Recitals hereto.
1.7. Business Manager Consent. The term "Business Manager Consent"
shall mean the consent granted by Business Manager's representatives (or either
representative) to the Practice Advisory Council created pursuant to Article II
herein, which consent shall not be unreasonably withheld or delayed and shall be
binding on the Business Manager.
1.8. Business Manager Expense. The term "Business Manager Expense"
shall mean an expense or cost incurred by the Business Manager, for which the
Business Manager is financially liable and is not entitled to reimbursement from
the Practice. Business Manager Expense shall specifically include: (a) any
amortization of intangible assets resulting from the Acquisition Transaction,
(b) any income or franchise taxes of the Business Manager, (c) any expense or
cost relating to any underwritten initial public offering of Business Manager's
common stock pursuant to which a registration statement is filed under the
Securities Act of 1933 (except for underwriter's commissions, charges or
discounts related to the sale of stock by
-2-
<PAGE> 3
any Shareholder of the Practice which shall be borne individually by them), (d)
expenses and costs relating to the acquisition of any other health care
companies unless all or a specific portion of such expenses and costs are
approved as an Office Expense by the Practice Advisory Council, or unless the
Practice participates in the acquisition through the Practice's acquisition of
medical assets of the acquired health care company, and (e) any other expense or
cost that are not reasonable and customary reimbursements based upon a usual
national practice management company's arrangement with a practice. Business
Manager Expenses (as of the date hereof) are more specifically identified in
Exhibit 1.8. In the case of any inconsistency between specifics in Exhibit 1.8
and the general descriptions in (a) through (d) above, Exhibit 1.8 shall govern
(as of the date hereof).
1.9. Capitation Revenues. The term "Capitation Revenues" shall mean
all collections from managed care organizations or third-party payors where such
payment is made periodically on a per member basis for the partial or total
needs of a subscribing patient, less amounts that are payable to other providers
of health care items and services to capitation patients. Capitation Revenues
shall include any co-payments and incentive bonuses received as a result of a
capitation plan.
1.10. Clinical Personnel. The term "Clinical Personnel" shall mean
those individuals who are (to the extent permitted by law) employed by or
otherwise under contract or associated with Business Manager as nurse
anesthetists, physician assistants, technicians, nurse practitioners or similar
positions, or any position that generates a professional charge except for
Professionals. In the event that such individuals are not permitted by the laws
of the State to be employed by or otherwise under contract with Business
Manager, such individuals shall instead be employed by or under contract with
the Practice, and all expenses associated with the employment of or contracting
with such individuals shall be Practice Expenses.
1.11. Confidential Information. The term "Confidential Information"
shall mean any information of Business Manager or the Practice, as appropriate
(whether written or oral), including all business management or economic
studies, patient lists, proprietary forms, proprietary business or management
methods, marketing data, fee schedules, or trade secrets of the Business Manager
or of the Practice, as applicable, whether or not such Confidential Information
is disclosed or otherwise made available to one Party by the other Party
pursuant to this Business Management Agreement. Confidential Information shall
also include the terms and provisions of this Business Management Agreement and
any transaction or document executed by the Parties pursuant to this Business
Management Agreement. Confidential Information does not include any information
that the receiving party can establish (a) is or becomes generally available to
and known by the public or medical community (other than as a result of an
unpermitted disclosure directly or indirectly by the receiving party or its
affiliates, advisors, or Representatives); (b) is or becomes available to the
receiving party on a nonconfidential basis from a source other than the
furnishing party or its affiliates, advisors or Representatives, provided that
such source is not and was not bound by a confidentiality agreement with or
other obligation of secrecy to the furnishing party of which the receiving
-3-
<PAGE> 4
party has knowledge; or (c) has already been or is hereafter independently
acquired or developed by the receiving party without violating any
confidentiality agreement with or other obligation of secrecy to the furnishing
party.
1.12. GAAP. The term "GAAP" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity or other practices and procedures as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of the determination. All
financial reporting which is required pursuant to this Agreement to be made in
conformity with GAAP shall also be prepared in a manner acceptable to the
Securities and Exchange Commission for reports made pursuant to the Securities
and Exchange Commission's rules and regulations.
1.13. Local Advisory Council. The term "Local Advisory Council" shall
have the meaning set forth in Section 2.10 of this Agreement.
1.14. Management Fee. The term "Management Fee" shall mean the Business
Manager's compensation established as described in Article V hereof.
1.15. Management Services. The term "Management Services" shall mean
the business, administrative, and management services to be provided for the
Practice, including, without limitation, the provision of equipment, inventory
and supplies (including the use of all assets owned by Business Manager which
are located at the Office on the effective date hereof), support services,
personnel (including Clinical Personnel but excluding Professionals), office
space, management, administration, financial record keeping and reporting, and
other business office services, all as reasonably necessary for the conduct of
the Practice's business.
1.16. National Appeals Council. The term "National Appeals Council"
shall have the meaning set forth in Section 2.11 hereto.
1.17. Office. The term "Office" shall mean any office space, clinic, or
facility, including satellite facilities, that Business Manager shall own or
lease or otherwise procure for the use of the Practice.
1.18. Office Expense. The term "Office Expense" shall mean all
operating and non-operating expenses incurred by the Business Manager in the
provision of Management Services to the Practice and shall include all operating
and non-operating expenses incurred by the Practice relating to the items set
forth in this Section. The Business Manager shall be reimbursed by the Practice
for any Office Expense incurred by the Business Manager in the provision of
services to the Practice, upon request by the Business Manager. Office Expense
shall not include any Business Manager Expense, Practice Expense or Shareholder
Expense or
-4-
<PAGE> 5
any state, local or federal income or franchise tax. Without limitation, Office
Expense shall include the following expenses, as such expenses are more
specifically described in Exhibit 1.18:
(a) the salaries, benefits, payroll taxes, and other direct
costs of all employees of Business Manager (including Clinical Personnel)
primarily working at the Office and the salaries, benefits, payroll taxes, and
other direct costs of the non-Professional and nonclinical employees of the
Practice, but not the salaries, benefits, payroll taxes or other direct costs of
the Professionals;
(b) the direct cost of any employee or consultant that
provides services at or in connection with the Office for improved clinic
performance, such as management, billing and collections, business office
consultation, and accounting and legal services, but only when such services are
coordinated by Business Manager and/or included in the Budget;
(c) reasonable recruitment costs and out-of-pocket expenses of
Business Manager or the Practice associated with the recruitment of additional
Professionals, other employees of the Practice and Business Manager's employees
primarily located at the Office;
(d) personal property and intangible property taxes assessed
against Business Manager's assets used in connection with the operation of the
Office;
(e) comprehensive and general liability insurance covering the
Office and employees of the Practice and Business Manager at the Office;
(f) the expense of using, leasing, purchasing or otherwise
procuring and maintaining the Office and related equipment, including
depreciation in the case of furniture, fixtures and equipment (not to exceed,
for any existing item, the amount of current depreciation for such existing
item) owned by Business Manager and used at the Office, except for those
equipment expenses described in Section 3.2(d), which shall be a Shareholder
Expense.
(g) the cost of capital (whether as actual interest on
indebtedness incurred on behalf of the Practice, as reasonable imputed interest
on capital advanced by Business Manager, which shall be equal to the average
cost of borrowing by Business Manager as reflected on its most recent published
financial statements, or in the absence of either of the foregoing, eight
percent (8%)), to finance or refinance obligations of the Practice, purchase
additional (new or used) medical or non-medical equipment to be used in
connection with the Office, or to finance new ventures of the Practice; in any
such case only as such cost of capital is set forth in the Budget or otherwise
approved in advance by the Practice Advisory Council;
(h) the reasonable travel expenses associated with attending
meetings, conferences, or seminars to benefit the Practice so long as such
expenses are related to individuals located at the Office and the Practice's pro
rata share for individuals who are consultants of or employed by Business
Manager who provide material services to the Practice;
-5-
<PAGE> 6
(i) the cost of non-medical office supplies, inventory and
utilities;
(j) billing and collection costs and expenses;
(k) the Practice's pro-rata share of reasonable corporate
overhead charges or other reasonable expenses (including computer and data
processing costs) which are incurred by Business Manager or any parent or
affiliate of Business Manager in connection with regional expenses or corporate
headquarters expenses which: (i) relate to the provisions of benefits or
services by Business Manager on behalf of the Practice as reflected in the
Budget, or (ii) are a substitute at the same or less cost as the existing level
of expenses historically incurred by the Practice or set forth in the Budget;
(l) all other expenses which are set forth in the Budget and
which directly or indirectly benefit the Practice incurred by Business Manager
in carrying out its obligations under this Business Management Agreement;
(m) reasonable costs and expenses (to the extent not covered
by insurance) of lawsuits or claims against the Business Manager, the Practice
or its Professional(s) related to their performance of duties at the Office or
their interest in the leasehold or other assets used in connection with the
Office, provided that if the Business Manager, the Practice or its
Professional(s) does not prevail in the lawsuit or claim or settles the matter
with a material payment by the party (the party at "fault"), such costs and
expenses shall be deemed a Business Manager Expense in the event of Business
Manager's fault, and a Shareholder Expense in the event of fault by the Practice
or Professional, whereupon the Practice and such Professional(s) shall be
jointly responsible for the immediate reimbursement of the sums advanced (which
may at the option of Business Manager be offset by Business Manager against sums
otherwise due the Practice under Section 3.10(b)); provided further that
Business Manager shall not advance such costs and expenses from the account if
the Practice Advisory Council concludes that (i) it is unlikely that the Account
will be reimbursed if the party involved will not prevail in the lawsuit or
claim, or (ii) it is reasonable to believe that obtaining a reimbursement of the
advanced sums will be difficult to achieve; and the Parties acknowledge that
nothing in this Section shall create any liability on the part of a Professional
who would otherwise be shielded from personal liability by the corporate or
limited liability structure of the Practice;
(n) key person life insurance premiums related to policies
which the Parties agree to acquire on the life of the Practice's Professionals,
whereupon any proceeds shall be paid to the Account as Adjusted Gross Revenues,
unless the Parties agree to a specific split of the proceeds. Should only the
Practice choose to obtain key person life insurance, the Practice shall pay all
premiums as a Shareholder Expense and shall receive all proceeds. Further, if
only the Business Manager chooses to obtain such insurance, Business Manager
shall pay all premiums as a Business Manager Expense and shall receive all
proceeds. The Practice shall cause its Professionals to submit to a medical
examination necessary to obtain such insurance.
-6-
<PAGE> 7
In the event that any of the above described individuals described in
Section 1.18(b) devote a substantial amount of time to serving one or more
health care practices other than the Practice, which is not prohibited
hereunder, or the above described equipment or Office are utilized to a
substantial degree by one or more health care practices other than the Practice,
the Office Expenses shall be allocated between the Practice and such other
health care practices to reflect each practice's pro-rata share of any expenses
or costs relating to such individuals, equipment or Office (including the
recruitment costs of such individuals and the comprehensive and general
liability insurance expenses with respect to such individuals). Expenses
contemplated in this paragraph which potentially and primarily relate to
Sections 1.18(b), (c), (d), (e), (f), (g), (h), (k) and (l) shall be in the
Budget or approved by the Practice Advisory Council, and where reasonably
determinable, are intended to be reasonable and customary based upon similar
relationships generally existing between national practice management companies
and practices they manage. The Practice's pro-rata portion of expenses related
to individuals who are consultants of or employed by Business Manager and who
provide services benefiting more than one practice shall be based upon the
actual time expended by the individuals in performing such services as compared
to the time spent by such individuals with other practices managed by the
Business Manager, or, if not reasonably calculable, as determined by Business
Manager, based upon the estimated proportionate revenue size of the Practice as
compared to the aggregate revenue size as estimated in all of the Budgets of all
other practices managed by the Business Manager which are benefiting from such
individual's services. Likewise, equipment and other benefits provided by the
Business Manager to several Practices shall be split pro-rata based upon the use
or benefit derived by each Practice, but if not calculable, shall be based upon
the estimated proportionate revenue size as set forth in the preceding sentence.
Notwithstanding anything to the contrary herein, unless an expense is expressly
designated as a Business Manager Expense, a Practice Expense or a Shareholder
Expense in this Business Management Agreement or any exhibit thereto, all
expenses incurred by Business Manager in providing services pursuant to this
Business Management Agreement shall be considered an Office Expense.
1.19. Ophthalmologist. The term "Ophthalmologist" shall mean each
individually licensed physician who is employed or otherwise retained by or
associated with the Practice, each of whom shall meet at all times the
qualifications described in Section 4.2 and Section 4.3, including, without
limitation, any Shareholder of the Practice who is a licensed physician.
1.20. Optometrist. The term "Optometrist" shall mean each individually
licensed Optometrist, if any, who is employed or otherwise retained by or
associated with the Practice, each of whom shall meet at all times the
qualifications described in Section 4.2 and Section 4.3.
1.21. Parties. The term "Parties" shall mean the Practice and Business
Manager.
1.22. Practice. The term "Practice" shall have the meaning set forth in
the Recitals.
-7-
<PAGE> 8
1.23. Practice Advisory Council. The term "Practice Advisory Council"
shall have the meaning set forth in Section 2.6 of this Agreement.
1.24. Practice Consent. The term "Practice Consent" shall mean the
consent granted by the Practice's representatives (or either representative) to
the Practice Advisory Council created pursuant to Article II herein, which
consent shall not be unreasonably withheld or delayed and shall be binding on
the Practice.
1.25. Practice Expenses. The term "Practice Expenses" shall mean (a)
all reasonable non-shareholder Professionals' salaries, benefits, payroll taxes
and other direct costs related to their services at the Office (including
reasonable and customary professional dues, subscriptions, continuing education
expenses, severance payments, (b) the cost of medical supplies (including, but
not limited to, optical supplies, drugs, pharmaceuticals, products, substances,
items or medical devices), (c) reasonable and customary professional liability
insurance expenses of Professionals, (d) travel costs for continuing education
and necessary business travel for non-shareholder Professionals, and (e) costs
of goods sold in any optical business of the Practice. Notwithstanding the
foregoing, the term Practice Expenses shall specifically exclude (i) business
travel requested by Business Manager, which shall be an Office Expense, (ii) any
and all compensation or expenses attributable to Shareholders, which shall be a
Shareholder Expense (except reasonable and customary expenses for malpractice
insurance which shall be a Practice Expense), (iii) "tail" insurance coverage
for Shareholders, which shall be a Shareholder Expense, or (iv) such other items
agreed to in advance in writing by the Parties hereto. During this Agreement,
for so long as a current Shareholder of the Practice is an employee of, or
contractor to, or Shareholder of the Practice, such Shareholder shall be deemed
to be a Shareholder for the purposes of this definition. Such expenses are to be
approved annually in the Budget. Practice Expenses are more specifically
described in attached Exhibit "1.18."
1.26. Practice Territory. The term "Practice Territory" shall mean the
geographic area described in Exhibit 1.26, representing the geographic
boundaries in which the Practice renders Professional Eye Care Services.
1.27. Professional. The term "Professional" shall mean any
Ophthalmologist or Optometrist.
1.28. Professional Eye Care Services. The term "Professional Eye Care
Services" shall mean professional health care items and services, including, but
not limited to, the practice of ophthalmology, and the practice of optometry,
and all related professional health care services provided by the Practice
through the Practice's Ophthalmologists, Optometrists, if any, and other
professional health care providers that are retained by or professionally
affiliated with the Practice. The term shall also include any and all business
whatsoever in connection with any current or future ambulatory surgery centers
or optical businesses owned or operated, or to be owned or operated in the
future, in whole or in part, by the Practice or any of its Professionals during
the terms of this Agreement.
-8-
<PAGE> 9
1.29. Representatives. The term "Representatives" shall mean a Party's
officers, directors, managers, employees, or other agents.
1.30. Shareholder. The term "Shareholder" shall mean any current or
future shareholder of the Practice.
1.31. Shareholder Expense. The term "Shareholder Expense" shall be
limited to the following expenses, as such expenses are more specifically
described in Exhibit 1.18: (a) Shareholders' salaries, benefits, payroll taxes,
and other direct costs (including professional dues, subscriptions, continuing
education expenses, severance payments, entertainment, and travel costs for
continuing education or other business travel but excluding business travel
requested by Business Manager, which shall be an Office Expense, and excluding
any other expense of a Shareholder approved as an Office Expense in advance by
the Parties); (b) those portions of leasehold obligations of the Business
Manager which are deemed in excess of fair market value as set forth in Exhibit
1.31; (c) to the extent not covered by insurance and subject to the advance
provisions contained herein, the defense costs of any litigation brought against
the Practice or the Professionals by any third party and any liability judgment
assessed against the Practice or the Professionals; (d) certain equipment
expenses described in Section 3.2(d); (e) interest on any funds advanced to the
Practice by Business Manager to the extent that Business Manager is a net lender
in accordance with the terms of this Agreement; (f) "tail" coverage malpractice
insurance expenses for the Shareholders and any malpractice insurance expenses
of any Professional which are in excess of those which are customary and
reasonable; (g) any income taxes or franchise tax of the Practice; and (h)
consulting, accounting, or legal fees which relate solely to the Shareholders.
The Practice shall reimburse the Business Manager for any Shareholder Expense
incurred by the Business Manager.Unless an expense is expressly designated as a
Business Expense, an Office Expense or a Practice Expense in this Business
Management Agreement or in any exhibit hereto, all expenses incurred by the
Practice shall be considered a Shareholder Expense. Notwithstanding the above,
the Practice may require certain Professionals to pay certain expenses incurred
for them specifically.
1.32. State. The term "State" shall have the meaning set forth in the
Recitals.
1.33. Term. The term "Term" shall mean the initial and any renewal
periods of duration of this Business Management Agreement as described in
Section 6.1.
2. APPOINTMENT OF BUSINESS MANAGER AND ESTABLISHMENT OF PRACTICE
ADVISORY COUNCIL, LOCAL ADVISORY COUNCIL AND NATIONAL APPEALS
COUNCIL.
2.1 Appointment. The Practice hereby appoints Business Manager as its
sole and exclusive agent for the management and administration of the business
functions and business
-9-
<PAGE> 10
affairs of the Practice and; Business Manager hereby accepts such appointment,
subject at all times to the provisions of this Business Management Agreement.
2.2 Authority. Consistent with the provisions of this Business
Management Agreement, Business Manager shall have the responsibility and
commensurate authority to provide Management Services for the Practice. The
Practice shall give Business Manager thirty (30) days' prior notice of the
Practice's intent to execute any agreement creating a binding legal obligation
on the Practice. The Parties acknowledge and agree that the Practice, through
its Professionals, shall be responsible for and shall have complete authority,
responsibility, supervision, and control over the provision of all Professional
Eye Care Services and other professional health care services performed for
patients, and that all diagnoses, treatments, procedures, and other professional
health care services shall be provided and performed exclusively by or under the
supervision of Professionals as such Professionals, in their sole discretion,
deem appropriate. Business Manager shall have and exercise absolutely no
control, influence, authority or supervision over the provision of Professional
Eye Care Services.
2.3 Patient Referrals. Business Manager and the Practice agree that the
benefits to the Practice hereunder do not require, are not payment for, and are
not in any way contingent upon the referral, admission, or any other arrangement
for the provision of any item or service offered by Business Manager to patients
of the Practice in any facility, laboratory, center, or health care operation
controlled, managed, or operated by Business Manager.
2.4 Internal Decisions of the Practice. Matters involving the
Practice's allocation of professional income among its Shareholders and the
Professional employees of the Practice, tax planning, and investment planning
shall remain the responsibility of the Practice and the Shareholders of the
Practice.
2.5 Practice of Ophthalmology and Optometry. The Parties acknowledge
that Business Manager is not authorized or qualified to engage in any activity
that may be construed or deemed to constitute the practice of ophthalmology or
optometry. To the extent any act or service herein required by Business Manager
should be construed by a court of competent jurisdiction or by the State Board
of Medicine or the State Board of Optometry to constitute the practice of
ophthalmology or optometry, the requirement to perform that act or service by
Business Manager shall be deemed waived and unenforceable.
2.6 Formation and Operation of the Practice Advisory Council. The
Parties hereby establish a Practice Advisory Council which shall be responsible
for advising Business Manager and the Practice with respect to developing and
implementing management and administrative policies for the overall operation of
the Practice's facilities and for providing dispute resolution on certain
matters. The Practice Advisory Council shall consist of four (4) members.
Business Manager shall designate, in its sole discretion, two (2) members of the
Practice Advisory Council or may have one (1) member with two (2) votes. The
Practice shall designate, in its sole discretion, two (2) members of the
Practice Advisory Council or may have one (1) member
-10-
<PAGE> 11
with two (2) votes. The Practice Advisory Council members selected by the
Practice shall be full-time Professional employees of the Practice. Each Party's
representatives to the Practice Advisory Council shall have the authority to
make decisions on behalf of the respective Party. Except as may otherwise be
provided, the act of a majority of the members of the Practice Advisory Council
shall be the act of the Practice Advisory Council. The decisions, resolutions,
actions, or recommendations of the Practice Advisory Council shall be
implemented by Business Manager or the Practice, as appropriate.
2.7 Duties and Responsibilities of the Practice Advisory Council. The
Practice Advisory Council shall review, evaluate, make recommendations, and
where specifically authorized herein and permitted by law, make decisions with
respect to the following matters:
(a) Facility Improvements and Expansion. Any renovation and
expansion plans and capital equipment expenditures with respect to the
Practice's facilities (including with respect to any ambulatory surgical center
or optical business) shall be reviewed by the Practice Advisory Council which
shall make recommendations to Business Manager with respect to proposed changes
therein. Such renovation and expansion plans and capital equipment expenditures
shall be based upon economic feasibility, ophthalmology and optometry support,
productivity and then current market conditions.
(b) Marketing and Public Relations. The Practice Advisory
Council shall review and make recommendations to the Practice with respect to
all marketing and public relations services and programs promoting the
Practice's Professional Eye Care Services.
(c) Patient Fees; Collection Policies. As a part of the annual
operating budget, the Practice Advisory Council shall review and make
recommendations to the Practice concerning the fee schedule and collection
policies for all Professional Eye Care Services and ancillary services rendered
by the Practice.
(d) Ancillary Services. The Practice Advisory Council must
approve any new non-professional ancillary services to be rendered by the
Practice including ambulatory surgical center and optical business, and
concerning the pricing, continuation of, access to, and quality of such
services.
(e) Provider and Payor Relationships. The Practice Advisory
Council shall review and make recommendations to Business Manager and the
Practice regarding the establishment or maintenance of relationships between the
Practice and institutional health care providers and third-party payors, and
shall review and approve all agreements with institutional health care providers
and third-party payors which contain terms which are materially different from
those terms set forth in guidelines established by the Local Advisory Council.
The Practice Advisory Council shall also make recommendations to Business
Manager and the Practice concerning discounted fee schedules, including
capitated fee arrangements of which the Practice shall be a party, and shall
review and approve all such capitated fee arrangements.
-11-
<PAGE> 12
(f) Strategic Planning. The Practice Advisory Council may make
recommendations to Business Manager concerning development of long-term
strategic planning objectives for the Practice.
(g) Capital Expenditures. The Practice Advisory Council shall
make recommendations to Business Manager and the Practice concerning the
priority of major capital expenditures and shall review and approve any
commitment to make any capital expenditures for non-medical equipment relating
to the Office involving amounts in excess of $15,000 individually, or $50,000 in
the aggregate, in any one fiscal year, which amounts may be increased from
time-to-time by the Local Advisory Council.
(h) Hiring of Professionals. The Practice Advisory Council
shall recommend to the Practice the number and type of Professionals required
for the efficient operation of the Practice's facilities.
(i) Fee Dispute Resolution. At the request of Business Manager
or the Practice, the Practice Advisory Council shall make recommendations to
Business Manager with respect to any dispute concerning a set-off or reduction
in Management Fees.
(j) Grievance Referrals. The Practice Advisory Council shall
consider and make recommendations to Business Manager and the Practice regarding
grievances pertaining to matters not specifically addressed in this Business
Management Agreement as referred to it by Business Manager or the Practice's
Board of Directors.
(k) Termination of Business Manager's Personnel. The Practice
Advisory Council shall review and approve any decision by the Business Manager
to terminate any of Business Manager's personnel primarily located at the Office
who occupy office manager or higher level positions.
(l) Approval of New Office. The Practice Advisory Council
shall approve any move of the current Office location or the expansion to an
additional Office location. Additionally, the Practice Advisory Council shall
approve the establishment of any ambulatory surgical center or optical business
of the Practice and the move or expansion of any such business.
(m) Approval of Budget. The Practice Advisory Council shall
have the power to adopt, approve and amend the Budget and to approve various
expenses as set forth herein, which shall be subject to change upon submission
of any dispute thereon to Ernst & Young LLP (or its successor or replacement)
and appeal to the National Appeals Council as provided in Section 3.11(a).
Except in those specific instances set forth above in which the Practice
Advisory Council has been granted the authority to make decisions binding upon
the Business Manager and the
-12-
<PAGE> 13
Practice, it is acknowledged and agreed that recommendations of the Practice
Advisory Council are intended for the advice and guidance of Business Manager
and the Practice and that the Practice Advisory Council does not have the power
to bind Business Manager or the Practice. Where discretion with respect to any
matter is vested in Business Manager or the Practice under the terms of this
Agreement, Business Manager or the Practice, as the case may be, shall have
ultimate responsibility for the exercise of such discretion, notwithstanding any
recommendations of the Practice Advisory Council. Business Manager and the
Practice shall, however, take such recommendations of the Practice Advisory
Council into account in good faith in the exercise of such discretion.
2.8 Professional Health Care Decisions. Despite the above listing of
activities and areas of interest, all decisions required by applicable law to be
made solely by health care professionals will be made solely by the appropriate
Professionals, but non-Professional members of the Practice Advisory Council may
participate in the discussion process. The Professional representatives of the
Practice on the Practice Advisory Council shall have exclusive authority to
review and resolve issues related to:
(a) Types and levels of Professional Eye Care Services to be
provided; (provided, however, that the Practice Advisory Council shall have the
authority set forth in Section 2.7(d) with respect to new ambulatory surgical
centers and new optical business);
(b) Recruitment of Professionals to the Practice, including
the specific qualifications and specialties of recruited Professionals;
(c) Any medical or optometric related functions;
(d) Fee schedules; and
(e) Any other decisions required by applicable law to be made
solely by Professionals and not by non-Professionals.
2.9 Meetings of the Practice Advisory Council. The Practice Advisory
Council shall meet on a regular basis as mutually agreed by the Parties. A
special meeting of the Practice Advisory Council may be called by either
Business Manager or the Practice upon two (2) weeks' notice, except in the event
of an emergency, in which case a special meeting may be called by either
Business Manager or the Practice upon three (3) business days' notice. Meetings
may be held telephonically or by any other means agreeable to the Parties.
2.10 Formation and Operation of Local Advisory Council. Business
Manager shall, within six (6) months of the effective date of this Business
Management Agreement establish a Local Advisory Council composed of delegates
from health care practices for which Business Manager is then providing
management services similar to those services contemplated in this Business
Management Agreement. All of such health care practices shall be located within
the
-13-
<PAGE> 14
market area described on Exhibit 2.10, as such market area may be expanded from
time-to-time by the Local Advisory Council. For six (6) years from the date
hereof, the Practice shall be entitled to appoint one delegate to the Local
Advisory Council, of which the initial delegate shall serve an initial two (2)
year term. Thereafter, for the two (2) subsequent two (2) year terms, the
Practice may appoint the same or a different delegate to the Local Advisory
Council. After the six (6) year period, the Practice shall have the right to
vote, along with other Practices managed in the market by the Business Manager,
for the delegates to the Local Advisory Council in accordance with the by-laws,
as modified time-to-time as described below. Business Manager shall be entitled
to appoint two delegates to the Local Advisory Council who may be replaced from
time-to-time at the Business Manager's discretion, and who together shall have a
voting power equal to the combined voting power of all delegates appointed by
the health care practices. If any market contains only one health care practice,
such practice shall appoint one (1) individual to the Local Advisory Council who
shall have two (2) votes. Any matter to be determined by the Local Advisory
Council must receive the affirmative vote of a majority of the votes cast of the
delegates appointed to the Local Advisory Council. The Local Advisory Council
shall make recommendations to Business Manager and such health care practices as
to regional policy and strategy issues within the market area and as to the
following:
(a) The establishment of private pay fee schedules where
permitted by law;
(b) The establishment of guidelines for agreements with
institutional health care providers and third-party payors; and
(c) Any agreement with an institutional health care provider
or third-party payor which materially differs from guidelines established by the
Local Advisory Council.
The Local Advisory Council may, from time-to-time, select commercial
carriers for professional, casualty and comprehensive general liability coverage
for health care practices in the market area and such selection shall be binding
upon such health care practices.
The Local Advisory Council shall consider and determine any issue upon
which the Practice Advisory Council is deadlocked (except for the determination
of the Budget). In determining such disputes, the Local Advisory Council shall
make findings of fact relating to evidence presented by the Parties to the
dispute. Decisions by the Local Advisory Council may be appealed by any party
adversely affected to the National Appeals Council, which shall have the option
of hearing the appeal. The Local Advisory Council's rules of operation and
procedure shall be governed by by-laws to be adopted by the delegates, and such
by-laws may be amended or restated from time-to-time. Such by-laws shall be
reasonable and in accord with the terms and spirit of this Agreement. The
Practice and Business Manager covenant and agree to abide by the Local Advisory
Council's by-laws, as such by-laws may be amended from time-to-time.
-14-
<PAGE> 15
2.11 Formation and Operation of the National Appeals Council. Business
Manager shall within six (6) months of the effective date of this Business
Management Agreement establish a National Appeals Council composed of one (1)
delegate appointed by each of the initial Local Advisory Councils to be
established by Business Manager, and two (2) delegates appointed by the Business
Manager. The initial delegates of the Local Advisory Councils shall serve an
initial two (2) year term, and thereafter, if the local advisory council
qualifies under the then current by-laws of the National Appeals Council with
respect to the eligibility of Local Advisory Councils to appoint delegates to
the National Appeals Council, the local advisory council may appoint the same or
a different delegate to the National Appeals Council. Business Manager's
delegates to the National Appeals Council shall together have a voting power
equal to the combined voting power of all delegates appointed by the Local
Advisory Councils. Any matter to be determined by the National Appeals Council
must receive the affirmative vote of a majority of the votes cast of the
delegates appointed to the National Appeals Council. The National Appeals
Council shall serve as a forum of appeal of any determinations of the Local
Advisory Councils over which it chooses to have jurisdiction. In resolving such
appeals it determines to hear, the National Appeals Council shall review
findings of fact made by the applicable local advisory council and shall only
reverse a decision of the local advisory council if the local advisory council's
decision was based upon manifest error. The National Appeals Council shall also
determine disputes which it chooses to have jurisdiction over and which cannot
be decided because of a deadlock among the delegates of any Local Advisory
Council. In the event of a deadlock among the delegates of the National Appeals
Council, the dispute may be submitted by either party to the dispute to
arbitration in accordance with Section 8.7 of this Agreement. In all other
instances, the determination of a dispute by the National Appeals Council shall
be final. The National Appeals Council's rules of operation and procedure shall
be governed by by-laws to be adopted by the Local Advisory Councils' and
Business Manager's delegates, and such by-laws may be amended or restated from
time-to-time. Such by-laws shall be reasonable and reflect the terms and spirit
of this Agreement. The National Appeals Council's decisions shall be binding
upon the parties. The Practice and Business Manager covenant and agree to abide
by the National Appeal Council's by-laws, as such by-laws may be amended from
time-to-time.
3. OBLIGATIONS AND RESPONSIBILITIES OF BUSINESS MANAGER.
3.1 Management Services. Business Manager shall provide all Management
Services as are necessary and appropriate for the day-to-day administration of
the business aspects of the Practice's operations, pursuant to the terms of this
Business Management Agreement. Business Manager shall operate in a reasonable
and customary manner with due consideration to the Practice's past business
practices and shall operate in accordance with all applicable laws, rules and
regulations which are necessary and material to the Business Manager's
performance of the Management Services. Business Manager will provide in good
faith and with due diligence its services consistent with management services
generally provided in operations of a medical practice similar in size, type and
operations in the State of the Practice. All costs and expenses
-15-
<PAGE> 16
related to Business Manager's duties contained in this Section 3 shall be Office
Expenses unless limited or excluded as an Office Expense pursuant to the terms
of this Agreement.
3.2 Office and Equipment.
(a) Business Manager shall lease, sublease, acquire or
otherwise procure one or more Offices that are deemed by the Parties to be
reasonably necessary and appropriate, and the expenses associated with such
lease, sublease, acquisition, or procurement shall be Office Expenses. Any
Office procured by Business Manager for the use by the Practice shall be
procured at commercially reasonable rates. Any relocation from the Practice's
present Office location or expansion of the Practice's Office into an additional
Office shall be done only after Business Manager has received Practice Consent,
which shall not be unreasonably withheld.
(b) In the event the Practice is the lessee of an Office under
a lease with an unrelated and nonaffiliated lessor, Business Manager may require
the Practice to assign such lease to Business Manager upon receipt of consent
from the lessor. The Practice shall use its best efforts to assist in obtaining
the lessor's consent to the assignment. Any expenses incurred in the assignment
shall be Office Expenses.
(c) Business Manager shall provide all non-health care
equipment, fixtures, office supplies, furniture and furnishings as are
reasonable and approved in the Budget for the operation of the Office and the
provision of Professional Eye Care Services. If the Practice wishes to choose
additional equipment, which the Business Manager determines not to acquire or
lease, the Practice may acquire or lease such equipment, and the expense related
thereto shall be deemed a Shareholder Expense.
(d) Business Manager shall provide, finance, or cause to be
provided or financed health care related equipment as reasonably required by the
Practice. The Practice shall have final authority in all health care equipment
selections; provided, however, that if the Practice chooses to acquire health
care equipment which is not in the Budget and which Business Manager reasonably
chooses not to acquire, expenses related thereto shall be treated as a
Shareholder Expense and such equipment shall be owned by the Practice; provided
further that following such acquisition or lease by the Practice, if the
Practice Advisory Council determines that after a period of six months of use
such equipment is reasonably certain to result in material profit to Business
Manager (taking into account the cost or expense and anticipated revenues
associated with such equipment), then Business Manager shall acquire such
equipment from the Practice by either (at Business Manager's option), paying
cash or by assuming the liability associated with such equipment, or if such
equipment is then being leased by the Practice, by assuming such lease. In the
event of such an acquisition by Business Manager, it shall reimburse the
Practice for previous expenses applied thereto.. Except for equipment which
Business Manager elects not to acquire or lease which are acquired or leased by
the Practice pursuant to Section 3.2(c) or (d), all health care and non-health
care equipment, other than Professional-owned automobiles, acquired for the use
of the Practice shall be owned by Business Manager
-16-
<PAGE> 17
and the depreciation and related capital charge shall be an Office Expense.
Business Manager may make recommendations to the Practice on the relationship
between its health care equipment decisions and the overall administrative and
financial operations of the practice.
(e) Business Manager shall be responsible for the repair and
maintenance of the Office, consistent with Business Manager's responsibilities
under the terms of any lease or other use arrangement, and for the prompt
repair, maintenance, and replacement of all equipment other than such repairs,
maintenance and replacement necessitated by the gross negligence or willful
misconduct of the Practice, its Professionals or other personnel employed by the
Practice, the repair or replacement of which shall be a Shareholder Expense and
not an Office Expense. Replacement equipment shall be acquired where Business
Manager in good faith determines that such replacement is necessary or where the
Budget has made allowances for such replacement.
(f) Any portion of the foregoing lease payments in excess of
fair market value (as set forth in Exhibit 1.31) relating to leases of equipment
or an Office shall be treated as a Shareholder Expense.
3.3 Health Care Supplies. Business Manager shall order, procure,
purchase and provide on behalf of and as agent for the Practice all reasonable
health care supplies unless otherwise prohibited by federal and/or state law.
Furthermore, Business Manager shall ensure that the Office is at all times
adequately stocked with the health care supplies that are necessary and
appropriate for the operation of the Practice and required for the provision of
Professional Eye Care Services. The ultimate oversight, supervision and
ownership for all health care supplies is and shall remain the sole
responsibility of the Practice and all costs and expenses relating to such
supplies shall be a Practice Expense. As used in this provision, the term
"health care supplies" shall mean all drugs, pharmaceuticals, optical supplies,
products, substances, items or devices the whose purchase, possession,
maintenance, administration, prescription or security of which requires the
authorization or order of a licensed health care provider or requires a permit,
registration, certification or other governmental authorization held by a
licensed health care provider as specified under any federal and/or state law.
3.4 Support Services. Business Manager shall provide or arrange for all
printing, stationery, forms, postage, duplication or photocopying services, and
other support services as are reasonably necessary and appropriate for the
operation of the Office and the provision of Professional Eye Care Services
therein.
3.5 Quality Assurance, Risk Management, and Utilization Review.
Business Manager shall assist the Practice in the Practice's establishment and
implementation of procedures to ensure the consistency, quality,
appropriateness, and medical necessity of Professional Eye Care Services
provided by the Practice, and shall provide administrative support for the
Practice's overall quality assurance, risk management, and utilization review
programs. Business Manager
-17-
<PAGE> 18
shall perform these tasks in a manner to ensure the confidentiality and
non-discoverability of these program actions to the fullest extent allowable
under state and federal law.
3.6 Licenses and Permits. Business Manager shall, on behalf of and in
the name of the Practice, coordinate all development and planning processes, and
apply for and use reasonable efforts to obtain and maintain all federal, state
and local licenses and regulatory permits required for or in connection with the
operation of the Practice and the equipment (existing and future) located at the
Office, other than those relating to the practice of ophthalmology or optometry
or the administration of drugs by Professionals retained by or associated with
the Practice. The expenses and costs associated with obtaining and maintaining
permits with respect to the Office and licenses for professional practice by the
non-shareholder Professionals shall be deemed an Office Expense.
3.7 Personnel. Except as specifically provided in Section 4.2 of this
Business Management Agreement, Business Manager shall employ or otherwise retain
and shall be responsible for selecting, hiring, training, supervising, and
terminating, all management, administrative, clerical, secretarial, bookkeeping,
accounting, payroll, billing and collection and other personnel (including
Clinical Personnel but excluding Professionals) as Business Manager deems
reasonably necessary and appropriate for Business Manager's performance of its
duties and obligations under this Business Management Agreement. Consistent with
reasonably prudent personnel management policies, Business Manager shall seek
and consider the advice, input, and requests of the Practice in regard to
personnel matters. Business Manager shall have sole responsibility for
determining the salaries and providing fringe benefits, and for withholding, as
required by law, any sums for income tax, unemployment insurance, social
security, or any other withholding required by applicable law or governmental
requirement. Business Manager does not currently intend to change the existing
composition or employment terms of any of Business Manager's personnel which
have employment arrangements with the Practice on the effective date of this
Agreement (unless there are unsettled issues regarding such arrangements as
described in Exhibit 3.7). Business Manager reserves the right, however, to
change the number, composition or employment terms of such personnel in the
future at Business Manager's discretion; provided, however, that the termination
of any of Business Manager's personnel who are Clinical Personnel or occupy
office manager or higher level positions, and are primarily located at the
Office must receive the approval of the Practice Advisory Council. Business
Manager and the Practice recognize and acknowledge that Business Manager and
personnel retained by Business Manager may from time-to-time perform services
for persons other than the Practice. This Business Management Agreement shall
not be construed to prevent or prohibit Business Manager from performing such
services for others or restrict Business Manager from using its personnel to
provide services to others. Business Manager hereby disclaims any liability
relating to the effect of its employees on the qualification of the Practice's
retirement plans under the Internal Revenue Code, and all liabilities for such
classification shall be solely the responsibility of the Practice.
-18-
<PAGE> 19
3.8 Contract Negotiations. Business Manager shall evaluate, assist in
negotiations and administer on behalf of the Practice contracts that do not
relate to the provision of Professional Eye Care Services as set forth in this
Agreement and/or as approved in the Budget. To the extent permitted by law,
Business Manager shall evaluate, assist in negotiations, administer and execute
on the Practice's behalf, all contractual arrangements with third parties as are
reasonably necessary and appropriate for the Practice's provision of
Professional Eye Care Services, including, without limitation, negotiated price
agreements with third-party payors, alternative delivery systems, or other
purchasers of group health care services. However, the Practice shall have the
final authority with regard to the entry into all of such contractual
arrangements relating to the provision of Professional Eye Care Services.
3.9 Billing and Collection. As an agent on behalf of and for the
account of the Practice, Business Manager shall establish and maintain credit
and billing and collection services, policies and procedures, and shall use
reasonable efforts to timely bill and collect all Professional and other fees
for all billable Professional Eye Care Services provided by the Practice, or
Professionals employed or otherwise retained by the Practice. The Practice
Advisory Council shall make recommendations to and consult with Business Manager
and the Practice regarding the fees for Professional Eye Care Services provided
by the Practice. In connection with the billing and collection services to be
provided hereunder, and throughout the Term (and thereafter as provided in
Section 6.3), the Practice hereby grants to Business Manager an exclusive
special power of attorney and appoints Business Manager as the Practice's
exclusive true and lawful agent and attorney-in-fact (which shall be deemed
revoked in the event of termination for cause by the Practice), and Business
Manager hereby accepts such special power of attorney and appointment, for the
following purposes:
(a) To bill the Practice's patients, in the Practice's name
using the Practice's tax identification number and on the Practice's behalf, for
all billable Professional Eye Care Services provided by the Practice to
patients.
(b) To bill, in the Practice's name using the Practice's tax
identification number and on the Practice's behalf, all claims for reimbursement
or indemnification from health maintenance organizations, self-insured
employers, insurance companies, Medicare, Medicaid, and all other third-party
payors or fiscal intermediaries for all covered billable Professional Eye Care
Services provided by the Practice to patients.
(c) To collect and receive (to the extent permitted by law),
in the Practice's name and on the Practice's behalf, all accounts receivable
generated by such billings and claims for reimbursement, to administer such
accounts including, but not limited to, extending the time of payment of any
such accounts; suing, assigning or selling at a discount such accounts to
collection agencies; or taking other measures to require the payment of any such
accounts; provided, however, that the Practice shall review and approve (which
approval shall not be unreasonably withheld) any decision by Business Manager to
undertake extraordinary collection measures, such as filing lawsuits,
discharging or releasing obligors, or assigning or selling
-19-
<PAGE> 20
accounts at a discount to collection agencies. Business Manager shall act in a
professional manner and in compliance with all federal and State fair debt
collection practices laws in rendering billing and collection services.
(d) To deposit all amounts collected into the Account which
shall be a cash collateral account held in the name of Business Manager and
shall be opened at a financial institution chosen by Business Manager. All
amounts received or collected are hereby pledged to the Business Manager and
shall be held or deposited in the Account to secure the performance of the
Practice's obligations under this Agreement. The Account shall be held under
Business Manager's tax identification number. The Practice covenants to transfer
and deliver to the Account all funds received by the Practice from patients or
third-party payors for Professional Eye Care Services. Upon receipt by Business
Manager of any funds from patients or third-party payors or from the Practice
pursuant hereto for Professional Eye Care Services, Business Manager shall
immediately deposit the same into the Account. Business Manager shall
administer, be responsible for, and be obligated to pay for all Office Expenses;
provided, however, that Business Manager shall only be liable for Office
Expenses to the extent of funds in the Account plus any amounts borrowed by
Business Manager in accordance with Section 5.4. Business Manager shall disburse
such deposited funds to creditors and other persons on behalf of the Practice,
maintaining records of such receipt and disbursement of funds. Business Manager
may borrow amounts from the Account in excess of amounts due Business Manager
pursuant to this Agreement and to the full extent of funds in the Account. Such
borrowed amounts shall bear interest to the Account in the amount of six percent
(6%) per annum, and any of such borrowed amounts outstanding shall be repaid by
Business Manager to the Account when needed to cover all expenses and
obligations under this Agreement and shall be repaid within thirty (30) days of
the termination of this Agreement.
(e) To take possession of, endorse in the name of the
Practice, and deposit into the Account any notes, checks, money orders,
insurance payments, and any other instruments received in payment of accounts
receivable for Professional Eye Care Services.
(f) To sign checks on behalf of the Practice, and to make
withdrawals from the Account for payments specified in this Business Management
Agreement. Upon request of Business Manager, the Practice shall execute and
deliver to the financial institution wherein the Account is maintained, such
additional documents or instruments as may be necessary to evidence or effect
the special power of attorney granted to Business Manager by the Practice
pursuant to this Section 3.9. The special power of attorney granted herein shall
be coupled with an interest and shall be irrevocable except with Business
Manager's written consent. The irrevocable power of attorney shall expire when
this Business Management Agreement has been terminated, all accounts receivable
payable to Business Manager pursuant to this Business Management Agreement have
been collected and all Management Fees due to Business Manager have been paid.
If Business Manager assigns this Business Management Agreement in accordance
with its terms, the Practice shall execute a power of attorney in favor of the
assignee in a form acceptable to Business Manager.
-20-
<PAGE> 21
3.10 Maintenance of Account. During the term of this Business
Management Agreement, all Adjusted Gross Revenues collected resulting from the
rendering of Professional Eye Care Services by the Practice shall be deposited
directly into the Account in which Business Manager shall have the sole signing
capacity.
(a) Payments from the Account. Each month Business Manager
shall pay from funds that are in the Account all sums due and payable as an
Office Expense and Practice Expenses. Additionally, on or before the 15th day of
the following month, (i) Business Manager shall pay from funds that are in the
Account to the Practice Adjusted Gross Revenue less accrued Office Expense,
accrued Practice Expense (excluding optical supplies), accrued Management Fee,
and (at the discretion of Business Manager) all sums advanced by the Business
Manager, and (ii) the accrued Management Fee for the previous month shall be
paid.
(b) Payments to the Practice's Account. To the extent funds
are available, the Business Manager shall be responsible for remitting from the
Account to an account to be owned by and held in the Practice's name, separate
from the Account, the amounts which the Practice is entitled to receive under
Section 3.10(a). Within sixty (60) days of the end of each of the first three
(3) fiscal quarters in each fiscal year and within one hundred twenty (120) days
of the end of each fiscal year, a settlement process shall be undertaken
pursuant to which adjustments, if necessary, shall be made in the total payments
to the Practice based upon the financial statements prepared in accordance with
Section 3.11(b). Any additional payment due to the Practice will be made within
thirty (30) days of the completion of the settlement process. Any reduction in
payments to the Practice as the result of such settlement process shall be made
by reducing future payments to the Practice, commencing with the month following
completion of the settlement process, until such adjustments are made in full.
Business Manager and the Practice shall each have signing capacity to
withdraw funds from the Practice's account; provided however that Business
Manager shall only be entitled to withdraw funds relating to such account in
connection with the payment of Practice Expenses and Shareholders' salaries,
benefits and payroll taxes. Subject to the foregoing, the Practice hereby grants
to Business Manager a special power of attorney and appoints Business Manager as
the Practice's true and lawful agent and attorney-in-fact, and Business Manager
hereby accepts such special power of attorney and appointment, to sign checks on
behalf of the Practice for payments of the Practice Expenses and Shareholders'
salaries, benefits and payroll taxes in accordance with this Business Management
Agreement. Upon request of Business Manager, the Practice shall execute and
deliver to the financial institution wherein the Practice's account is
maintained, such additional documents or instruments as may be necessary to
evidence or effect the special power of attorney granted to Business Manager by
the Practice pursuant to this Section 3.10(b). The special power of attorney
granted herein shall be coupled with an interest and shall be irrevocable except
with Business Manager's written consent. The irrevocable power of attorney shall
expire when this Business Management Agreement has been terminated. If Business
Manager assigns this Business Management Agreement in accordance with its terms,
the Practice shall execute a power of attorney in favor of the assignee in a
form acceptable to
-21-
<PAGE> 22
Business Manager. Business Manager shall not make any withdrawal from the
Practice's account unless expressly authorized in this Agreement.
A Practice payroll account shall be established on behalf of the
practice for payroll to non-shareholder Professionals of the Practice. Funds for
this account shall be received as Practice Expenses. Business Manager and the
Practice shall each have signing capacity to access the account for payroll.
(c) Insufficient Funds in Account. During the Term of this
Agreement, Business Manager shall advance sufficient funds to cover all expenses
and obligations only if, and to the extent that, the amount of such advances,
plus accrued interest thereon, does not exceed the reasonably collectable value
of the Practice's accounts receivable as determined by Business Manager in its
reasonable discretion plus any amounts borrowed by Business Manager pursuant to
Section 5.4. Business Manager may, however, elect from time to time to advance
additional funds to the Practice at its discretion. Any of such advances shall
be deemed loans to the Practice to be repaid by the Practice along with interest
at six percent (6%) per annum. Any of such advanced amounts which have not been
paid to Business Manager pursuant to Section 3.10(a)(i) on the date of
termination of this Agreement shall become due and payable on the date of such
termination.
3.11 Fiscal Matters.
(a) Annual Budget. Annually and at least thirty (30) days
prior to the commencement of each fiscal year of the Practice, the Practice
Advisory Council shall prepare and deliver to the Practice a proposed budget,
setting forth an estimate of the Practice's revenues and expenses for the
upcoming fiscal year (including, without limitation, the Management Fee
associated with the Management Services provided by Business Manager hereunder
and the salaries and benefits of all non-shareholder Professionals employed by
the Practice). The Budget may be amended by the Practice Advisory Council from
time-to-time during any applicable fiscal year to reflect changing circumstances
affecting the Practice. Disputes concerning the Budget will, at the request of
either Party hereto, be submitted to the accounting firm of Ernst & Young LLP,
any successor thereof, or such other big six accounting firm agreed to by the
Parties, which shall determine an appropriate resolution of the dispute. Such
determination shall be binding upon the Practice and the Business Manager,
subject to either Party's right to petition the National Appeals Council to
consider the determination of Ernst & Young LLP (or its successor or
replacement), which petition may be granted at the discretion of the National
Appeals Council. In all situations described in this Agreement in which Ernst &
Young LLP or its successor or replacement is to act as an arbitrator of any
matter relating to this Agreement, Ernst & Young LLP (or its successor or
replacement) shall act as an impartial and independent arbitrator. The Parties
hereby waive and release and agree to indemnify and hold harmless Ernst & Young
LLP (and its successor or replacement) from and for any and all claims, demands,
liabilities, losses, damages, costs and expenses relating to its determinations
made in good faith pursuant to this Agreement and agree to execute any documents
reasonably requested by Ernst
-22-
<PAGE> 23
& Young LLP (or its successor or replacement) to effectuate the same. Any final
decision of Ernst & Young LLP or its successor or replacement, or the National
Appeals Council concerning the Budget shall be retroactive to the first day of
the Budget period in question. Notwithstanding the above, should Business
Manager be in material default hereunder, the Practice shall have the exclusive
right to establish the Budget. Additionally, notwithstanding the above, no
change in an adopted Budget shall be contrary to the terms and spirit of this
Agreement nor shall it have any effect on the Management Fee expressly agreed to
herein, unless approved in advance in writing by the Parties hereto.
(b) Accounting and Financial Records. Business Manager shall
establish and administer accounting procedures, controls, and systems for the
development, preparation, and safekeeping of administrative or financial records
and books of account relating to the business and financial affairs of the
Practice and the provision of Professional Eye Care Services, all of which shall
be prepared and maintained in accordance with GAAP. Business Manager shall
prepare and deliver to the Practice (i) within sixty (60) days of the end of
each of the first three (3) fiscal quarters in each fiscal year, and (ii) within
one hundred twenty (120) days of the end of each fiscal year, a balance sheet
and a profit and loss statement reflecting the financial status of the Practice
in regard to the provision of Professional Eye Care Services as of the end of
such period, all of which shall be prepared in accordance with GAAP consistently
applied. In addition, Business Manager shall prepare or assist in the
preparation of any other financial statements or records as the Practice may
reasonably request.
(c) Sales and Use Taxes. Business Manager and the Practice
acknowledge and agree that to the extent that any of the services to be provided
by Business Manager hereunder may be subject to any state sales and use taxes,
Business Manager may have a legal obligation to collect such taxes from the
Practice and to remit the same to the appropriate tax collection authorities.
The Practice agrees to have applicable state sales and use taxes attributable to
the services to be provided by Business Manager hereunder treated as an Office
Expense.
3.12 Reports and Records.
(a) Health Care Records. To the extent permitted by applicable
law, Business Manager shall establish, monitor, and maintain procedures and
policies for the timely creation, preparation, filing and retrieval of all
health care records generated by the Practice in connection with the Practice's
provision of Professional Eye Care Services; and, subject to applicable law,
shall ensure that health care records are promptly available to Professionals
and any other appropriate persons. All such health care records shall be
retained and maintained by the Practice, and the Business Manager as agent for
the Practice, in accordance with all applicable State and federal laws relating
to the confidentiality and retention thereof. All health care records shall be
and remain the property of the Practice. The Practice shall at all times during
the term of this Agreement grant Business Manager unrestricted access to such
health
-23-
<PAGE> 24
care records and shall in the course of the Practice's business obtain the
written consent of the Practice's patients to Business Manager's access to, and
review and use of such records.
(b) Other Reports and Records. Business Manager shall timely
create, prepare, and file such additional reports and records as are reasonably
necessary and appropriate for the Practice's provision of Professional Eye Care
Services, and shall be prepared to analyze and interpret such reports and
records upon the request of the Practice.
3.13 Recruitment of the Practice's Professionals. Upon the Practice's
request, Business Manager shall perform all administrative services reasonably
necessary and appropriate to recruit potential Professionals to become employees
of the Practice. Business Manager shall provide the Practice with model
agreements to document the Practice's employment, retention or other service
arrangements with such individuals. It will be and remain the sole and complete
responsibility of the Practice to interview, select, contract with, supervise,
control and terminate all Professionals performing Professional Eye Care
Services or other professional services.
3.14 Confidential and Proprietary Information.
(a) Business Manager agrees and acknowledges that all
materials provided by the Practice to the Business Manager constitute
Confidential Information disclosed in confidence and with the understanding that
it constitutes valuable business information developed by the Practice at great
expenditures of time, effort, and money. Business Manager further agrees that it
shall not, directly or indirectly, disclose any Confidential Information of the
Practice to other persons without the Practice's express written authorization,
such Confidential Information shall not be used in any way directly or
indirectly detrimental to the Practice, and Business Manager will keep such
Confidential Information confidential and will ensure that its affiliates and
advisors who have access to such Confidential Information comply with these
nondisclosure obligations; provided, however, that Business Manager may disclose
Confidential Information to those of its Representatives who need to know
Confidential Information for the purposes of this Business Management Agreement,
it being understood and agreed to by Business Manager that such Representatives
will be informed of the confidential nature of the Confidential Information,
will agree to be bound by this Section, and will be directed by Business Manager
not to disclose to any other person any Confidential Information. Business
Manager agrees to be responsible for any breach of this Section by its
affiliates, advisors, or Representatives. If Business Manager is requested or
required (by oral questions, interrogatories, requests for information or
documents, subpoenas, civil investigative demands, or similar processes) to
disclose or produce any Confidential Information furnished in the course of its
dealings with the Practice or its affiliates, advisors, or Representatives,
Business Manager will (i) provide the Practice with prompt notice thereof and
copies, if possible, and, if not, a description, of the Confidential Information
requested or required to be produced so that the Practice may seek an
appropriate protective order or waive compliance with the provisions of this
Section and (ii) consult with the Practice as to the advisability of the
Practice's taking of legally available steps to resist or narrow such request.
Business Manager further agrees that,
-24-
<PAGE> 25
if in the absence of a protective order or the receipt of a waiver hereunder
Business Manager is nonetheless, in the written opinion of its legal counsel,
compelled to disclose or produce Confidential Information concerning the
Practice to any tribunal legally authorized to request and entitled to receive
such Confidential Information or to stand liable for contempt or suffer other
censure or penalty, Business Manager may disclose or produce such Confidential
Information to such tribunal without liability hereunder; provided, however,
that Business Manager shall give the Practice written notice of the Confidential
Information to be so disclosed or produced as far in advance of its disclosure
or production as is practicable and shall use its best efforts to obtain, to the
greatest extent possible, an order or other reliable assurance that confidential
treatment will be accorded to such Confidential Information so required to be
disclosed or produced. Upon expiration or termination of this Business
Management Agreement by either Party for any reason whatsoever, Business Manager
shall immediately return and shall cause its Representatives, affiliates, and
independent contractors to immediately return to the Practice all Confidential
Information, and Business Manager shall not, and will cause its Representatives,
affiliates, and independent contractors not to, thereafter use, appropriate or
reproduce such Confidential Information. Business Manager further expressly
acknowledges and agrees that any such use, appropriation, or reproduction of any
such Confidential Information by any of the foregoing after the expiration or
termination of this Agreement will result in irreparable injury to the Practice,
that the remedy at law for the foregoing would be inadequate, and that in the
event of any such use, appropriation, or reproduction of any such Confidential
Information after the termination or expiration of this Agreement, the Practice,
in addition to any other remedies or damages available to it, shall be entitled
to injunctive or other equitable relief without the necessity of posting a bond,
cash, or otherwise, and without the necessity of proving actual damages. Such
rights to relief shall not preclude the Practice from other remedies which may
be available to it hereunder.
(b) Notwithstanding clause (a) above, Business Manager may
share, subject to the restrictions of this Section, with other professional
corporations, associations, ophthalmology and optometry practices, or health
care delivery entities the practice statistics of the Practice, including
utilizing review data, quality assurance data, cost data, outcomes data, or
other practice data. In addition, Business Manager may disclose all
practice-related information necessary or desirable in connection with any
public or private offering of any debt or equity security. No such data will
disclose or divulge patient identifying information or, to the extent possible,
Professional identifying information.
3.15 Business Manager's Insurance. Throughout the Term, Business
Manager shall, as an Office Expense, obtain and maintain with commercial
carriers, through self-insurance or some combination thereof, appropriate
workers' compensation coverage for Business Manager's employed personnel
provided pursuant to this Business Management Agreement, and professional,
casualty and comprehensive general liability insurance covering Business
Manager, Business Manager's personnel, and all of Business Manager's equipment
in such amounts, on such basis and upon such terms and conditions as Business
Manager deems appropriate. Such insurance policies shall be issued by a carrier
or carriers having a current rating of not less than
-25-
<PAGE> 26
"A" as rated by A.M. Best Company, unless the Practice agrees in writing to the
purchase of a policy or policies from a carrier having a lesser rating than "A".
Business Manager shall cause the Practice to be named as an additional insured
on Business Manager's casualty and comprehensive general liability policy.
Business Manager hereby releases the Practice from any and all liability for
losses or damages caused by any act or neglect of the Practice occurring after
the effective date hereof to the extent that such losses or damages are covered
by insurance; provided, however, that such release shall not apply to any loss
or damage caused by the willful, wanton, or premeditated negligence of the
Practice. Business Manager shall obtain from any insurance company issuing the
foregoing policies its consent to the release from liability contained in this
Section. Upon the request of the Practice, Business Manager shall provide the
Practice with a certificate evidencing such insurance coverage. Business Manager
may also obtain key man life insurance policies on the life of any Shareholder
as is consistent with 1.18(n).
3.16 No Warranty. The Practice acknowledges that Business Manager has
not made and will not make any express or implied warranties or representations
that the Management Services provided by Business Manager will result in any
particular amount or level of ophthalmology or optometry practice or income to
the Practice. Specifically, Business Manager has not represented that its
Management Services will result in higher revenues, lower expenses, greater
profits or growth in the number of patients treated by the Practice's
Professionals.
3.17 Non-Competition Covenant from Business Manager. The Business
Manager hereby recognizes and acknowledges that the Practice shall incur
substantial costs in modifying its business activities to carry out this
Business Management Agreement and that in the process of Business Manager's
providing services under this Business Management Agreement, the Business
Manager will be privy to financial and Confidential Information, to which the
Business Manager would not otherwise be exposed. Business Manager agrees and
acknowledges that the non-competition covenants described hereunder are
necessary for the protection of the Practice, and that the Practice would not
have entered into this Business Management Agreement without such covenants.
Business Manager represents, warrants and covenants that during the Term of this
Business Management Agreement and for a period of two (2) years from the date
this Business Management Agreement is terminated, other than if terminated by
Business Manager for cause, neither Business Manager nor any person or entity
affiliated directly or indirectly with Business Manager will, anywhere within
five (5) miles of any Office existing on the effective date of this Business
Management Agreement, enter into a direct or indirect relationship similar to
the relationship between the Practice and Business Manager, or acquire the
nonmedical assets of, any professional practice group or engage in any other eye
care business currently engaged in by the Business Manager without approval of
the Practice. The Local Advisory Council shall consult with Business Manager
with respect to any acquisition of or merger with a health care practice outside
such five (5) mile area and within the region described in Exhibit 2.10.
Notwithstanding anything to the contrary in this Section, Business Manager (a)
may establish and maintain relationships with the entities described on Exhibit
3.17, (b) may enter into managed care agreements with (i) other practices on the
one hand, and national or regional payor
-26-
<PAGE> 27
entities on the other hand, if the Practice, upon being offered the opportunity
to enter into such managed care agreements, elects not to enter into such
managed care agreements, (ii) other health care practices within the
above-described five (5) mile area if and to the extent that the Practice is
unable to provide the specific services, reasonable access to, or minimum
standards as required by, a managed care payor for all of the patients to be
covered by a managed care agreement, and (iii) other health care practices where
Business Manager reasonably believes additional providers are required to obtain
a contract; provided, however, that the exceptions to Business Manager's
covenant not to compete contained in this subsection (b) shall not permit
Business Manager to enter into business management agreements with such other
health care practices. If the Business Manager breaches any obligation set forth
in this Section, in addition to any other remedies available under this Business
Management Agreement, at law or in equity, the Practice shall be entitled to
enforce this Business Management Agreement by injunctive relief and by specific
performance of the Business Management Agreement, such relief to be without the
necessity of posting a bond, cash or otherwise. Additionally, nothing in this
Section 3.17 shall limit the Practice's right to recover any other damages to
which it is entitled as a result of the Business Manager's breach. The time
period for which the non-competition covenants are effective shall be extended
day for day for the time period the Business Manager is in violation of the
non-competition covenants. If any provision of the covenants is held by a court
of competent jurisdiction to be unenforceable due to an excessive time period,
geographic area, or restricted activity, the covenants shall be reformed to
comply with such time period, geographic area, or restricted activity that would
be held enforceable. Following termination of this Agreement pursuant to Section
6.2(b) hereof, Business Manager shall be released from any and all of the
restrictions imposed in this Section 3.17.
3.18 Marketing and Public Relations. In accordance with applicable
laws, regulations and ethical standards, Business Manager shall use its best
efforts to provide such marketing, support, advertising and public relations
services as are appropriate to promote and market the Practice's Professional
Eye Care Services. Such services shall be subject to review by the Local
Advisory Council. At the option of Business Manager and to the extent permitted
by law, the Business Manager's corporate name may be included on any or all
signage, letterhead, advertisements, announcements and the like relating to
Professional Eye Care Services provided by the Practice. Marketing support
services include training the Practice's personnel concerning marketing
techniques, providing written materials that may be used in marketing, and
providing technical assistance to the Practice's personnel engaged in direct
marketing efforts such as administrative support and assistance in contract
negotiation and implementation. Business Manager shall not perform direct
marketing to potential sources of business, but shall provide assistance to the
Practice's personnel who perform any such direct marketing as set forth above.
Use of the Practice's name in any advertising or promotions shall require the
Practice's advance approval.
3.19 Inconsistent Transaction by Business Manager. The Business Manager
agrees that in performing the Management Services with respect to the Practice,
it shall not enter into any agreements, commitments or transactions or engage in
any activities which are exclusively within
-27-
<PAGE> 28
the authority and responsibility of the Practice as set forth in this Agreement
or are otherwise materially inconsistent with the provisions of this Agreement.
3.20 Payment of Cash Portion of Note. From and after the effective date
hereof, Business Manager covenants and agrees to use its best efforts to either
(a) obtain from a financially secure third party such third party's direct
unconditional guaranty of payment of the mandatory cash portion of any
promissory note delivered by Business Manager in connection with an Acquisition
Transaction, or arrange a commercially reasonable credit facility or financing
arrangement from a financial institution or investor to be used for the payment
or direct security in form acceptable to the Practice for the payment of the
mandatory cash portion of such promissory note. Until payment of the mandatory
cash portion of the promissory note is protected in the foregoing manner,
Business Manager shall accumulate and reserve all of its net income, shall not
make any distributions of such net income to its shareholders, and shall not use
any of such reserved funds for acquisitions of, or mergers with, additional
health care practices. Notwithstanding the foregoing, Business Manager and its
subsidiaries shall be entitled to (i) continue its acquisitions and mergers with
the founding practices from the effective date hereof until December 31, 1996,
(ii) enter into mergers with additional health care practices so long as no cash
consideration is used, and (iii) acquire or merge with additional health care
practices using such reserved funds so long as 2/3rds (66 2/3%) of the shares
held by the Founding Practices are voted in favor of such acquisition or merger.
For the purposes of this Section a "financially secure third party" shall be
deemed to be a financial institution or investor having a lending ability, fund
size or net worth in excess of $100.0 million.
4. OBLIGATIONS AND RESPONSIBILITIES OF THE PRACTICE.
4.1 Organization and Operation. The Practice, as a continuing
condition of Business Manager's obligations under this Business Management
Agreement, shall at all times during the Term be and remain legally organized
and operated to provide Professional Eye Care Services in a manner consistent
with all State, federal and local laws. The Practice shall operate and
maintain within the Practice Territory a full-time practice of ophthalmology
specializing in the provision of Professional Eye Care Services and shall
maintain and enforce employment agreements in the form of Exhibit 4.1A with
the Shareholders of the Practice specified in Exhibit 4.1B; provided, however,
that after the expiration of such employment agreements, and in the event that
such Shareholders continue a relationship with the Practice thereafter, the
Practice shall maintain and enforce employment agreements with such
Shareholders and all future Shareholders in the form of Exhibit 4.1C.
Shareholders agree and the Practice shall take steps to obtain the executed
employment agreements in the form of Exhibit 4.1C from such Shareholders after
the five (5) year period and all future Shareholders during the entire term of
this Agreement if the Shareholder elects to continue his relationship. After
five (5) years from the effective date of this Agreement, or earlier in the
event of death or permanent disability, a Shareholder may choose a successor
to replace him as a Shareholder. A Shareholder who wishes to have a successor
replace him as a Shareholder must first demonstrate to and obtain consent from
Business Manager that the successor is licensed to practice ophthalmology in the
-28-
<PAGE> 29
State, and is competent and capable to assume ownership of the Practice.
Business Manager Consent shall not be unreasonably withheld with respect to such
replacement. In the event of disability, death or planned retirement after five
years, Business Manager will make a good faith effort in assisting the Practice
in locating a possible successor. It is understood however that Business Manager
has no ultimate responsibility to find the ultimate successor, which shall be
the sole responsibility of the Shareholder. The Practice shall not amend the
employment agreements or waive any rights thereunder without the prior approval
of Business Manager. Recognizing that Business Manager would not have entered
into this Business Management Agreement but for the Practice's covenant to
maintain employment agreements with its Shareholders, the Practice shall pay to
Business Manager, in addition to the Management Fee, any damages, compensation,
payment, or settlement received by the Practice from each Shareholder specified
in Exhibit 4.1B pursuant to any non-competition covenant contained in Exhibit
4.1A. Such payment shall constitute liquidated damages of Business Manager for
the Practice's breach of the covenant contained in this Section 4.1. All
expenses and costs in enforcing the foregoing covenants not to compete shall be
deemed to be Office Expenses. The Practice shall take steps to have all future
Shareholders execute any reasonable documentation as required by Business
Manager in connection with this Section.
4.2 Practice Personnel. The Practice shall retain, as a Practice
Expense or Shareholder Expense, as the case may be, and not as an Office
Expense, that number of Professionals sufficient in the sole discretion of the
Practice as are reasonably necessary and appropriate for the provision of
Professional Eye Care Services, each of whom shall act in accordance with the
applicable provisions of this Business Management Agreement. Each
Ophthalmologist retained by the Practice shall hold and maintain a valid and
unrestricted license to practice ophthalmology in the State, and shall be
competent in the practice of ophthalmology. The Practice shall enter into and
maintain with each such retained Ophthalmologist and enforce a written
employment agreement substantially in the form of either Exhibit 4.1A for
Shareholders of the Practice or Exhibit 4.2A for non-shareholders. Each
Optometrist retained by the Practice shall hold and maintain a valid and
unrestricted license to practice optometry in the State, and shall be competent
in the practice of optometry. The Practice shall enter into and maintain with
each such retained Optometrist and enforce a written employment agreement
substantially in the form of Exhibit 4.2B. Notwithstanding the foregoing
provisions, the employment contracts currently in effect on the effective date
of this Agreement with the non-shareholder Professionals identified on Exhibit
4.2C shall remain in force during the existing term; provided, however, that
upon completion of such term should the non-shareholder remain at the Practice
or at such time the non-shareholder Professional is granted options by Vision
21, such Professionals' employment contracts shall then be immediately replaced
with employment contracts in substantially the form of Exhibit 4.1C. The
Practice shall be responsible for hiring, training, supervision, discipline,
termination and paying the compensation, and benefits as applicable, for all
Professional personnel and other contracted or affiliated Professionals, and for
withholding, as required by law, any sums for income tax, unemployment
insurance, social security, or any other withholding required by applicable law.
Business Manager shall, however, on behalf of the Practice, administer the
compensation with respect to such individuals
-29-
<PAGE> 30
in accordance with the written employment agreement between the Practice and
each Professional. The Practice shall cause its Professionals to obtain and
maintain all licenses and permits required in connection with the practice of
ophthalmology or optometry, any other business it has or the administration of
drugs by such Professionals. Business Manager shall neither control nor direct
any Professional in the performance of Professional Eye Care Services for
patients. All damages recovered for violations of non-competition covenants from
Professionals subject to employment agreements in the forms of Exhibit 4.1C,
Exhibit 4.2A, or Exhibit 4.2B shall be treated as Adjusted Gross Revenue.
4.3 Professional Standards. As a continuing condition of Business
Manager's obligations hereunder:
(a) Each Ophthalmologist and any other Ophthalmologist
personnel retained by the Practice to provide ophthalmology services must (i)
have and maintain a valid and unrestricted license to practice ophthalmology in
the State, (ii) have and maintain a D.E.A. number, (iii) comply with, be
controlled and governed by and otherwise provide ophthalmology services in
accordance with applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethics and standard of care of the
medical community wherein the principal Office of the Practice is located and
(iv) unless otherwise approved by the Local Advisory Council, obtain and retain
appropriate medical staff membership with appropriate clinical privileges at any
hospital or health care facility at which ophthalmology services are to be
provided. Procurement of temporary staff privileges pending the completion of
the medical staff approval process shall satisfy this provision, provided the
Ophthalmologist actively pursues full appointment and actually receives full
appointment within a reasonable time.
(b) Each Optometrist and any other Optometrist personnel
retained by the Practice to provide optometry services must (i) have and
maintain a valid and unrestricted license to practice optometry in the State,
(ii) comply with, be controlled and governed by and otherwise provide optometry
services in accordance with applicable federal, State and municipal laws, rules,
regulations, ordinances and orders, and the ethics and standard of care of the
optometric community wherein the principal Office of the Practice is located,
(iii) obtain and retain appropriate staff membership with appropriate privileges
at any hospital or health care facility at which optometry services are to be
provided, and (iv) provide on a continual basis, quality care to its patients.
Procurement of temporary staff privileges pending the completion of the staff
approval process shall satisfy this provision, provided the Optometrist actively
pursues full appointment and actually receives full appointment within a
reasonable time.
4.4 Professional Eye Care Services. The Practice shall ensure that
Professionals are available as necessary to provide quality Professional Eye
Care Services to patients and shall assist the Business Manager in ensuring that
Clinical Personnel are available as necessary to provide quality Professional
Eye Care Services to patients. In the event that Professionals employed by, or
Shareholders of, the Practice are not available to provide Professional Eye Care
Services coverage, the Practice shall engage and retain locum tenens coverage.
Professionals
-30-
<PAGE> 31
retained on a locum tenens basis shall meet all of the requirements of Section
4.3, and the cost of providing locum tenens coverage shall be a Practice
Expense. With the assistance of the Business Manager, the Practice and the
Professionals shall be responsible for scheduling Professional and Clinical
Personnel coverage of all medical and optometric procedures. The Practice shall
cause all Professionals to exert their best efforts to develop and promote the
Practice in such manner as to ensure the Practice is able to serve the diverse
needs of the community.
4.5 Peer Review/Quality Assurance. The Practice shall adopt a peer
review/quality assurance program to monitor and evaluate the quality and
cost-effectiveness of Professional Eye Care Services provided by Professional
personnel of the Practice, the expenses of which shall be deemed an Office
Expense. Pursuant to such program, the Practice shall designate a committee of
Professionals to function as a medical peer review committee to review
credentials of potential recruits, perform quality assurance functions, and
otherwise resolve medical competence issues. The medical peer review committee
shall function pursuant to formal written policies and procedures. Upon request
of the Practice, Business Manager shall provide administrative assistance to the
Practice in performing its peer review/quality assurance activities, but only if
such assistance can be provided consistent with maintaining the confidentiality,
immunity, and non-discoverability of the processes and actions of the peer
review/quality assurance process of the Practice.
4.6 Practice's Insurance. The Practice shall, as a Practice Expense,
obtain and maintain with commercial carriers chosen by the Practice appropriate
workers' compensation coverage for the Practice's employed personnel, if any,
and professional and comprehensive general liability insurance covering the
Practice and each of the Professionals and Clinical Personnel the Practice
retains to provide Professional Eye Care Services. The comprehensive general
liability coverage with respect to each Professional and Clinical Personnel
shall be in the minimum amount of One Million Dollars ($1,000,000) and
professional liability coverage shall be in the minimum amount of One Million
Dollars ($1,000,000) for each occurrence and Three Million Dollars ($3,000,000)
annual aggregate; provided, however, that with Business Manager Consent, which
shall not be unreasonably withheld or delayed, the Practice may from
time-to-time change such liability coverage amounts to amounts which are
consistent with industry standards. The insurance policy or policies shall
provide for at least thirty (30) days' advance written notice to the Practice
from the insurer as to any alteration of coverage, cancellation, or proposed
cancellation for any cause. The Practice hereby releases Business Manager from
any and all liability for losses or damages caused by any act or neglect of
Business Manager occurring after the effective date hereof to the extent that
such losses or damages are covered by insurance; provided, however, that such
release shall not apply to any loss or damage caused by the willful, wanton, or
premeditated negligence of Business Manager. The Practice shall obtain from any
insurance company issuing the foregoing policies its consent to the release from
liability contained in this Section. The Practice shall cause to be issued to
Business Manager by such insurer or insurers a certificate reflecting such
coverage and obtain the consent of such insurer or insurers to provide prior
written notice to Business Manager equal to notice given to
-31-
<PAGE> 32
a Professional of the cancellation or proposed cancellation of such insurance
for any cause. Such insurance policies shall be issued by a carrier or carriers
having a current rating of not less than "A" as rated by A.M. Best Company,
unless Business Manager agrees in writing to the purchase of a policy or
policies from a carrier having a lesser rating than "A". The Local Advisory
Council may, from time-to-time, select a different commercial carrier or
carriers for such workers' compensation and professional and general liability
coverage upon the establishment of a program affecting substantially all
practice groups within the market in which the Practice is located for which
Business Manager provides management services, which decision shall be binding
upon the Practice. After such election of a single carrier or carriers by the
Local Advisory Council, the costs of such coverage shall continue to be treated
as a Practice Expense. Upon the termination of this Business Management
Agreement for any reason, the Practice shall continue to carry professional
liability insurance in the amounts specified herein for the shorter period of
(i) the period set forth in the State's statute of repose (or if no statute of
repose exists, the State's statute of limitations) for bringing professional
malpractice claims based upon injuries which are not immediately discoverable
plus any applicable tolling periods, or (ii) ten (10) years after termination;
or if the Practice dissolves or ceases to practice ophthalmology or optometry,
the Practice shall obtain and maintain as a Shareholder Expense "tail"
professional liability coverage, in the amounts specified in this Section for
the shorter period of (i) the period set forth in the State's statute of repose
(or if no statute of repose exists, the State's statute of limitations) for
bringing professional malpractice claims based upon injuries which are not
immediately discoverable plus any applicable tolling periods, or (ii) ten (10)
years. The Practice shall be responsible for paying all premiums for Shareholder
"tail" insurance coverage and such coverage shall be a Shareholder Expense;
provided, however, that the Practice may cause its Professionals to be
responsible for paying the premiums for such "tail" insurance coverage. Except
as determined by the Local Advisory Council, the professional liability
insurance carrier shall not be replaced or changed without Practice Consent and
Business Manager Consent.
4.7 Confidential and Proprietary Information. The Practice agrees and
acknowledges that all materials provided by Business Manager to the Practice
constitute Confidential Information disclosed in confidence and with the
understanding that it constitutes valuable business information developed by
Business Manager at great expenditures of time, effort, and money. The Practice
further agrees that it shall not, directly or indirectly, disclose any
Confidential Information of the Business Manager to other persons without
Business Manager's express written authorization, such Confidential Information
shall not be used in any way directly or indirectly detrimental to Business
Manager, and the Practice will keep such Confidential Information confidential
and will ensure that its affiliates and advisors who have access to such
Confidential Information comply with these nondisclosure obligations; provided,
however, that the Practice may disclose Confidential Information to those of its
Representatives who need to know Confidential Information for the purposes of
this Business Management Agreement, it being understood and agreed to by the
Practice that such Representatives will be informed of the confidential nature
of the Confidential Information, will agree to be bound by this Section, and
will be directed by the Practice not to disclose to any other person any
-32-
<PAGE> 33
Confidential Information. The Practice agrees to be responsible for any breach
of this Section by its affiliates, advisors, or Representatives. If the Practice
is requested or required (by oral questions, interrogatories, requests for
information or documents, subpoenas, civil investigative demands, or similar
processes) to disclose or produce any Confidential Information furnished in the
course of its dealings with Business Manager or its affiliates, advisors, or
Representatives, the Practice will (i) provide Business Manager with prompt
notice thereof and copies, if possible, and, if not, a description, of the
Confidential Information requested or required to be produced so that Business
Manager may seek an appropriate protective order or waive compliance with the
provisions of this Section and (ii) consult with Business Manager as to the
advisability of Business Manager's taking of legally available steps to resist
or narrow such request. The Practice further agrees that, if in the absence of a
protective order or the receipt of a waiver hereunder, the Practice is
nonetheless, in the written opinion of its legal counsel, compelled to disclose
or produce Confidential Information concerning Business Manager to any tribunal
legally authorized to request and entitled to receive such Confidential
Information or to stand liable for contempt or suffer other censure or penalty,
the Practice may disclose or produce such Confidential Information to such
tribunal without liability hereunder; provided, however, that the Practice shall
give Business Manager written notice of the Confidential Information to be so
disclosed or produced as far in advance of its disclosure or production as is
practicable and shall use its best efforts to obtain, to the greatest extent
possible, an order or other reliable assurance that confidential treatment will
be accorded to such Confidential Information so required to be disclosed or
produced. The Practice acknowledges that the disclosure of Confidential
Information to it by Business Manager is done in reliance upon its
representations and covenants in this Business Management Agreement. Upon
expiration or termination of this Business Management Agreement by either Party
for any reason whatsoever, the Practice shall immediately return and shall cause
its Representatives, affiliates, and independent contractors to immediately
return to Business Manager all Confidential Information, and the Practice will
not, and will cause its Representatives, affiliates, and independent contractors
not to, thereafter use, appropriate or reproduce such Confidential Information.
The Practice further expressly acknowledges and agrees that any such use,
appropriation, or reproduction of any such Confidential Information by any of
the foregoing after the expiration or termination of this Agreement will result
in irreparable injury to Business Manager, that the remedy at law for the
foregoing would be inadequate, and that in the event of any such use,
appropriation, or reproduction of any such Confidential Information after the
termination or expiration of this Agreement, Business Manager, in addition to
any other remedies or damages available to it, shall be entitled to injunctive
or other equitable relief without the necessity of posting a bond, cash, or
otherwise, and without the necessity of proving actual damages. Such rights to
relief shall not preclude Business Manager from other remedies which may be
available to it hereunder.
4.8 Non-Competition. The Practice hereby recognizes and acknowledges
that Business Manager will incur substantial costs in providing the equipment,
support services, personnel, management, administration, and other items and
services that are the subject matter of this Business Management Agreement and
that in the process of providing services under this
-33-
<PAGE> 34
Business Management Agreement, the Practice will be privy to financial and
Confidential Information, to which the Practice would not otherwise be exposed.
The Parties also recognize that the services to be provided by Business Manager
will be feasible only if the Practice operates an active practice to which the
Professionals associated with the Practice devote their full time and attention.
The Practice agrees and acknowledges that the non-competition covenants
described hereunder are necessary for the protection of Business Manager, and
that Business Manager would not have entered into this Business Management
Agreement without the following covenants.
(a) During the Term of this Business Management Agreement and
except for its obligations pursuant to this Business Management Agreement, the
Practice shall not establish, operate, or provide Professional Eye Care Services
at a medical office, clinic or other health care facility anywhere within twenty
(20) miles of any current or future location at which Business Manager provides
business management services similar to the services contemplated in this
Agreement; provided, however, that the Practice may carry on the activities
described in Exhibit 1.3 without violating this Section 4.8.
(b) Except as specifically agreed to by Business Manager in
writing, the Practice and its Shareholders covenant and agree that during the
Term of this Business Management Agreement and for a period of two (2) years
from the date this Business Management Agreement is terminated, other than if
terminated by the Practice for cause, or expires, the Practice shall not
directly or indirectly own (excluding ownership of less than one percent (1%) of
the equity of any publicly traded entity and excluding ownership of the common
stock of Business Manager), manage, operate, control, contract with, lend funds
to, lend its name to, maintain any interest whatsoever in, or be employed by,
any enterprise (i) having to do with the provision, distribution, promotion, or
advertising of any type of management or administrative services or products to
third parties in competition with Business Manager, located anywhere in the
United States of America; and/or (ii) offering any type of service(s) or
product(s) to third parties substantially similar to those offered by Business
Manager to the Practice located anywhere in the United States of America.
Notwithstanding the above restriction, nothing herein shall prohibit (i) the
Practice or any of its Shareholders from providing management and administrative
services to this or their own ophthalmology practices after the termination of
this Business Management Agreement, (ii) the Practice or its Shareholders from
contracting with a third-party manager to provide administrative or management
services for its or their professional eye care practices after termination of
this Business Management Agreement and two (2) years thereafter, as long as such
relationship complies with the provisions of this Section 4.8(b); (iii) any of
the Practice's Shareholders from providing management and administrative
services to their own ophthalmology practices after the termination of their
employment relationship with the Practice in accordance with this Business
Management Agreement, and (iv) such Shareholders from contracting with a
third-party manager to provide administrative or management services for their
professional eye care practices after the termination of their employment
relationship with the Practice in accordance with this Business Management
Agreement. If the Practice violates this Section, the Practice
-34-
<PAGE> 35
shall pay to Business Manager the amount received as consideration by the
Practice and/or the Shareholders in connection with the Acquisition Transaction,
as agreed upon liquidated damages. The Practice and the Shareholders acknowledge
and agree that such sum is reasonable in light of the severe harm that Business
Manager would suffer as a result of the Practice's breach of this restrictive
covenant. If the Practice fails to make payment of liquidated damages as
contemplated by this Section, Business Manager shall be entitled among all other
rights and remedies available at law or equity, to (i) cancel the number of
shares of Business Manager's common stock held by the Practice or the
Shareholders or, with respect to shares of Business Managers' common stock
entitled to be received by the Practice or the Shareholders pursuant to the
Acquisition Agreement, terminate its obligation to deliver such number of shares
of Business Manager's common stock, valued at the market price per share
representing such liquidated damages sum, or (ii) set off all or any of such
liquidated damages sum against amounts payable under any promissory note held by
the Practice or the Shareholders, or do both of the foregoing, but in no event
shall Business Manager be entitled to offset amounts in excess of the liquidated
damages sum pursuant to this Section.
(c) The written employment agreements in the form of Exhibit
4.1A shall contain covenants of the Shareholder employees pursuant to which the
Shareholders agree not to compete with the Practice or with the Business Manager
within the Practice Territory for two (2) years after termination or expiration
of the employment agreement.
(d) The Practice shall obtain and enforce formal written
agreements from its Ophthalmologist employees in the form of Exhibit 4.2A or
Exhibit 4.1C, as the case may be, and agreements from its Optometrist employees
in the form of Exhibit 4.2B, pursuant to which the employees agree not to
compete with the Practice or with the Business Manager within the Practice
Territory for one (1) year after termination or expiration of the employment
agreement.
(e) The Practice understands and acknowledges that Business
Manager shall suffer severe harm in the event that the foregoing non-competition
covenants in Section 4.8 are violated, and accordingly, if the Practice breaches
any obligation of Section 4.8, in addition to any other remedies available under
this Business Management Agreement, at law or in equity, Business Manager shall
be entitled to enforce this Business Management Agreement by injunctive relief
and by specific performance of the Business Management Agreement, such relief to
be without the necessity of posting a bond, cash or otherwise. Additionally,
nothing in this Section 4.8(e) shall limit Business Manager's right to recover
any other damages to which it is entitled as a result of the Practice's breach.
The time period for which the non-competition covenant is effective shall be
extended day for day for the time period the Practice is in violation of the
non-competition covenant. If any provision of the covenants is held by a court
of competent jurisdiction to be unenforceable due to an excessive time period,
geographic area, or restricted activity, the covenant shall be reformed to
comply with such time period, geographic area, or restricted activity that would
be held enforceable. Following termination of this Agreement pursuant to Section
6.2(b) hereof, the Practice shall not amend, alter or otherwise change any term
or provision of the restrictive covenants or liquidated damages provisions of
-35-
<PAGE> 36
the employment agreements with the Professionals. Following termination of this
Agreement pursuant to Section 6.2(a) hereof, the Practice and the Professionals
shall be relieved of the restrictions imposed by this Section 4.8.
4.9 Name, Trademark. The Practice represents and warrants that the
Practice conducts its professional practice under the name of, and only under
the name of "Daniel B. Feller, M.D., P.C.", "Millennium Vision, P.C." and
"Paradise Valley Eye Specialists" and that such names are duly registered,
qualified, or licensed under the law of the State, and that, to the Practice's
knowledge, the Practice is the sole and absolute owner of the names in the
State. The Practice covenants and promises that, without the prior written
consent of the Business Manager, the Practice will not:
(a) take any action that is reasonably likely to result in the
loss of registration, qualification or licensure of the names;
(b) fail to take any reasonably necessary action that will
maintain the registration, qualification, or licensure current;
(c) license, sell, give, or otherwise transfer the names or
the right to use the names to any medical practice, ophthalmology or optometry
practice, Ophthalmologist, Optometrist, professional corporation, or any other
entity; or
(d) cease conducting the professional practice of the Practice
under the names.
4.10 Lease Assignment. Upon Business Manager's request, if the Practice
is the lessee of the Office under a lease with an unrelated and unaffiliated
lessor, the Practice shall assign the lease to Business Manager upon receipt of
consent from the lessor. The Practice shall use its best efforts to assist in
obtaining the lessor's consent to the assignment. Upon request, the Practice
shall execute any instruments and shall take any acts that Business Manager may
deem necessary to accomplish the assignment of the lease.
4.11 Billing Information and Assignments; Establishment of Fees. The
Practice shall promptly provide the Business Manager with all billing and other
information reasonably requested by the Business Manager to enable it to bill
and collect the Practice's fees and other charges and reimbursement claims
pursuant to Section 3.9, and the Practice shall use its best efforts to procure
consents to assignments and other approvals and documents necessary to enable
the Business Manager to obtain payment or reimbursement from third parties for
such fees, other charges and claims. The Practice shall establish reasonable
fees for all professional and ancillary services and pharmaceutical items in
connection with the provision of Professional Eye Care Services.
-36-
<PAGE> 37
4.12 Provider Agreements. The Practice shall not enter into contractual
arrangements with third parties for the Practice's provision of Professional Eye
Care Services which are inconsistent with guidelines established by the Local
Advisory Council or any capitated fee arrangement without the prior approval of
the Practice Advisory Council. Subject to the foregoing provision, the Practice
shall have the final authority with regard to all of such contractual
arrangements.
4.13 Inconsistent Transaction by the Practice. The Practice agrees that
it shall not enter into any agreements, commitments or transactions or engage in
any activities which are within the authority and responsibility of the Business
Manager as set forth in this Agreement or otherwise materially inconsistent with
the provisions of this Agreement.
4.14 Recommendations. The Practice shall make recommendations to
Business Manager regarding the Office, the equipment, the business operations,
and the services to be provided by Business Manager under this Business
Management Agreement.
4.15 General Obligations. The Practice shall take all lawful actions
reasonably necessary to maximize revenues and shall not take any action to
reduce revenues other than in the ordinary course of business.
4.16 Tax Matters. The Practice shall prepare or arrange for the
preparation by an accountant selected by the Practice of all appropriate
corporate tax returns and reports required of the Practice including such
returns and reports required with respect to the Account. All costs and expenses
relating to the preparation of such returns and reports shall be deemed a
Shareholder Expense.
4.17 Shareholders' Undertaking to Enforce Certain Provisions of
Agreement. The Practice shall cause to be executed by all Shareholders of the
Practice an undertaking in the form of Exhibit 4.17 by such Shareholders to
ensure that the corporate existence of the Practice is maintained and that the
covenants not to compete described in Sections 4.1 and 4.2 of this Agreement are
enforced by the Practice against any individuals violating such covenants.
5. BUSINESS MANAGER'S COMPENSATION.
5.1 Management Fee. The Practice and Business Manager agree to the
compensation set forth herein as being paid to Business Manager in consideration
of a substantial commitment made by Business Manager hereunder and that such
fees are fair and reasonable. Each month Business Manager shall be paid that
percentage set forth in Exhibit 5.1 of the amount remaining after (a) Office
Expenses and Practice Expenses (excluding optical supplies) are subtracted from
(b) Adjusted Gross Revenue (the "Management Fee"). Business Manager shall not be
liable for any losses generated by the Practice, and in no event shall the
Management Fee be less than zero dollars. The payment of the Management Fee
shall take into account any losses generated by the Practice arising after the
effective date of this Agreement, with losses being carried forward
-37-
<PAGE> 38
to offset future net revenues of the Practice (which for purposes of this
Section shall be deemed to be Adjusted Gross Revenue minus Office Expenses and
Practice Expenses).
5.2 Reasonable Value. Payment of the Management Fee is not intended to
be and shall not be interpreted or applied as permitting Business Manager to
share in the Practice's fees for Professional Eye Care Services or any other
services, but is acknowledged as the Parties' negotiated agreement as to the
reasonable fair market value of Business Manager's commitment to pay all Office
Expenses and the fair market value of the equipment, contract analysis and
support, other support services, purchasing, personnel, office space,
management, administration, strategic management and other items and services
furnished by Business Manager pursuant to the Business Management Agreement,
considering the nature and volume of the services required and the risks assumed
by Business Manager. The Practice and Business Manager recognize and acknowledge
that Business Manager will incur substantial costs and business risks in
undertaking to pay all Office Expenses, arranging for the Practice's use of the
Office and in providing the equipment, support services, personnel, marketing,
office space, management, administration, and other items and services that are
the subject matter of this Business Management Agreement, and certain of such
costs and expenses can vary to a considerable degree according to the extent of
the Practice's business and services. It is the intent of the Parties that the
Management Fee reasonably compensate Business Manager for the value to the
Practice of Business Manager's administrative expertise, given the considerable
business risk to Business Manager in providing the Management Services that are
the subject of this Business Management Agreement.
5.3 Payment of Management Fee. To facilitate the payment of the
Management Fee as provided in Section 5.1(a) hereof, the Practice hereby
expressly authorizes Business Manager to make withdrawals of the Management Fee
from the Account as such fee becomes due and payable during the Term in
accordance with Section 3.10(a) and after termination as provided in Section
6.3. Business Manager shall deliver to the Practice an invoice for the
Management Fee accompanied by a reasonably detailed statement of the information
upon which the Management Fee calculation is based.
5.4 Assignment of Fees for Medical and Optometry Services.
(a) As security for the performance of its obligations under
this Business Management Agreement, the Practice hereby irrevocably assigns and
sets over to Business Manager all of its right to receive payment for
Professional Eye Care Services (other than rights to receive payments relating
to the activities described in Exhibit 1.3) to the extent permitted by law (the
"Accounts Receivable") and retain such payment for its own account, and shall
obtain a like assignment from all Professionals. To the extent such rights to
receive payment cannot legally be assigned, the "Accounts Receivable" shall
include the right to have any amounts received by the Practice pursuant to such
non-assignable rights paid over to Business Manager upon receipt. The Practice
shall take such action as may be necessary to confirm to Business Manager the
rights set forth in this Section 5.4(a).
-38-
<PAGE> 39
(b) Without limiting the generality of the foregoing, it is
the intent of the Parties that the assignments to Business Manager of the rights
described in Section 5.4(a) above shall be inclusive of the rights of the
Practice and the Professionals to receive payment with respect to any services
rendered prior to the effective date of any expiration or termination of this
Agreement; provided, however, that the right to receive payments relating to the
activities described in Exhibit 1.3 shall be excluded from such assignment. The
Practice agrees and shall cause each Professional to agree, that Business
Manager shall retain the right to collect and hold as security any Accounts
Receivable relating to any such services rendered prior to the effective date of
any such expiration or termination ("Pre-Termination Accounts Receivable").
(c) The Practice acknowledges that it is the intent of
Business Manager to grant a security interest in (i) prior to an initial public
offering of Business Manager's common stock, seventy-eight percent (78%) of the
Pre-Termination Accounts Receivable, and (ii) after an initial public offering
of Business Manager's common stock, one hundred percent (100%) of the
Pre-Termination Accounts Receivable; to the lender(s) under its working capital
credit facility (whether one or more, the "Credit Facility Lender"), as in
effect from time-to-time. Pursuant to the 78% grant, the Credit Facility Lender
shall be entitled to collect and retain, upon default of Business Manager, 78%
of each dollar of the Pre-Termination Accounts Receivable amounts received, with
the remaining 22% received to be returned to the Account. The Practice agrees
that such security interest of the Credit Facility Lender is intended to be a
first priority security interest and is superior to any right, title or interest
which may be asserted by the Practice or any Professional with respect to the
then applicable portion of the Pre-Termination Accounts Receivable or the
proceeds thereof. The Practice further agrees, and shall cause each Professional
to agree, that, upon the occurrence of an event which, under the terms of such
working capital credit facility, would allow the Credit Facility Lender to
exercise its right to collect such portion of the Pre-Termination Accounts
Receivable and apply the proceeds thereof toward amounts due under such working
capital credit facility, the Credit Facility Lender will succeed to all rights
and powers of Business Manager under the powers of attorney provided for in
Section 3.9(f) above as if such Credit Facility Lender had been named as the
attorney-in-fact therein, and the Practice and each Professional hereby waive,
and the Credit Facility Lender shall not take the Pre-Termination Accounts
Receivable subject to, any and all defenses the Practice and/or such
Professionals may have with respect to money coming into the Account and any
defenses they may have against the Credit Facility Lender. The Practice shall,
and shall cause its Professionals to, execute any and all documents, financing
statements, and agreements reasonably requested by such Credit Facility Lender
to evidence and effectuate the Credit Facility Lender's rights contemplated in
this Section.
(d) In the event that, contrary to the mutual intent of
Business Manager and the Practice, the assignment of rights described in this
Section 5.4 shall be deemed, for any reason, to be ineffective as an outright
assignment, the Practice and each Professional shall, effective as of the date
of this Business Management Agreement, be deemed to have granted (and the
Practice does hereby grant, and shall cause each Professional to grant) to
Business Manager a first priority lien on and security interest in and to any
and all interests of the
-39-
<PAGE> 40
Practice and such Professionals in any accounts receivable generated by the
provision of Professional Eye Care Services by the Practice and its
Professionals or otherwise generated through the operations of the Office, and
all proceeds with respect thereto, to secure the payment to Business Manager of
all amounts due to Business Manager hereunder, and this Business Management
Agreement shall be deemed to be a security agreement to the extent necessary to
give effect to the foregoing. The Practice shall execute and deliver, and cause
each Professional to execute and deliver, all such financing statements as
Business Manager may request in order to perfect such security interest. The
Practice shall not grant (and shall not suffer any Professional to grant) any
other lien on or security interest in or to such accounts receivable or any
proceeds thereof.
(e) Upon termination of this Business Management Agreement,
Business Manager shall release the foregoing lien with respect to Accounts
Receivable generated after the effective date of such termination and shall
execute and cause to be filed any termination statements relating to such
release of lien. However, it is understood that all rights of the Parties to the
Accounts Receivable shall be subordinate to any interest of the Credit Facility
Lender.
5.5 Disputes Regarding Fees.
(a) It is the Parties' intent that any disputes regarding
performance standards of the Business Manager be resolved to the extent possible
by good faith negotiation. To that end, the Parties agree that if the Practice
in good faith believes that Business Manager has failed to perform its
obligations, and that as a result of such failure, the Practice is entitled to a
set-off or reduction in its Management Fees, the Practice shall give Business
Manager notice of the perceived failure and request in the notice a set-off or
reduction in Management Fees. Business Manager and the Practice shall then
negotiate the dispute in good faith, and if an agreement is reached, the Parties
shall implement the resolution without further action.
(b) If the Parties cannot reach a resolution within a
reasonable time, the Parties shall submit the dispute to mediation to be
conducted in accordance with the American Arbitration Association's Commercial
Mediation Rules.
(c) If the mediation process fails to resolve the dispute, the
dispute shall be submitted by either Party to binding arbitration under Section
8.7.
6. TERM AND TERMINATION.
6.1 Initial and Renewal Term. The Term of this Business Management
Agreement will be for an initial period of forty (40) years after the effective
date, and shall be automatically renewed for successive five (5) year periods
thereafter, provided that neither Business Manager nor the Practice shall have
given notice of termination of this Business Management Agreement at least one
hundred twenty (120) days before the end of the initial term or any renewal
term,
-40-
<PAGE> 41
or unless otherwise terminated as provided in Section 6.2 of this Business
Management Agreement.
6.2 Termination.
(a) Termination by the Practice. The Practice may immediately
terminate this Agreement at its discretion, upon written notice pursuant to
Section 8.3, as follows:
i) If Business Manager becomes insolvent by reason
of its inability to pay its debts as they mature; is adjudicated bankrupt or
insolvent; files a petition in bankruptcy, reorganization or similar proceeding
under the bankruptcy laws of the United States or shall have such a petition
filed against it which is not discharged within thirty (30) days; has a receiver
or other custodian, permanent or temporary, appointed for its business, assets
or property; makes a general assignment for the benefit of creditors; has its
bank accounts, property or accounts attached; has execution levied against its
business or property; or voluntarily dissolves or liquidates or has a petition
filed for corporate dissolution and such petition is not dismissed with thirty
(30) days;
ii) If the Business Manager fails to comply with any
material provision of this Agreement, or any other agreement with the Practice,
and does not correct such failure within sixty (60) days after written notice of
such failure to comply is delivered by the Practice specifying the nature of the
breach in reasonable detail.
(b) Termination by Business Manager. Business Manager may
immediately terminate this Agreement at its discretion, upon written notice
pursuant to Section 8.3, as follows:
i) If the Practice becomes insolvent by reason of
its inability to pay its debts as they mature; is adjudicated bankrupt or
insolvent; files a petition in bankruptcy, reorganization or similar
proceeding under the bankruptcy laws of the United States or shall have such a
petition filed against it which is not discharged within thirty (30) days; has
a receiver or other custodian, permanent or temporary, appointed for its
business, assets or property; makes a general assignment for the benefit of
creditors; has its bank accounts, property or accounts attached; has execution
levied against its business or property; or voluntarily dissolves or
liquidates or has a petition filed for corporate dissolution and such petition
is not dismissed with thirty (30) days; or
ii) If the Practice fails to comply with any material
provision of this Agreement, or any other agreement with Business Manager, and
does not correct such failure within sixty (60) days after written notice of
such failure to comply is delivered by Business Manager specifying the nature of
the breach in reasonable detail.
-41-
<PAGE> 42
(c) Termination by Agreement. In the event the Practice and
Business Manager shall mutually agree in writing, this Business Management
Agreement may be terminated on the date specified in such written agreement.
(d) Legislative, Regulatory or Administrative Change. In the
event there shall be a change in the Medicare or Medicaid statutes, federal
statutes, state statutes, case laws, administrative interpretations, regulations
or general instructions, the adoption of new federal or state legislation, or a
change in any third-party reimbursement system, any of which are reasonably
likely to materially and adversely affect the manner in which either Party may
perform or be compensated for its services under this Business Management
Agreement or which shall make this Business Management Agreement or any related
agreements unlawful or unenforceable, or which would be reasonably likely to
subject either Party to this Agreement, or any member, shareholder, officer,
director, employee, agent or affiliated organization to any civil or criminal
penalties or administrative sanctions, the Parties shall immediately use their
best efforts to enter into a new service arrangement or basis for compensation
for the services furnished pursuant to this Business Management Agreement that
complies with the law, regulation, or policy, or which minimizes the possibility
of such penalties, sanctions or unenforceability, and that approximates as
closely as possible the economic position of the Parties prior to the change. If
the Parties are unable to reach a new agreement within a reasonable time, then
either Party may submit the issue to arbitration pursuant to Section 8.7 for the
purpose of reaching an alternative arrangement that is equitable under the
circumstances.
6.3 Effects of Termination. Upon termination of this Business
Management Agreement, as hereinabove provided, neither Party shall have any
further obligations hereunder except for (i) obligations accruing prior to the
date of termination, including, without limitation, payment of the Management
Fee relating to services provided prior to the termination of this Business
Management Agreement, (ii) obligations, promises, or covenants set forth herein
that are expressly made to extend beyond the Term, including, without
limitation, insurance, indemnities and non-competition provisions, which
provisions shall survive the expiration or termination of this Business
Management Agreement, (iii) the obligation of the Practice described in Section
6.4, (iv) the obligation of Business Manager to repay amounts borrowed from the
Account pursuant to Section 5.4(a), and (v) the obligation of the Practice to
repay amounts advanced by Business Manager to the Practice. In effectuating the
provisions of this Section 6.3, the Practice specifically acknowledges and
agrees that if this Business Management Agreement terminates pursuant to
Sections 6.2(b) or (d), Business Manager shall continue for a period not to
exceed ninety (90) days to exclusively collect and receive on behalf of the
Practice all cash collections from accounts receivable in existence at the time
this Business Management Agreement is terminated, it being understood that (a)
such cash collections will represent compensation to Business Manager for
Management Services already rendered, (b) Business Manager shall not be entitled
to collect accounts receivables after the termination date if this Agreement is
terminated pursuant to Section 6.2(a), and (c) the Business Manager shall deduct
from such cash collections any other amounts owed to Business Manager under this
Business Management Agreement, including, without limitation, (i) ten percent
(10%) of such
-42-
<PAGE> 43
cash collections as its Management Fee during any period after the termination
of this Business Management Agreement while such collections are taking place,
(ii) any reasonable costs incurred by Business Manager in carrying out the post
termination procedures and transactions contemplated herein, and (iii) any
adjustments pursuant to Section 3.10(b). Business Manager shall remit remaining
amounts from such collection activities, if any, to the Practice. Upon the
expiration or termination of this Business Management Agreement for any reason
or cause whatsoever, Business Manager shall surrender to the Practice all books
and records pertaining to the Practice's ophthalmology and optometry practices.
All sums received or collected by either Party after termination for Adjusted
Gross Revenues earned prior to termination shall be split in accordance with
this Section 6.3.
6.4 Purchase Obligation. Upon expiration of this Business Management
Agreement in accordance with Section 6.1 or termination of this Business
Management Agreement by Business Manager, as set forth in Section 6.2(b) above,
the Practice shall upon Business Manager's demand:
(a) Pay to Business Manager the difference between the
consideration received in the Acquisition Transaction minus the book value of
the net tangible assets (for purposes of such repurchase obligations such
difference shall be amortized over a forty (40) year period), deferred charges,
and all other amounts on the books of the Business Manager relating to the
Business Management Agreement, as such amounts shall be established pursuant to
the Acquisition Transaction and including amounts, if any, for the covenants
described in Section 4.8 above, as adjusted through the last day of the month
most recently ended prior to the date of such termination in accordance with
GAAP to reflect amortization or depreciation of the intangible assets, deferred
charges, or covenants;
(b) Purchase from Business Manager any real estate owned by
Business Manager and used as an Office at the greater of the appraised fair
market value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by Business
Manager and the Practice, each selecting a duly qualified appraiser, who in turn
will agree on a third appraiser. This agreed-upon appraiser shall perform the
appraisal which shall be binding on both Parties. In the event either Party
fails to select an appraiser within fifteen (15) days of the selection of an
appraiser by the other Party, the appraiser selected by the other Party shall
perform the appraisal which shall be binding on both Parties;
(c) Purchase at book value all improvements, additions, or
leasehold improvements that have been made by Business Manager at any Office and
that relate principally to the performance of Business Manager's obligations
under this Business Management Agreement;
(d) Assume all contracts and leases and the Practice's pro
rata share of all debts and payables that are obligations of Business Manager
and that relate principally to the
-43-
<PAGE> 44
performance of Business Manager's obligations under this Business Management
Agreement or the properties leased or subleased by Business Manager; provided,
however, that the Practice shall only be obligated to assume such contracts and
leases if the Practice will be able to enjoy the benefits of the contracts and
leases following such assumption;
(e) Purchase from Business Manager at book value all of the
equipment leased to the Practice, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its obligations
under this Business Management Agreement, and all other assets, including
inventory and supplies, tangibles and intangibles, set forth on the books of
Business Manager as adjusted through the last day of the month most recently
ended prior to the date of such termination in accordance with GAAP to reflect
operations of the Office, depreciation, amortization, and other adjustments of
assets shown on the books of Business Manager; and
(f) Cause to be executed by Shareholders of the Practice such
personal guaranties and any security agreements reasonably required by Business
Manager in connection with the purchase described in this Section 6.4. For
purposes of this Section 6.4(f), the term "Shareholders" shall mean any
individual who is a Shareholder of the Practice on the date that notice is given
of the termination of this Business Management Agreement and any additional
individual who is a Shareholder of the Practice on the effective date of this
Business Management Agreement. However, such obligations of personal guaranties
by Shareholders shall expire effective five (5) years from the date hereof and
each Shareholder's guaranty shall terminate upon the death of such Shareholder.
All current Shareholders of the Practice shall on or before the effective date
of this Business Management Agreement, and all individuals who become
Shareholders of the Practice after the effective date of commencement of this
Business Management Agreement shall upon becoming a Shareholder of the Practice,
execute and deliver to Business Manager an undertaking to comply with this
Section 6.4(f) which shall be in the form of Exhibit 6.4(f). Notwithstanding the
above, the Practice and the Shareholders shall not permit without Business
Manager Consent, during any three (3) year period during which this Agreement is
in effect and only after five (5) years from the commencement hereof, the
transfer of over fifty percent (50%) of the ownership interests of the Practice
to any existing or new Shareholders of the Practice or combinations of existing
or new Shareholders of the Practice, except in cases of death, disability or
retirement of such transferring Shareholders or transfers to replacement
Shareholders described in Section 4.1 in accordance with the provisions set
forth in Section 4.1.
6.5 Purchase Option. Upon termination of this Business Management
Agreement by the Practice pursuant to Section 6.2(a), the Practice shall be
released from the restrictive covenants in Section 4.8 and shall have the option
but not the obligation to do all or none of the following:
-44-
<PAGE> 45
(a) Pay to Business Manager the difference between the
consideration received in the Acquisition Transaction minus the book value of
the net tangible assets (for purposes of such repurchase obligations such
difference shall be amortized over a forty (40) year period), deferred charges,
and all other amounts on the books of the Business Manager relating to the
Business Management Agreement, as such amounts shall be established pursuant to
the Acquisition Transaction and including amounts, if any, for the covenants
described in Section 4.8 above, as adjusted through the last day of the month
most recently ended prior to the date of such termination in accordance with
GAAP to reflect amortization or depreciation of the intangible assets, deferred
charges, or covenants;
(b) Purchase from Business Manager any real estate owned by
Business Manager and used as an Office at the greater of the appraised fair
market value thereof or the then book value thereof. In the event of any
repurchase of real property, the appraised value shall be determined by Business
Manager and the Practice, each selecting a duly qualified appraiser, who in turn
will agree on a third appraiser. This agreed-upon third appraiser shall perform
the appraisal which shall be binding on both Parties. In the event either Party
fails to select an appraiser within fifteen (15) days of the selection of an
appraiser by the other Party, the appraiser selected by the other Party shall
perform the appraisal which shall be binding on both Parties;
(c) Purchase at book value all improvements, additions, or
leasehold improvements that have been made by Business Manager at any Office and
that relate principally to the performance of Business Manager's obligations
under this Business Management Agreement;
(d) Assume all contracts and leases and the Practice's pro
rata share of all debts and payables that are obligations of Business Manager
and that relate principally to the performance of Business Manager's obligations
under this Business Management Agreement or the properties leased or subleased
by Business Manager; provided, however, that the Practice shall only be
obligated to assume such contracts and leases if the Practice will be able to
enjoy the benefits of the contracts and leases following such assumption; and
(e) Purchase from Business Manager at book value all of the
equipment leased to the Practice, including all replacements and additions
thereto made by Business Manager pursuant to the performance of its obligations
under this Business Management Agreement, and all other tangible assets,
including inventory and supplies, set forth on the books of the Business Manager
as adjusted through the last day of the month most recently ended prior to the
date of such termination in accordance with GAAP to reflect operations of the
Office, depreciation, amortization, and other adjustments of assets shown on the
books of the Business Manager.
-45-
<PAGE> 46
The Practice shall provide notice to Business Manager of its intent to
exercise the option above described at the same time that the Practice provides
notice to Business Manager of the Practice's election to terminate this Business
Management Agreement for cause.
6.6 Closing of Purchase. If the Practice purchases the assets pursuant
to Section 6.4 or 6.5, the Practice shall pay cash for the purchased assets;
provided, however, that the Practice may also use Business Manager's common
stock as consideration for the purchased assets, which stock shall be valued for
purposes of this Agreement as follows: (a) in the event of a Section 6.4
termination, the shares shall be valued at the lower of the value on the date
the shares were received by the Shareholder (as agreed to by the parties), and
the value on the date of the closing of this purchase, or (b) in the event of a
Section 6.5 termination, the shares shall be valued at the higher of the value
of such shares on the dates set forth in 6.6(a) above. The amount of the
purchase price shall be reduced by the amount of debt and liabilities of
Business Manager, if any, assumed by the Practice and by any unpaid portion of
any promissory notes payable by Business Manager to any Shareholder of the
Practice, which shall be offset against the purchase price. The Practice and all
Shareholders of the Practice shall execute such documents as may be required to
assume the liabilities set forth in Section 6.4(d) or Section 6.5(c) and to
remove Business Manager from any liability with respect to such repurchased
asset and with respect to any property leased or subleased by Business Manager.
The closing date for the purchase shall be determined by the Parties, but shall
in no event occur later than the expiration date of this Business Management
Agreement if this Agreement expires in accordance with Section 6.1, or sixty
(60) days from the date of the notice of termination for cause. The termination
of this Business Management Agreement shall become effective upon the closing of
the sale of the assets if the assets are purchased, and all Parties shall be
released from any restrictive covenants provided for in Section 3.17 or Section
4.8 on the closing date. If the Practice chooses not to purchase the assets
pursuant to Section 6.5, the termination shall be effective as of the notice
date given by the Practice under Section 6.2(b), at which time the parties shall
be released from the restrictive covenants in Section 3.17 and Section 4.8. From
and after any termination, each Party shall provide the other Party with
reasonable access of the books and records then owned by it to permit such
requesting Party to satisfy reporting and contractual obligations that may be
required of it.
6.7 Limitation of Liability. In no event shall Business Manager be
liable to the Practice for any indirect, special or consequential damages or
lost profits, arising out of or related to this Agreement or the performance or
breach thereof, even if Business Manager has been advised of the possibility
thereof.
7. INDEMNIFICATION; THIRD PARTY CLAIMS.
7.1 Indemnification by the Practice. The Practice shall indemnify and
hold harmless Business Manager and Business Manager's shareholders, directors,
officers, agents and employees, from and against all claims, demands,
liabilities, losses, damages, costs and expenses, including reasonable
attorneys' fees, resulting in any manner, directly or indirectly,
-46-
<PAGE> 47
from the negligent or intentional acts or omissions of the Practice or its
members, Shareholders, directors, officers, employees, agents or independent
contractors, including but not limited to any such claims, demands, liabilities,
losses, damages, costs and expenses which accrued or arose prior to the date of
execution of this Business Management Agreement.
7.2 Indemnification by Business Manager. Business Manager shall
indemnify and hold harmless the Practice, and the Practice's members,
Shareholders, directors, officers, agents and employees, from and against any
and all claims, demands, liabilities, losses, damages, costs and expenses,
including reasonable attorneys' fees, resulting in any manner, directly or
indirectly, from the negligent or intentional acts or omissions of Business
Manager or its shareholders, directors, officers, employees, agents or
independent contractors.
7.3 Notice of Claim for Indemnification. No claims for indemnification
under this Agreement relating to claims solely between the Parties shall be
valid unless notice of such claim is delivered to the Practice (in the case of a
claim by Business Manager) or Business Manager (in the case of a claim by the
Practice) within one (1) year after the Party making such claim first obtained
knowledge of the facts upon which such claim is based. Any such notice shall set
forth in reasonable detail, to the extent known by the Party giving such notice,
the facts on which such claim is based and the resulting estimated amount of
damages.
7.4 Matters Involving Third Parties.
(a) If the Practice or Business Manager receives notice or
acquires knowledge of any matter which may give rise to a claim by another
person and which may then result in a claim for indemnification under this
Agreement, then: (i) if such notice or knowledge is received or acquired by the
Practice, the Practice shall promptly notify Business Manager; and (ii) if such
notice or knowledge is received or acquired by Business Manager, the Business
Manager shall promptly notify the Practice; except that no delay in giving such
notice shall diminish any obligation under this Agreement to provide
indemnification unless (and then solely to the extent) the Party from whom such
indemnification is sought is prejudiced.
(b) Any Party from whom such indemnification (the
"Indemnifying Party") is sought shall have the right to defend the Party seeking
such indemnification (the "Indemnified Party") against such claim by another
person (the "Third Party Claim") with counsel of the Indemnifying Party's choice
reasonably satisfactory to the Indemnified Party so long as: (i) within fifteen
(15) days after the Indemnified Party has given notice of the Third Party Claim
to the Indemnifying Party, the Indemnifying Party notifies the Indemnified Party
that the Indemnifying Party will indemnify the Indemnified Party from and
against all adverse consequences the Indemnified Party may suffer caused by,
resulting from, arising out of or relating to such Third Party Claim; (ii) the
Indemnifying Party provides the Indemnified Party with evidence reasonably
satisfactory to the Indemnified Party that the Indemnifying Party has the
financial resources necessary to defend against the Third Party Claim and
fulfill its indemnification obligations; (iii) the Third Party Claim seeks money
damages; (iv) settlement
-47-
<PAGE> 48
of, or an adverse judgment with respect to, the Third Party Claim (other than a
medical malpractice claim) is not, in the good faith judgment of the Indemnified
Party, likely to establish a precedential custom or practice adverse to the
continuing business interests of the Indemnified Party; and (v) the Indemnifying
Party conducts the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 7.4(b): (i) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Third Party Claim; (ii) the Indemnified
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior consent of
the Indemnifying Party; and (iii) the Indemnifying Party shall not consent to
the entry of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior consent of the Indemnified Party.
(d) If any of the conditions specified in Section 7.4(b) is or
becomes unsatisfied, however; (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it may deem advisable (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith); (ii) the Indemnifying Party shall
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' and
accountants' fees and expenses); and (iii) the Indemnifying Party shall remain
responsible for any adverse consequences the Indemnified Party may suffer caused
by, resulting from, arising out of or relating to such Third Party Claim to the
fullest extent provided in this Agreement.
7.5 Settlement. Except as permitted by Section 7.4, a Party shall not
compromise or settle any claim for which the other Party is obligated to
indemnify it without the written consent of such Party.
7.6 Cooperation. The Indemnified Party shall make available all
information and assistance that the Indemnifying Party may reasonably request in
conjunction with assessing, defending and settling said claim.
8. MISCELLANEOUS.
8.1 Administrative Services Only. Nothing in this Business Management
Agreement is intended or shall be construed to allow Business Manager to
exercise control, authority or direction over the manner or method by which the
Practice and its Professionals perform Professional Eye Care Services or other
professional health care services. The rendition of all Professional Eye Care
Services, including, but not limited to, the prescription or administration of
medicine and drugs, shall be the sole responsibility of the Practice and its
Professionals, and Business Manager shall not interfere in any manner or to any
extent therewith. Nothing
-48-
<PAGE> 49
contained in this Business Management Agreement shall be construed to permit
Business Manager to engage in the practice of ophthalmology or optometry, it
being the sole intention of the Parties hereto that the services to be rendered
to the Practice by Business Manager are solely for the purpose of providing
nonmedical management and administrative services to the Practice so as to
enable the Practice to devote its full time and energies to the professional
conduct of its professional eye care practice and provision of Professional Eye
Care Services to its patients and not to administration or practice management.
8.2 Status of Independent Contractor. It is expressly acknowledged that
the Parties hereto are "independent contractors," and nothing in this Business
Management Agreement is intended and nothing shall be construed to create an
employer/employee, partnership, or joint venture relationship, or to allow
either to exercise control or direction over the manner or method by which the
other performs the services that are the subject matter of this Business
Management Agreement; provided always that the services to be provided hereunder
shall be furnished in a manner consistent with the standards governing such
services and the provisions of this Business Management Agreement. Each Party
understands and agrees that (i) the other will not be treated as an employee for
federal tax purposes, (ii) neither will withhold on behalf of the other any sums
for income tax, unemployment insurance, social security, or any other
withholding pursuant to any law or requirement of any governmental body or make
available any of the benefits afforded to its employees, (iii) all of such
payments, withholdings, and benefits, if any, are the sole responsibility of the
Party incurring the liability, and (iv) each will indemnify and hold the other
harmless from any and all loss or liability arising with respect to such
payments, withholdings, and benefits, if any.
8.3 Notices. Any notice, demand, or communication required, permitted,
or desired to be given hereunder shall be deemed effectively given when in
writing and personally delivered or mailed by prepaid certified or registered
mail, return receipt requested, addressed as follows:
The Practice: Millennium Vision, P.C.
4845 East Thunderbird Road
Scottsdale, Arizona 85254
Attention: Daniel B. Feller, M.D.
with a copy to: Steven M. Goldstein, Esquire
Sacks Tierney, P.A. Lawyers
2929 North Central Avenue
Fourteenth Floor
Phoenix, Arizona 85012-2742
-49-
<PAGE> 50
Business Manager: Vision 21, Inc.
7209 Bryan Dairy Road
Largo, Florida 34647
Attention: Theodore N. Gillette, Chief
Executive Officer
with a copy to: Shumaker, Loop & Kendrick, LLP
101 East Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
Attention: Darrell C. Smith, Esq.
or to such other address, or to the attention of such other person or officer,
as any party may by written notice designate.
8.4 Governing Law. This Business Management Agreement shall in all
respects be governed, interpreted and construed in accordance with the laws of
the State without giving effect to principles of comity or conflicts of laws
thereof.
8.5 Jurisdiction and Venue. Business Manager and the Practice hereby
consent to the personal jurisdiction and venue of the state and federal courts
in the judicial circuit where the Practice has its principal corporate office,
and do hereby waive all questions of personal jurisdiction and venue, including,
without limitation, the claim or defense that such courts constitute an
inconvenient forum.
8.6 Assignment. Except as may be herein specifically provided to the
contrary, this Business Management Agreement shall inure to the benefit of and
be binding upon the Parties hereto and their respective legal representatives,
successors, and assigns; provided, however, that the Practice may not assign
this Business Management Agreement without the prior written consent of Business
Manager, which consent may be withheld. The sale, transfer, pledge, or
assignment of any of the ownership interests held by any Shareholder of the
Practice, the sale of any material portion of its assets by the Practice, or the
issuance by the Practice of voting ownership interests to any other person
(except to replacement Shareholders as described in Section 4.1), or any
combination of such transactions within a period of five (5) years, such that
the existing Shareholders in the Practice fail to maintain a majority of the
voting interests in the Practice shall be deemed an attempted assignment by the
Practice, and shall be null and void unless consented to in writing by Business
Manager prior to any such transfer or issuance. Any breach of this provision,
whether or not void or voidable, shall constitute a material breach of the
Business Management Agreement, and in the event of such breach, Business Manager
may terminate this Business Management Agreement upon twenty-four (24) hours'
notice to the Practice and shall have all rights available at law or in equity.
Except as otherwise provided in
-50-
<PAGE> 51
this Agreement, the Parties agree that until an initial public offering of
Business Manager's common stock occurs, Business Manager may only assign or
transfer its rights and obligations under this Business Management Agreement
with the prior written consent of the Practice. Except as otherwise provided in
this Agreement, after an initial public offering of Business Manager's common
stock occurs, Business Manager may assign or transfer its rights and obligations
under this Business Management Agreement only in the following situations: (a)
pursuant to a merger of Business Manager into another entity or the sale of
substantially all of the assets of Business Manager to a health care company;
(b) pursuant to the sale of all of the health care contracts of Business Manager
within a multistate region in which the Practice is located with the Practice's
consent, which shall not be unreasonably withheld and which may not be withheld
where the proposed assignment or transfer is to a healthcare practice management
company with similar or greater financial standing, expertise and service
capabilities to that of Business Manager; (c) pursuant to a transfer or
assignment of this Agreement to one of Business Manager's subsidiaries or parent
organizations; or (d) pursuant to any transfer or assignment to or by any
financial lender of the Business Manager, and this Agreement is subordinate to
the rights of such lender. After such assignment and transfer, the Practice
agrees to look solely to such assignee or transferee for performance of this
Business Management Agreement. In addition, Business Manager or the assignee or
transferee shall have the right to (i) collaterally assign its interest in this
Business Management Agreement and its right to collect Management Fees hereunder
to any financial institution or other third party without the consent of the
Practice, and (ii) subject to the foregoing provisions, assign its rights and
obligations hereunder to any third party without the consent of the Practice. In
the event that Business Manager assigns its rights and obligations hereunder to
one or more of its subsidiaries, Business Manager shall unconditionally guaranty
the obligations of such subsidiary or subsidiaries. The Practice and executing
Shareholders agree to execute in the future any and all documentation reasonably
required to subordinate their rights pursuant to this Section 8.6 to that of a
lender.
8.7 Arbitration. The Parties shall use good faith negotiation to
resolve any controversy, dispute or disagreement arising out of or relating to
this Business Management Agreement or the breach of this Business Management
Agreement. Except as otherwise provided herein and except as it relates to
Sections 3.14, 3.17, 4.7 and 4.8 of this Business Management Agreement and
except for matters which are to be determined by the Local Advisory Council
and/or the National Appeals Council as contemplated in this Business Management
Agreement, any matter not resolved by negotiation shall be submitted to
mediation conducted in accordance with the Arizona Mediation Rules. If the
mediation process fails to resolve the dispute, the matter shall be submitted to
binding and confidential arbitration in accordance with the National Health
Lawyers Association Alternative Dispute Resolution Rules of Procedure for
Arbitration and with one individual knowledgeable in the health care business
serving as the arbitrator. Each Party will, upon the written request of the
other Party, promptly provide the other with copies of documents relevant to the
issues raised by any claim or counterclaim. Other discovery may be ordered by
the arbitrator to the extent the arbitrator
-51-
<PAGE> 52
deems additional discovery relevant and appropriate, and any dispute regarding
discovery shall be determined by the arbitrator, which determination shall be
conclusive.
8.8 Waiver of Breach. The waiver by either Party of a breach or
violation of any provision of this Business Management Agreement shall not
operate as, or be construed to constitute, a waiver of any subsequent breach of
the same or another provision hereof.
8.9 Enforcement. In the event either Party resorts to legal action to
enforce or interpret any provision of this Business Management Agreement, the
prevailing Party shall be entitled to recover the costs and expenses of such
action so incurred, including, without limitation, reasonable attorneys' fees.
8.10 Gender and Number. Whenever the context of this Business
Management Agreement requires, the gender of all words herein shall include the
masculine, feminine, and neuter, and the number of all words herein shall
include the singular and plural.
8.11 Additional Assurances. Except as may be herein specifically
provided to the contrary, the provisions of this Business Management Agreement
shall be self-operative and shall not require further agreement by the Parties;
provided, however, at the request of either Party, the other Party shall execute
such additional instruments and take such additional acts as are reasonable and
as the requesting Party may deem necessary to effectuate this Business
Management Agreement.
8.12 Consents, Approvals, and Exercise of Discretion. Whenever this
Business Management Agreement requires any consent or approval to be given by
either Party, or either Party must or may exercise discretion, the Parties agree
that such consent or approval shall not be unreasonably withheld or delayed, and
that such discretion shall be reasonably exercised.
8.13 Force Majeure. Neither Party shall be liable or deemed to be in
default for any delay or failure in performance under this Business Management
Agreement or other interruption of service deemed to result, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war accidents, fires, explosions, earthquakes, floods, failure of
transportation, strikes or other work interruptions by either Party's employees,
or any other similar cause beyond the reasonable control of either Party unless
such delay or failure in performance is expressly addressed elsewhere in this
Business Management Agreement. Notwithstanding the same, the Parties hereto
agree to continue this Agreement to the best degree they can so long as
reasonably possible and the Practice shall not be excused from its obligations
under Sections 4.2, 6.4 and 6.6 pursuant to this Section 8.13.
8.14 Severability. The Parties hereto have negotiated and prepared the
terms of this Business Management Agreement in good faith with the intent that
each and every one of the terms, covenants and conditions herein be binding upon
and inure to the benefit of the respective Parties. Accordingly, if any one or
more of the terms, provisions, promises, covenants or
-52-
<PAGE> 53
conditions of this Business Management Agreement or the application thereof to
any person or circumstance shall be adjudged to any extent invalid,
unenforceable, void or voidable for any reason whatsoever by a court of
competent jurisdiction or an arbitration tribunal, such provision shall be
reformed, construed and enforced as if such unenforceable provision had not been
contained herein, and each and all of the remaining terms, provisions, promises,
covenants and conditions of this Business Management Agreement or their
application to other persons or circumstances shall not be affected thereby and
shall be valid and enforceable to the fullest extent permitted by law. To the
extent this Business Management Agreement is in violation of applicable law,
then the Parties agree to negotiate in good faith to amend the Business
Management Agreement, to the extent possible consistent with its purposes, to
conform to law. If the Parties are unable to amend the Business Management
Agreement in a manner which conforms with applicable law, then either Party may
submit the matter to arbitration pursuant to Section 8.7 for the purpose of
reaching an alternative arrangement that is equitable under the circumstances.
8.15 Press Releases and Public Announcements. Except as otherwise
required by law or by applicable rules of any securities exchange or association
of securities dealers, neither the Practice nor the Business Manager shall issue
any press release, make any public announcement or otherwise disclose any
information for the purpose of publication by any print, broadcast or other
public media, relating to the transactions contemplated by this Agreement,
without the prior approval of the other Party.
8.16 Divisions and Headings. The divisions of this Business Management
Agreement into articles, sections, and subsections and the use of captions and
headings in connection therewith are solely for convenience and shall not affect
in any way the meaning or interpretation of this Business Management Agreement.
8.17 Amendments and Execution. This Business Management Agreement and
any amendments hereto shall be in writing and executed in multiple copies on
behalf of the Practice by its President, and on behalf of Business Manager by
its President. Each multiple copy shall be deemed an original, but all multiple
copies together shall constitute one and the same instrument.
8.18 Licenses, Permits and Certificates. Business Manager and the
Practice shall each obtain and maintain in effect, at all times during the term
of this Business Management Agreement, all licenses, permits and certificates
required by law which are applicable to the performance of their respective
obligations pursuant to this Business Management Agreement.
8.19 No Third Party Beneficiaries. Except as otherwise provided herein,
this Business Management Agreement shall not confer any rights or remedies upon
any person other than Business Manager and the Practice and their respective
successors and permitted assigns.
-53-
<PAGE> 54
8.20 Compliance with Applicable Laws. Business Manager and the Practice
shall comply with all applicable federal, state and local laws, regulations,
rules and restrictions in the conduct of their obligations under this Business
Management Agreement.
8.21 Language Construction. The Practice and Business Manager
acknowledge that each Party hereto and its counsel have reviewed and revised
this Business Management Agreement and agree that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting Party shall not be employed in the interpretation of this Business
Management Agreement.
8.22 Entire Business Management Agreement. With respect to the subject
matter of this Business Management Agreement, this Business Management Agreement
supersedes all previous contracts and constitutes the entire agreement between
the Parties. Neither Party shall be entitled to benefits other than those
specified herein. No prior oral statements or contemporaneous negotiations or
understandings or prior written material not specifically incorporated herein
shall be of any force and effect, and no changes in or additions to this
Business Management Agreement shall be recognized unless incorporated herein by
amendment as provided herein, such amendment(s) to become effective on the date
stipulated in such amendment(s). The Parties specifically acknowledge that, in
entering into and executing this Business Management Agreement, the Parties rely
solely upon the representations and agreements contained in this Business
Management Agreement and no others.
8.23 DISCLAIMER OF WARRANTY. BUSINESS MANAGER MAKES NO WARRANTY, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE OFFICE OR ANY EQUIPMENT PROVIDED BY
BUSINESS MANAGER PURSUANT TO THIS BUSINESS MANAGEMENT AGREEMENT, AND ALL
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE HEREBY
EXPRESSLY DISCLAIMED.
8.24 Control of Board of Directors. While there is no assurance that an
initial public offering of Business Manager's common stock shall occur, should
Business Manager fail to complete the same on or before April 1, 1998, the Board
of Directors shall be controlled and the Business Manager managed by individuals
designated by the founding health care practices acquired in December of 1996.
If such initial public offering does not occur on or before April 1, 1998, each
of such founding health care practices shall be entitled to vote that number of
shares of Business Manager then held by such founding practices and the number
of shares of Business Manager then held by the equity owners of such founding
practices to elect a new board of directors of Business Manager; provided,
however, that after April 1, 1998 and until February 28, 2000, Theodore N.
Gillette and his majority owned health care practice (and their respective
successors and assigns) shall not be entitled to vote their respective shares of
common stock of Business Manager in any election of directors during such
period.
-54-
<PAGE> 55
8.25 Agreement for Future Good Faith Negotiation. The Parties hereto
agree that should either the chosen underwriters to a future initial public
offering or Business Manager's accounting firm make recommendations regarding
changes to this Business Management Agreement at a later date and prior to the
offering which either such underwriters or accountants reasonably believe are
necessary based upon customs in the industry to prevent any material adverse
valuation issue or to obtain favorable accounting treatment for Business
Manager, the Parties shall negotiate in good faith to modify any terms which
could have such a negative effect or which could result in such favorable
accounting treatment. In such event, the revisions shall be deemed to be
retroactive to the effective date of this Business Management Agreement.
8.26 Agreement to Transfer Stock and Stock Pledge. Contemporaneously
with the execution of this Agreement and to ensure the continued viability and
production of a Practice owned by one (1) Shareholder (if applicable) the
Parties hereto have executed and delivered that certain Agreement to Transfer
Stock and Stock Pledge pursuant to which the Business Manager and the
Shareholder of the Practice have agreed to pledge all of the shares of common
stock of the Practice to the Business Manager and have agreed that upon the
death or disability of such Shareholder, the Practice shall be entitled to
designate a replacement Professional to acquire all such shares of common stock
of the Practice in return for payment of a fair value for such stock.
Additionally, any current or future Shareholder of a Practice that becomes a
sole Shareholder shall execute such agreement at the time the Shareholder gains
such status.
8.27 Authority. Business Manager and the Practice hereby warrant and
represent to each other that they have the requisite corporate authority to
execute and deliver this Business Management Agreement in their respective name.
8.28 Waiver of Jury Trial. Any right to trial by jury with respect to
any claim or proceeding relating to or arising out of this Business Management
Agreement is waived by the Parties.
8.29 Indemnification of Advisory Council Members. The parties hereto
(and their successors) agree to indemnify and hold harmless all future members
of any Advisory Council established pursuant to the terms hereof from any and
all liability, claims, damages, costs and attorneys fees resulting from their
decisions and actions as a member of such Advisory Council, so long as the
decision or action is made in good faith.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-55-
<PAGE> 56
IN WITNESS WHEREOF, the Practice and Business Manager have caused this
Business Management Agreement to be executed by their duly authorized
representatives, all as of the day and year first above written.
"PRACTICE"
MILLENNIUM VISION, P.C., an Arizona
professional corporation
By: /s/ Daniel B. Feller
------------------------------------------------
Name: Daniel B. Feller, M.D.
Title: President
"BUSINESS MANAGER"
DANIEL B. FELLER, M.D., P.C., an Arizona
professional corporation, d/b/a Paradise Valley Eye
Specialists
By: /s/ Daniel B. Feller
------------------------------------------------
Name: Daniel B. Feller, M.D.
Title: President
STATE OF ARIZONA )
COUNTY OF _________________)
The foregoing Business Management Agreement was executed before me this
___ day of December, 1996, by Daniel B. Feller, M.D., the President of
MILLENNIUM VISION, P.C., an Arizona professional corporation who is personally
known to me or who has produced identification and who did take an oath.
NOTARY PUBLIC:
Sign:
---------------------------------
Print:
--------------------------------
My Commission Expires:
-56-
<PAGE> 57
STATE OF ARIZONA )
COUNTY OF ______________________)
The foregoing Business Management Agreement was executed before me this
___ day of December, 1996, by Daniel B. Feller, M.D., the President of DANIEL B.
FELLER, M.D., P.C., an Arizona professional corporation, d/b/a PARADISE VALLEY
EYE SPECIALISTS who is personally known to me or who has produced identification
and who did take an oath.
NOTARY PUBLIC:
Sign:
---------------------------------
Print:
--------------------------------
My Commission Expires:
-57-
<PAGE> 58
Exhibit 1.3
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Fees Excluded from Adjusted Gross Revenue
1. None.
<PAGE> 59
Exhibit 1.8
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Description of Business Manager Expenses
As of the Closing Date, Business Manager Expenses shall specifically
include:
1. expenses relating to services provided to Business Manager and the
Practice under current service agreements by Bruce Maller and BSM Consulting,
to the extent such expenses do not exceed the Practices' share (pro-rata
amongst all practices managed by the Business Manager, at any given moment,
e.g., 32 practices = 1/32nd of such expense) of the services currently
contracted for between Maller, BSM Consulting and Business Manager at an
anticipated annual cost of $480,000;
2. costs related to the current regional corporate structure, current
corporate overhead, strategic planning, and managed care administration;
3. expenses related to travel at the request of Business Manager except
as otherwise permitted in 1.18(h);
4. costs of stock option programs or grants to Physician and staff;
5. expenses related to services provided to Business Manager and the
Practice by Medical Director Richard Lindstrom, M.D. as part of the current
Medical Director Service Agreement; and
6. corporate overhead, except as defined in Section 1.18(k).
<PAGE> 60
Exhibit 1.18
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Office Expenses
[Table depicting breakdown of Office Expenses,
Practice Expenses and Shareholder Expenses omitted.]
<PAGE> 61
Exhibit 1.26
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Practice Territory
[Map(s) depicting twenty-mile radius
from each office location omitted.]
<PAGE> 62
Exhibit 1.31
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Leasehold Obligations in Excess of Fair Market Value
1. None.
<PAGE> 63
Exhibit 2.10
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Market Area
1. The State of Arizona.
<PAGE> 64
Exhibit 3.7
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Unsettled Issues Regarding Personnel
1. None.
<PAGE> 65
Exhibit 3.17
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Entities and Relationships Excluded from Non-Competition
Covenant from Business Manager
1. None.
<PAGE> 66
Exhibit 4.1A
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Form of Founding Shareholder Employment Agreement
PHYSICIAN EMPLOYMENT AGREEMENT
(FOUNDING SHAREHOLDER)
This Physician Employment Agreement (this "Employment Agreement")
dated as of ____________, 199_, is by and between Millennium Vision, P.C., a
professional corporation (the "Practice"), and ____________________, M.D., an
individual (the "Ophthalmologist").
R E C I T A L S
A. The Practice is a professional corporation organized under the
laws of the State of Arizona (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. The Practice and Vision 21, Inc., a Florida corporation
("Vision 21") have acquired substantially all of the business assets of the
Ophthalmologist's wholly-owned professional corporation, pursuant to that
certain Agreement and Plan of Reorganization (the "Acquisition Agreement") of
even date herewith.
C. The Practice and Vision 21 have entered into a Business
Management Agreement (the "Business Management Agreement") of even date
herewith, whereby Vision 21 has agreed to provide various management services
to the Practice and the Practice has agreed to have its professional employees
execute employment agreements in a form substantially the same as this
Employment Agreement, and it is intended that except as otherwise limited
herein, Vision 21 be a third- party beneficiary of the restrictive covenants
contained in this Employment Agreement.
D. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
E. The Ophthalmologist is licensed to practice medicine in the
State and desires to be employed by the Practice upon the terms and subject to
the conditions set forth in this Employment Agreement.
F. The Ophthalmologist possesses special knowledge relating to
the business and assets acquired pursuant to the Acquisition Agreement and has
developed valuable, long-term relationships with patients to be cared for by
the Practice which make him valuable to the Practice and which will contribute
to the Practice's future success.
G. In consideration for and in connection with the Acquisition
Agreement and such employment arrangement, the parties hereto desire to enter
into a covenant not to compete and a non-disclosure covenant.
<PAGE> 67
NOW, THEREFORE, in consideration of the premises, the mutual promises,
covenants and conditions herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby agree as follows:
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist is
employed pursuant to the terms of this Employment Agreement to practice
medicine on behalf of the Practice. The Ophthalmologist shall devote
substantially all of his time, best efforts and attention to the practice of
medicine on behalf of the Practice and shall provide patient care of the
highest quality. In addition to the foregoing duties, the Ophthalmologist
shall undertake additional duties as directed by the Practice. During the term
hereof and any renewal, the Ophthalmologist shall not, without the written
consent of the Practice and Vision 21, (1) render professional services to or
for any person, firm, corporation or other organization for compensation; or
(2) engage in any activity that competes with the interest of the Practice or
Vision 21 whether Ophthalmologist is acting by himself or as an officer,
director, shareholder, employee, partner or fiduciary. Any consent granted to
the Ophthalmologist shall be revocable by the Practice or Vision 21 at any time
upon thirty (30) days' notice, and the Ophthalmologist agrees to cease and
desist upon receipt of such notice. Notwithstanding the above, the Practice
recognizes that the Ophthalmologist shall have the right to engage in those
matters expressly described on Schedule 2.01 attached hereto so long as such
permitted activities do not result in materially reduced services to the
Practice as compared to the Ophthalmologist's previous services to his practice
and so long as the same does not materially impact the Ophthalmologist's
ability to perform hereunder or materially impact the Ophthalmologist's
anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Medicine may from time to time establish standards and
requirements with regard to the practice of medicine by physicians licensed to
practice medicine. All restrictions contained herein with respect to the
duties and obligations of the Ophthalmologist shall be subject to said
standards and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice.
Exhibit 4.1A - Page 2
<PAGE> 68
The Ophthalmologist recognizes that patients treated by him may subsequently
be assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The ophthalmologist of record for each patient treated
by Ophthalmologist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Ophthalmologist
by the Practice pursuant to this Employment Agreement shall be for five (5)
years (the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date").
5. Place of Employment. Ophthalmologist's principal place of
work shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all
the terms and conditions of this Employment Agreement and as compensation for
all services to be rendered by Ophthalmologist under this Employment Agreement,
the Practice shall pay to or provide Ophthalmologist with the compensation set
forth in Schedule 6 attached to this Agreement.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review
and evaluate the performance of Ophthalmologist under this Employment Agreement
with Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Ophthalmologist the Notice of
Termination (as hereinafter defined) and (ii) pay Ophthalmologist his
Exhibit 4.1A - Page 3
<PAGE> 69
annual base salary through the Date of Termination (as hereinafter defined) at
the rate in effect at the time the Notice of Termination is given plus any
bonus or incentive compensation which have been earned or have become payable
pursuant to the terms of any compensation or benefit plan or have vested as of
the Date of Termination, but which have not yet been paid.
11. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 11 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
11.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any provision
of this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
insubordination, conduct reflecting moral turpitude, conduct diminishing the
goodwill or reputation of the Practice, conduct disloyal to the Practice,
material violation of any representation, warranty or covenant of this
Agreement; conviction of any felony, or suspension or revocation of
Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
11.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination which shall not be less than
thirty (30) days from the date such Notice of Termination is given unless the
Notice of Termination is provided pursuant to Sections 11.01(iii), (iv) or (v),
in which case the Date of Termination shall be the date that Notice of
Termination is received by the Ophthalmologist.
11.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
12. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of
Exhibit 4.1A - Page 4
<PAGE> 70
experts, evidence and counsel incurred by the prevailing party in any and all
proceedings arising out of this Employment Agreement, including trial,
appellate and bankruptcy proceedings.
13. Notices. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage
prepaid, or by expedited (overnight) courier with an established national
reputation, shipping prepaid or billed to sender, in either case addressed to
the respective addresses last given by each party in writing to the other
(provided that all notices to the Practice shall be directed to the attention
of the Practice with a copy to the Secretary of the Practice). All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
14. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Ophthalmologist, in such amounts and in such
form or forms as the Practice may determine. Ophthalmologist shall, at the
request of the Practice, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Practice has applied for such insurance.
Ophthalmologist hereby represents that to his knowledge there are no facts or
circumstances that would preclude the Practice from obtaining life insurance on
Ophthalmologist.
15. Proprietary Information and Inventions. Ophthalmologist
understands and acknowledges that:
15.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
(and by virtue of the Business Management Agreement entered into by the
Practice and Vision 21, Ophthalmologist's employment creates a relationship of
confidence and trust between the Ophthalmologist and Vision 21) with respect to
certain information applicable to the business of the Practice and Vision 21,
which may be made known to Ophthalmologist by the Practice or Vision 21 or
learned by Ophthalmologist during the Employment Period.
15.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or has otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered, or
developed by or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or
Exhibit 4.1A - Page 5
<PAGE> 71
otherwise becomes part of the public domain through no fault of
Ophthalmologist, (iii) information which Ophthalmologist can demonstrate was in
Ophthalmologist's possession at the time of disclosure and was not acquired by
Ophthalmologist directly or indirectly from the Practice or Vision 21 on a
confidential basis, (iv) information which becomes available to Ophthalmologist
on a non-confidential basis from a source other than the Practice or Vision 21
and which source, to the best of Ophthalmologist's knowledge, did not acquire
the information on a confidential basis or (v) information required to be
disclosed by any federal or state law, rule or regulation or by any applicable
judgment, order or decree or any court or governmental body or agency having
jurisdiction in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's
employment by the Practice and after its termination or expiration,
Ophthalmologist shall keep in strictest confidence and trust all Proprietary
Information, and Ophthalmologist shall not use or disclose any Proprietary
Information without the written consent of the Practice and Vision 21, except
as may be necessary in the ordinary course of performing Ophthalmologist's
duties as an employee of the Practice. This Section 15 shall survive the
termination or expiration of this Employment Agreement.
16. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Ophthalmologist shall, at the request of the
Practice, promptly surrender to the Practice any patient files, records, or
x-rays, as well as any Proprietary Information or document, memorandum, record,
patient record, letter or other paper in his possession or under his control
relating to the operation, business or affairs of the Practice or Vision 21.
17. Prior Employment Agreements; Successor Employment Agreements.
Ophthalmologist represents and warrants that Ophthalmologist's performance of
all the terms of this Employment Agreement and as an employee of the Practice
does not, and will not, breach any agreement to keep in confidence proprietary
information acquired by Ophthalmologist in confidence or in trust prior to
Ophthalmologist's employment by the Practice. Ophthalmologist has not entered
into, and shall not enter into, any agreement, either written or oral, which is
in conflict with this Employment Agreement or which would be violated by
Ophthalmologist's entering into, or carrying out his obligations under, this
Employment Agreement. Immediately following the expiration of the term of this
Employment Agreement, Ophthalmologist shall, if he intends to continue his
relationship with the Practice, execute a new Employment Agreement with the
Practice in substantially the form of Exhibit 4.1C of the Business Management
Agreement.
18. Restrictive Covenant. Ophthalmologist acknowledges and
recognizes (i) that Ophthalmologist shall come into possession of Proprietary
Information and (ii) the highly competitive nature of the respective businesses
of the Practice and Vision 21 and, accordingly, agrees that in consideration of
the premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of two (2) years
following the date of expiration or termination of this Employment Agreement,
directly or indirectly (i) except as otherwise permitted by the terms of this
Employment Agreement, practice medicine or engage in the business of managing
ophthalmology or optometry practices or related eye care medical facilities
within the area described in Schedule 18, whether such engagement shall be as
an employer, officer, director, owner,
Exhibit 4.1A - Page 6
<PAGE> 72
employee, consultant, stockholder, partner or other participant.
Ophthalmologist further agrees that during the period of Ophthalmologist's
employment by Practice, and for a period of two (2) years following the
termination or expiration of this Employment Agreement, Ophthalmologist will
not, directly or indirectly, (i) solicit any employee or consultant of Vision
21 or the Practice for the purposes of hiring or retaining such employee or
consultant, (ii) utilize the services of any entity engaged in the business of
managing ophthalmology or optometry practices or related eye care or medical
facilities other than Vision 21, or (iii) contact any present or prospective
client of Vision 21 to solicit such person or entity to enter into a management
contract with any organization other than Vision 21. If Ophthalmologist
violates this Section, Ophthalmologist shall pay to Vision 21 the one half
(1/2) of the amount of the consideration received by Ophthalmologist in
connection with the Acquisition Agreement (including one half (1/2) of the
Ophthalmologist's pro rata share (based on his equity ownership in the
Practice) of any consideration received by the Practice in connection with the
Acquisition Agreement), as agreed upon liquidated damages. The Ophthalmologist
acknowledges that such sum is reasonable in light of the resulting loss of
intangible asset value associated with the Ophthalmologist's breach of this
restrictive covenant. The Ophthalmologist further acknowledges and agrees that
such liquidated damages sum shall be in addition to any liquidated damages
which may be owed by Ophthalmologist to the Practice in connection with a
breach by Ophthalmologist of Section 4 hereof. If the Ophthalmologist fails to
make payment of liquidated damages as contemplated by this Section 18 within
thirty (30) days of Ophthalmologist's receiving notice from the Practice or
Vision 21 of the violation of this Section, Vision 21, shall, in addition to
all other rights and remedies available at law or equity, be entitled to (i)
cancel the number of shares of Vision 21 common stock held by the
Ophthalmologist or, with respect to shares of Vision 21 common stock entitled
to be received by the Ophthalmologist pursuant to the Acquisition Agreement,
terminate its obligation to deliver such number of shares of Vision 21 common
stock, valued as set forth in Section 6.6(a) of the Business Management
Agreement representing all or a portion of such liquidated damages sum, or (ii)
set off all or any of such liquidated damages sum against amounts payable under
any promissory note held by the Ophthalmologist, or do both of the foregoing,
but in no event shall Vision 21 be entitled to offset amounts in excess of the
liquidated damages sum pursuant to this Section 18. Ophthalmologist further
agrees that (i) such liquidated damages shall be in addition to the remedies
available to the Practice or Vision 21 as set forth in Section 19 below, (ii)
Vision 21 is a third-party beneficiary of this Section 18, (iii) this Section
18 is intended for the benefit of Vision 21, (iv) this Section 18 may be
enforced by the Practice's and Vision 21's successors and/or assigns, and (v)
the enforcement of this Section 18 will not violate public policy. This
Section 18 shall survive the termination or expiration of this Employment
Agreement. Notwithstanding the foregoing, Vision 21 shall not have any right to
enforce any provisions of this Employment Agreement if the Business Management
Agreement terminates pursuant to Section 6.2(a) of the Business Management
Agreement.
19. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a
temporary injunction, a temporary restraining order or other permanent
injunction merely prohibiting Ophthalmologist from engaging in the practice of
medicine or engaging in the management of any medical practice during the
prohibited period within the prohibited area would not be an adequate remedy
upon breach or threatened breach of this
Exhibit 4.1A - Page 7
<PAGE> 73
Employment Agreement, and consequently agrees, upon any such breach or
threatened breach, to the granting of injunctive relief prohibiting
Ophthalmologist from engaging in any activities prohibited by this Employment
Agreement. No remedy herein conferred is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to any other remedy given hereunder now or hereinafter existing at law
or in equity or by statute or otherwise. It is expressly understood and agreed
by Ophthalmologist that although the parties consider the restrictions
contained in this Employment Agreement to be reasonable, if a court determines
that the time or territory or any other restriction contained in this
Employment Agreement is an unenforceable restriction on the activities of
Ophthalmologist, such provision in this Employment Agreement shall not be
rendered void but shall be deemed to be amended to apply as to such maximum
time and territory and to such extent as such court may judicially determine or
indicate to be reasonable. This Section 19 shall survive the termination or
expiration of this Employment Agreement.
20. Successive Employment Notice. Within five (5) business days
after the Termination Date, Ophthalmologist shall provide notice to the
Practice of Ophthalmologist's next intended employment. If such employment is
not known by Ophthalmologist at such date, Ophthalmologist shall notify the
Practice immediately upon determination of such information. Ophthalmologist
shall continue to provide the Practice with notice of Ophthalmologist's place
and nature of employment and any change in place or nature of employment during
the period ending three (3) years after the expiration or termination of this
Employment Agreement. Failure of Ophthalmologist to provide the Practice with
such information in an accurate and timely fashion shall be deemed to be a
breach of this Employment Agreement and shall entitle the Practice to all
remedies provided for in this Employment Agreement as a result of such breach.
21. Business Management Agreement. Ophthalmologist agrees not to
commit any act or engage in any omission that would cause the Practice to
breach the Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Ophthalmologist
and such officer as may be specifically designated by the Board of Directors of
the Practice and by such officer as may be specifically designated by the Board
of Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Ophthalmologist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of
Exhibit 4.1A - Page 8
<PAGE> 74
any other provision herein contained. Any invalid or unenforceable
provision shall be deemed severable to the extent of any such invalidity or
unenforceability. It is expressly understood and agreed that while the Practice
and Ophthalmologist consider the restrictions contained in this Employment
Agreement reasonable for the purpose of preserving for the Practice the good
will, other proprietary rights and intangible business value of the Practice,
if a final judicial determination is made by a court having jurisdiction that
the time or territory or any other restriction contained in this Employment
Agreement is an unreasonable or otherwise unenforceable restriction against
Ophthalmologist, the provisions of such clause shall not be rendered void but
shall be deemed amended to apply as to maximum time and territory and to such
other extent as such court may judicially determine or indicate to be
reasonable.
26. Third-Party Beneficiary. Vision 21 is a third-party
beneficiary of Sections 4, 15, 18, 19 and 25 of this Employment Agreement and
the restrictive covenants contained in this Employment Agreement are intended
for the benefit of Vision 21. Except as otherwise provided herein, this
Employment Agreement shall not confer any rights or remedies upon any person
other than the Practice, Ophthalmologist and Vision 21 and their respective
successors and permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State in which the Practice conducts
its business.
29. Counterparts. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
MILLENNIUM VISION, P.C.
By:
-------------------------------------------
Daniel B. Feller, M.D., its President
"OPHTHALMOLOGIST"
-------------------------------------------
--------------------------, M.D.
Exhibit 4.1A - Page 9
<PAGE> 75
Exhibit 4.1B
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
List of Practice Shareholders
1. Daniel B. Feller, M.D.
<PAGE> 76
Exhibit 4.1C
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Form of Optometrist Employment Agreement (Shareholder - Key Professional)
OPTOMETRIST EMPLOYMENT AGREEMENT
(SHAREHOLDER - KEY PROFESSIONAL)
This Optometrist Employment Agreement (this "Employment Agreement")
dated as of ___________, 19__, is by and between Millennium Vision, P.C., an
Arizona professional corporation (the "Practice"), and
_____________________________, O.D., an individual (the "Optometrist").
R E C I T A L S
A. The Practice is a professional corporation organized under the
laws of the State of Arizona (the "State"), and is authorized to practice
optometry in the State through licensed individuals.
B. The Practice and Vision 21, Inc., a Florida corporation
("Vision 21") have entered into a Business Management Agreement (the "Business
Management Agreement") dated as of December 1, 1996, whereby Vision 21 has
agreed to provide various management services to the Practice and the Practice
has agreed to have its shareholder and key professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision
21 be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
C. The Practice desires to employ Optometrist upon the terms and
subject to the terms and conditions set forth in this Employment Agreement.
D. The Optometrist is licensed to practice optometry in the State
and desires to be employed by the Practice upon the terms and subject to the
conditions set forth in this Employment Agreement.
E. The Optometrist possesses special knowledge relating to the
business and assets of the Practice and Vision 21 and has developed valuable,
long-term relationships with patients to be cared for by the Practice which
make him valuable to the Practice and which will contribute to the Practice's
and Vision 21's future success.
NOW, THEREFORE, in consideration of the premises, the mutual promises,
covenants and conditions herein contained and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto intending to be legally bound hereby agree as follows:
1. Employment. The Practice hereby employs Optometrist, and
Optometrist hereby accepts employment with the Practice, all upon the terms and
subject to the conditions set forth in this Employment Agreement.
<PAGE> 77
2. Duties and Responsibilities.
2.01 Full Time Practice of Optometry. The Optometrist is
employed pursuant to the terms of this Employment Agreement to practice
optometry on behalf of the Practice. The Optometrist shall devote
substantially all of his time, best efforts and attention to the practice of
optometry on behalf of the Practice and shall provide patient care of the
highest quality. In addition to the foregoing duties, the Optometrist shall
undertake additional duties as directed by the Practice. During the term
hereof and any renewal, the Optometrist shall not, without the written consent
of the Practice and Vision 21, (1) render professional services to or for any
person, firm, corporation or other organization for compensation; or (2) engage
in any activity that competes with the interest of the Practice or Vision 21
whether Optometrist is acting by himself or as an officer, director,
shareholder, employee, partner or fiduciary. Any consent granted to the
Optometrist shall be revocable by the Practice or Vision 21 at any time upon
thirty (30) days' notice, and the Optometrist agrees to cease and desist upon
receipt of such notice. Notwithstanding the above, the Practice recognizes
that the Optometrist shall have the right to engage in those matters expressly
described on Schedule 2.01 attached hereto so long as such permitted activities
do not result in materially reduced services to the Practice as compared to the
Optometrist's previous services to his practice and so long as the same does
not materially impact the Optometrist's ability to perform hereunder or
materially impact the Optometrist's anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Optometry may from time to time establish standards and
requirements with regard to the practice of optometry by optometrists licensed
to practice optometry. All restrictions contained herein with respect to the
duties and obligations of the Optometrist shall be subject to said standards
and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Optometrist recognizes that the Practice shall
have complete authority with regard to the acceptance for treatment of or the
refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Optometrist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Optometrist agrees to treat such patients as are assigned to him by the
Practice. The Optometrist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Optometrist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Optometrist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
Exhibit 4.1C - Page 2
<PAGE> 78
3.05 Hours of employment of the Optometrist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The optometrist of record for each patient treated by
Optometrist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Optometrist by
the Practice pursuant to this Employment Agreement shall be for three (3) years
(the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date"). The term of this Agreement shall renew automatically at
the end of each term of this Agreement for an additional three (3) year term
unless either party hereto provides notice to the other at least ninety (90)
days prior to the expiration of any term.
5. Place of Employment. Optometrist's principal place of work
shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all
the terms and conditions of this Employment Agreement and as compensation for
all services to be rendered by Optometrist under this Employment Agreement, the
Practice shall pay to or provide Optometrist with the compensation set forth in
Schedule 6 attached to this Agreement.
7. Adherence to Standards. Optometrist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review
and evaluate the performance of Optometrist under this Employment Agreement
with Optometrist.
9. Expenses. The Practice may reimburse Optometrist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Optometrist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Optometrist the Notice of Termination
(as hereinafter defined) and (ii) pay Optometrist his annual base salary
through the Date of Termination (as hereinafter defined) at the rate in effect
at the time the Notice of Termination is given plus any bonus or incentive
compensation which have been earned or have become payable pursuant to the
terms of any compensation or benefit plan or have vested as of the Date of
Termination, but which have not yet been paid.
11. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 11 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both
Exhibit 4.1C - Page 3
<PAGE> 79
the singular and plural forms of any of the capitalized words and terms herein
defined. The following words and terms are defined terms under this
Employment Agreement:
11.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
(i) Optometrist's failure to promptly and adequately
perform the duties assigned by Practice after being notified by the Practice of
the specific act(s) constituting such failure and being given a period of
thirty (30) days after notification by the Practice to correct such failure;
(ii) upon Optometrist's breach of any provision of
this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
insubordination, conduct reflecting moral turpitude, conduct diminishing the
goodwill or reputation of the Practice, conduct disloyal to the Practice,
material violation of any representation, warranty or covenant of this
Agreement; conviction of any felony, or suspension or revocation of
Optometrist's license to practice optometry;
(iv) upon Optometrist's death; or
(v) upon Optometrist's disability if the
disability renders Optometrist unable to practice optometry on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
11.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination which shall not be less than
thirty (30) days from the date such Notice of Termination is given unless the
Notice of Termination is provided pursuant to Sections 11.01(iii), (iv) or (v),
in which case the Date of Termination shall be the date that Notice of
Termination is received by the Optometrist.
11.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
12. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel incurred by the prevailing party in any and all proceedings arising out
of this Employment Agreement, including trial, appellate and bankruptcy
proceedings.
13. Notices. For the purposes of this Employment Agreement,
notices and all other communications provided for in the Employment Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party in writing to the other (provided
that all notices to the Practice shall be directed to the attention of the
Practice with a copy to the Secretary of the Practice). All notices and
communication shall be deemed to have been
Exhibit 4.1C - Page 4
<PAGE> 80
received on the date of delivery thereof, on the third business day after the
mailing thereof, or on the second day after deposit thereof with an expedited
courier service, except that notice of change of address shall be effective
only upon receipt.
14. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Optometrist, in such amounts and in such
form or forms as the Practice may determine. Optometrist shall, at the request
of the Practice, submit to such medical examinations, supply such information,
and execute such documents as may be required by the insurance company or
companies to whom the Practice has applied for such insurance. Optometrist
hereby represents that to his knowledge there are no facts or circumstances
that would preclude the Practice from obtaining life insurance on Optometrist.
15. Proprietary Information and Inventions. Optometrist
understands and acknowledges that:
15.01 Trust. Optometrist's employment creates a relationship
of confidence and trust between Optometrist and the Practice (and by virtue of
the Business Management Agreement entered into by the Practice and Vision 21,
Optometrist's employment creates a relationship of confidence and trust between
the Optometrist and Vision 21) with respect to certain information applicable
to the business of the Practice and Vision 21, which may be made known to
Optometrist by the Practice or Vision 21 or learned by Optometrist during the
Employment Period.
15.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or has otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered, or
developed by or made known to Optometrist during the period of or arising out
of employment by the Practice) or in which property rights have been or may be
assigned or otherwise conveyed to the Practice or Vision 21, which information
has commercial value in the respective businesses in which the Practice and
Vision 21 are engaged and is treated by the Practice and Vision 21 as
confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or otherwise becomes part of the public domain through no fault of Optometrist,
(iii) information which Optometrist can demonstrate was in Optometrist's
possession at the time of disclosure and was not acquired by Optometrist
directly or indirectly from the Practice or Vision 21 on a confidential basis,
(iv) information which becomes available to Optometrist on a non-confidential
basis from a source other than the Practice or Vision 21 and which source, to
the best of Optometrist's knowledge, did not acquire the information on a
confidential basis or (v) information required to be disclosed by any federal
or state law, rule or regulation or by any applicable judgment, order or decree
or any court or governmental body or agency having jurisdiction in the
premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Optometrist assigns to the
Practice and Vision 21 any rights Optometrist may have or acquire in such
Proprietary Information. At all times, both during Optometrist's employment by
the
Exhibit 4.1C - Page 5
<PAGE> 81
Practice and after its termination or expiration, Optometrist shall keep in
strictest confidence and trust all Proprietary Information, and Optometrist
shall not use or disclose any Proprietary Information without the written
consent of the Practice and Vision 21, except as may be necessary in the
ordinary course of performing Optometrist's duties as an employee of the
Practice. This Section 15 shall survive the termination or expiration of this
Employment Agreement.
16. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Optometrist shall, at the request of the Practice,
promptly surrender to the Practice any patient files, records, or x-rays, as
well as any Proprietary Information or document, memorandum, record, patient
record, letter or other paper in his possession or under his control relating
to the operation, business or affairs of the Practice or Vision 21.
17. Prior Employment Agreements; Successor Employment Agreements.
Optometrist represents and warrants that Optometrist's performance of all the
terms of this Employment Agreement and as an employee of the Practice does not,
and will not, breach any agreement to keep in confidence proprietary
information acquired by Optometrist in confidence or in trust prior to
Optometrist's employment by the Practice. Optometrist has not entered into,
and shall not enter into, any agreement, either written or oral, which is in
conflict with this Employment Agreement or which would be violated by
Optometrist's entering into, or carrying out his obligations under, this
Employment Agreement. Following the expiration of the term of this Employment
Agreement, Optometrist shall, if he intends to continue his relationship with
the Practice, execute a new Employment Agreement with the Practice in
substantially the form of Exhibit 4.1C of the Business Management Agreement.
18. Restrictive Covenant. Optometrist acknowledges and recognizes
(i) that Optometrist shall come into possession of Proprietary Information and
(ii) the highly competitive nature of the respective businesses of the Practice
and Vision 21 and, accordingly, agrees that in consideration of the premises
contained herein Optometrist will not, during the period of Optometrist's
employment by the Practice and for a period of one (1) year following the date
of expiration or termination of this Employment Agreement, directly or
indirectly (i) except as otherwise permitted by the terms of this Employment
Agreement, practice optometry or engage in the business of managing optometry
practices or related eye care optometric facilities within the area described
in Schedule 18, whether such engagement shall be as an employer, officer,
director, owner, employee, consultant, stockholder, partner or other
participant. Optometrist further agrees that during the period of
Optometrist's employment by Practice, and for a period of three (3) years
following the termination or expiration of this Employment Agreement,
Optometrist will not, directly or indirectly, (i) solicit any employee or
consultant of Vision 21 or the Practice for the purposes of hiring or retaining
such employee or consultant, (ii) utilize the services of any entity engaged in
the business of managing optometry practices or related eye care or optometric
facilities other than Vision 21, or (iii) contact any present or prospective
client of Vision 21 to solicit such person or entity to enter into a management
contract with any organization other than Vision 21. If Optometrist violates
this Section, Optometrist shall pay to Vision 21 the sum of Three Hundred
Thousand Dollars ($300,000) as agreed upon liquidated damages. The Optometrist
acknowledges that such sum is reasonable in light of the resulting loss of
intangible asset value associated with the Optometrist's breach of this
restrictive covenant. Optometrist further agrees that (i) such liquidated
damages shall be in addition to the remedies available to the Practice and
Vision 21 as set forth in Section 19 below, (ii) Vision 21 is a third-party
beneficiary of this Section 18, (iii) this Section 18 is intended for the
benefit of Vision 21, (iv) this Section 18 may be enforced by the Practice's
and Vision 21's successors and/or assigns, and (v) the enforcement of this
Section 18 will not violate public policy. This Section 18 shall survive the
Exhibit 4.1C - Page 6
<PAGE> 82
termination or expiration of this Employment Agreement. Notwithstanding the
foregoing, Vision 21 shall not have any right to enforce any provisions of
this Employment Agreement if the Business Management Agreement terminates
pursuant to Section 6.2(a) of the Business Management Agreement.
19. Remedies. Optometrist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Optometrist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Optometrist acknowledges that the granting of a temporary
injunction, a temporary restraining order or other permanent injunction merely
prohibiting Optometrist from engaging in the practice of optometry or engaging
in the management of any optometric practice during the prohibited period
within the prohibited area would not be an adequate remedy upon breach or
threatened breach of this Employment Agreement, and consequently agrees, upon
any such breach or threatened breach, to the granting of injunctive relief
prohibiting Optometrist from engaging in any activities prohibited by this
Employment Agreement. No remedy herein conferred is intended to be exclusive
of any other remedy, and each and every such remedy shall be cumulative and
shall be in addition to any other remedy given hereunder now or hereinafter
existing at law or in equity or by statute or otherwise. It is expressly
understood and agreed by Optometrist that although the parties consider the
restrictions contained in this Employment Agreement to be reasonable, if a
court determines that the time or territory or any other restriction contained
in this Employment Agreement is an unenforceable restriction on the activities
of Optometrist, such provision in this Employment Agreement shall not be
rendered void but shall be deemed to be amended to apply as to such maximum
time and territory and to such extent as such court may judicially determine or
indicate to be reasonable. This Section 19 shall survive the termination or
expiration of this Employment Agreement.
20. Business Management Agreement. Optometrist agrees not to
commit any act or engage in any omission that would cause the Practice to
breach the Business Management Agreement with Vision 21.
21. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Optometrist and
such officer as may be specifically designated by the Board of Directors of the
Practice and by such officer as may be specifically designated by the Board of
Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Optometrist or Vision 21.
22. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
23. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
Exhibit 4.1C - Page 7
<PAGE> 83
24. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Optometrist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Optometrist, the
provisions of such clause shall not be rendered void but shall be deemed
amended to apply as to maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
25. Third-Party Beneficiary. Vision 21 is a third-party
beneficiary of Sections 4, 15, 18, 19 and 25 of this Employment Agreement and
the restrictive covenants contained in this Employment Agreement are intended
for the benefit of Vision 21.
26. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
27. Governing Law. This Employment Agreement shall be construed
and enforced pursuant to the laws of the State in which the Practice conducts
its business.
28. Counterparts. This Employment Agreement may be executed in
more than one (1) counterpart and each counterpart shall be considered an
original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Optometrist as of the date first above written.
"PRACTICE"
MILLENNIUM VISION, P.C.
By:
-----------------------------------
Daniel B. Feller, its President
"OPTOMETRIST"
-----------------------------------
Exhibit 4.1C - Page 8
<PAGE> 84
Exhibit 4.2A
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Form of Physician Employment Agreement (Non-Shareholder)
PHYSICIAN EMPLOYMENT AGREEMENT
(NON-SHAREHOLDER)
This Physician Employment Agreement (this "Employment Agreement")
dated as of _____________, 19__, is by and between Millennium Vision, P.C., a
professional corporation (the "Practice"), and __________________________ M.D.,
an individual (the "Ophthalmologist").
R E C I T A L S:
A. The Practice is a professional corporation organized under the
laws of the State of Arizona (the "State") and is authorized to practice
medicine in the State through licensed individuals.
B. The Practice desires to employ Ophthalmologist upon the terms
and subject to the terms and conditions set forth in this Employment Agreement.
C. The Ophthalmologist is licensed to practice medicine in the
State and desires to be employed by the Practice upon the terms and subject to
the conditions set forth in this Employment Agreement.
D. The Practice and Vision 21, Inc. ("Vision 21") have entered
into a Business Management Agreement (the "Business Management Agreement")
whereby Vision 21 has agreed to have its professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision
21 be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. Employment. The Practice hereby employs Ophthalmologist, and
Ophthalmologist hereby accepts employment with the Practice, all upon the terms
and subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Medicine. The Ophthalmologist is
employed pursuant to the terms of this Employment Agreement to practice
medicine on behalf of the Practice. The Ophthalmologist shall devote
substantially all of his time, best efforts and attention to the practice of
medicine on behalf of the Practice and shall provide quality patient care. In
addition to the foregoing duties, the Ophthalmologist shall undertake
additional duties as directed by the Practice. During the term hereof and any
renewal, the Ophthalmologist shall not, without the written consent of the
Practice and Vision 21, (1) render professional services to or for any person,
firm, corporation or other organization for compensation;
<PAGE> 85
or (2) engage in any activity that competes with the interest of the
Practice or Vision 21 whether Ophthalmologist is acting by himself or as an
officer, director, shareholder, employee, partner or fiduciary. Any consent
granted to the Ophthalmologist shall be revocable by the Practice or Vision 21
at any time upon thirty (30) days' notice, and the Ophthalmologist agrees to
cease and desist upon receipt of such notice. Notwithstanding the above, the
Practice recognizes that the Ophthalmologist shall have the right to engage in
those matters expressly described on Schedule 2.01 attached hereto so long as
such permitted activities do not result in materially reduced services to the
Practice as compared to the Ophthalmologist's previous services to his practice
and so long as the same does not materially impact the Ophthalmologist's
ability to perform hereunder or materially impact the Ophthalmologist's
anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Medicine may from time to time establish standards and
requirements with regard to the practice of medicine by physicians licensed to
practice medicine. All restrictions contained herein with respect to the
duties and obligations of the Ophthalmologist shall be subject to said
standards and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Ophthalmologist recognizes that the Practice
shall have complete authority with regard to the acceptance for treatment of or
the refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Ophthalmologist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Ophthalmologist agrees to treat such patients as are assigned to him by the
Practice. The Ophthalmologist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Ophthalmologist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Ophthalmologist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Ophthalmologist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The ophthalmologist of record for each patient treated
by Ophthalmologist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Ophthalmologist by
the Practice pursuant to this Employment Agreement shall be for two (2) years
(the "Employment Period") commencing on the date of this Agreement (the
"Commencement Date") unless otherwise terminated earlier under
Exhibit 4.2A - Page 2
<PAGE> 86
the provisions of this Employment Agreement. The term of this Agreement shall
renew automatically at the end of each term of this Agreement for an additional
two (2) year term unless either party hereto provides notice to the other at
least ninety (90) days prior to the expiration of the term.
5. Place of Employment. Ophthalmologist's principal place of work
shall be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Ophthalmologist under this Employment Agreement, the
Practice shall pay to or provide Ophthalmologist with the compensation set
forth in Schedule 6 attached to this Agreement.
7. Adherence to Standards. Ophthalmologist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review and
evaluate the performance of Ophthalmologist under this Employment Agreement
with Ophthalmologist.
9. Expenses. The Practice may reimburse Ophthalmologist for
reasonable, ordinary and necessary expenses incurred by him in connection with
his employment hereunder that have been approved in advance by the Practice;
provided, however, Ophthalmologist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Ophthalmologist the Notice of
Termination (as hereinafter defined) and (ii) pay Ophthalmologist his annual
base salary through the Date of Termination (as hereinafter defined) at the
rate in effect at the time the Notice of Termination is given plus any bonus or
incentive compensation which have been earned or have become payable pursuant
to the terms of any compensation or benefit plan or have vested as of the Date
of Termination, but which have not yet been paid.
11. Termination without Cause by the Practice or with Cause by
the Ophthalmologist. This Employment Agreement may be terminated by the
Practice without cause or by the Ophthalmologist with cause and in the event
that the Practice terminates the Ophthalmologist without cause, the Practice
shall give written notice to the Ophthalmologist at least ninety (90) days
prior to the Date of Termination.
12. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 12 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
12.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
Exhibit 4.2A - Page 3
<PAGE> 87
(i) Ophthalmologist's failure to promptly and
adequately perform the duties assigned by Practice after being notified by the
Practice of the specific act(s) constituting such failure and being given a
period of thirty (30) days after notification by the Practice to correct such
failure;
(ii) upon Ophthalmologist's breach of any provision
of this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
absenteeism, theft, dishonesty, insubordination, conduct reflecting moral
turpitude, conduct diminishing the goodwill or reputation of the Practice;
conduct disloyal to the Practice, violation of any representation, warranty or
covenant of this Agreement; conviction of any felony, or suspension or
revocation of Ophthalmologist's license to practice medicine;
(iv) upon Ophthalmologist's death; or
(v) upon Ophthalmologist's disability if the
disability renders Ophthalmologist unable to practice medicine on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
12.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination.
12.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
13. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel) incurred by the prevailing party in any and all proceedings as a
result of a contest or dispute arising out of this Employment Agreement
including trial, appellate and bankruptcy proceedings.
14. Notices. For the purposes of this Employment Agreement, notices
and all other communications provided for in the Employment Agreement shall be
in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party in writing to the other (provided
that all notices to the Practice shall be directed to the attention of the
Practice with a copy to the Secretary of the Practice. All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
15. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Ophthalmologist, in such amounts and in such
form or forms as the Practice may determine. Ophthalmologist shall, at the
Exhibit 4.2A - Page 4
<PAGE> 88
request of the Practice, submit to such medical examinations, supply such
information, and execute such documents as may be required by the insurance
company or companies to whom the Practice has applied for such insurance.
Ophthalmologist hereby represents that to his knowledge there are no facts or
circumstances that would preclude the Practice from obtaining life insurance on
Ophthalmologist.
16. Proprietary Information and Inventions. Ophthalmologist
understands and acknowledges that:
16.01 Trust. Ophthalmologist's employment creates a
relationship of confidence and trust between Ophthalmologist and the Practice
with respect to certain information applicable to the business of the Practice,
and Vision 21 which may be made known to Ophthalmologist by the Practice or
Vision 21 or learned by Ophthalmologist during the Employment Period.
16.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered or
developed by, or made known to Ophthalmologist during the period of or arising
out of employment by the Practice) or in which property rights have been or may
be assigned or otherwise conveyed to the Practice or Vision 21, which
information has commercial value in the respective businesses in which the
Practice and Vision 21 are engaged and is treated by the Practice and Vision 21
as confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or otherwise becomes part of the public domain through no fault of
Ophthalmologist, (iii) information which Ophthalmologist can demonstrate was in
Ophthalmologist's possession at the time of disclosure and was not acquired by
Ophthalmologist directly or indirectly from the Practice or Vision 21 on a
confidential basis, (iv) information which becomes available to Ophthalmologist
on a non-confidential basis from a source other than the Practice or Vision 21
and which source, to the best of Ophthalmologist's knowledge, did not acquire
the information on a confidential basis or (v) information required to be
disclosed by any federal or state law, rule or regulation or by any applicable
judgment, order or decree or any court or governmental body or agency having
jurisdiction in the premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Ophthalmologist assigns to the
Practice and Vision 21 any rights Ophthalmologist may have or acquire in such
Proprietary Information. At all times, both during Ophthalmologist's
employment by the Practice and after its termination or expiration,
Ophthalmologist shall keep in strictest confidence and trust all Proprietary
Information, and Ophthalmologist shall not use or disclose any Proprietary
Information without the written consent of the Practice and Vision 21, except
as may be necessary in the ordinary course of performing Ophthalmologist's
duties as an employee of the Practice. This Section 16 shall survive the
termination or expiration of this Employment Agreement.
17. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Ophthalmologist shall, at the request of the
Practice, promptly surrender to the Practice any patient files, records, or
x-rays, as well as
Exhibit 4.2A - Page 5
<PAGE> 89
any Proprietary Information or document, memorandum, record, patient record,
letter or other paper in his possession or under his control relating to the
operation, business or affairs of the Practice or Vision 21.
18. Prior Employment Agreements. Ophthalmologist represents and
warrants that Ophthalmologist's performance of all the terms of this Employment
Agreement and as an employee of the Practice does not, and will not, breach any
agreement to keep in confidence proprietary information acquired by
Ophthalmologist in confidence or in trust prior to Ophthalmologist's employment
by the Practice. Ophthalmologist has not entered into, and shall not enter
into, any agreement, either written or oral, which is in conflict with this
Employment Agreement or which would be violated by Ophthalmologist's entering
into, or carrying out his obligations under, this Employment Agreement.
19. Restrictive Covenant. Ophthalmologist acknowledges and
recognizes (i) that Ophthalmologist shall come into possession of Proprietary
Information and (ii) the highly competitive nature of the respective businesses
of the Practice and Vision 21 and, accordingly, agrees that in consideration of
the premises contained herein Ophthalmologist will not, during the period of
Ophthalmologist's employment by the Practice and for a period of one (1) year
following the date of expiration or termination of this Employment Agreement
(unless terminated without cause by the Practice), directly or indirectly (i)
except as otherwise permitted by the terms of this Employment Agreement,
practice medicine or engage in the business of managing ophthalmology or
optometry practices or related eye care medical facilities within the area
described in Schedule 19, whether such engagement shall be as an employer,
officer, director, owner, employee, consultant, stockholder, partner or other
participant. Ophthalmologist further agrees that during the period of
Ophthalmologist's employment by Practice, and for a period of one (1) year
following the termination or expiration of this Employment Agreement,
Ophthalmologist will not, directly or indirectly, (i) solicit any employee or
consultant of Vision 21 for the purposes of hiring or retaining such employee
or consultant, (ii) utilize the services of any entity engaged in the business
of managing ophthalmology or optometry practices or related eye care or medical
facilities other than Vision 21, or (iii) contact any present or prospective
client of Vision 21 to solicit such person or entity to enter into a management
contract with any organization other than Vision 21. Ophthalmologist further
agrees that (i) Vision 21 is a third-party beneficiary of this Section 19, (ii)
this Section 19 is intended for the benefit of Vision 21, (iii) this Section 19
may be enforced by Practice's and Vision 21's successors and/or assigns, and
(iv) the enforcement of this Section 19 will not violate public policy. This
Section 19 shall survive the termination or expiration of this Employment
Agreement. Notwithstanding the foregoing, Vision 21 shall not have any right
to enforce any provisions of this Employment Agreement if the Business
Management Agreement terminates pursuant to Section 6.2(a) of the Business
Management Agreement.
20. Remedies. Ophthalmologist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Ophthalmologist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to, equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Ophthalmologist acknowledges that the granting of a
temporary injunction, a temporary restraining order or other permanent
injunction merely prohibiting Ophthalmologist from engaging in the practice of
medicine or engaging in the management of any medical practice during the
prohibited period within the prohibited area would not be an adequate remedy
upon breach or threatened breach of this Employment Agreement, and consequently
agrees upon any such breach or threatened breach to the
Exhibit 4.2A - Page 6
<PAGE> 90
granting of injunctive relief prohibiting Ophthalmologist from engaging in any
activities prohibited by this Employment Agreement. No remedy herein conferred
is intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to any other remedy given
hereunder now or hereinafter existing at law or in equity or by statute or
otherwise. It is expressly understood and agreed by Ophthalmologist that
although the parties consider the restrictions contained in this Employment
Agreement to be reasonable, if a court determines that the time or territory or
any other restriction contained in this Employment Agreement is an
unenforceable restriction on the activities of Ophthalmologist, as such
provision in this Employment Agreement shall not be rendered void but shall be
deemed to be amended as to apply to such maximum time and territory and to such
extent as such court may judicially determine or indicate to be reasonable.
This Section 20 shall survive the termination or expiration of this Employment
Agreement.
21. Business Management Agreement. Ophthalmologist agrees not to
commit any act or engage in any omission that would cause the Practice to
breach the Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Ophthalmologist
and such officer as may be specifically designated by the Board of Directors of
the Practice and by such officer as may be specifically designated by the Board
of Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Ophthalmologist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Ophthalmologist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Ophthalmologist,
the provisions of such clause shall not be rendered void but shall be deemed
amended to apply as to maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
26. Third Party Beneficiary. Vision 21 is a third-party beneficiary
of Sections 4, 16, 17, 19, 20 and 25 of this Employment Agreement and the
restrictive covenants contained in this Employment Agreement are intended for
the benefit of Vision 21.
Exhibit 4.2A - Page 7
<PAGE> 91
27. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed and
enforced pursuant to the laws of the State in which the Practice conducts its
business.
29. Counterparts. This Employment Agreement may be executed in more
than one (1) counterpart and each counterpart shall be considered an original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Ophthalmologist as of the date first above written.
"PRACTICE"
MILLENNIUM VISION, P.C.
By:
--------------------------------------
Daniel B. Feller, M.D., its President
"OPHTHALMOLOGIST"
-----------------------------------------
M.D.
-------------------------,
Exhibit 4.2A - Page 8
<PAGE> 92
Exhibit 4.2B
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
Form of Optometrist Employment Agreement
OPTOMETRIST EMPLOYMENT AGREEMENT
(NON-SHAREHOLDER)
This Optometrist Employment Agreement (this "Employment Agreement")
dated as of ___________, 19__, is by and between Millennium Vision, P.C., an
Arizona professional corporation (the "Practice"), and
_________________________ O.D., an individual (the "Optometrist").
R E C I T A L S:
A. The Practice is a professional corporation organized under the
laws of the State of Arizona (the "State") and is authorized to practice
optometry in the State through licensed individuals.
B. The Practice desires to employ Optometrist upon the terms and
subject to the terms and conditions set forth in this Employment Agreement.
C. The Optometrist is licensed to practice optometry in the State
and desires to be employed by the Practice upon the terms and subject to the
conditions set forth in this Employment Agreement.
D. The Practice and Vision 21, Inc. ("Vision 21") have entered
into a Business Management Agreement (the "Business Management Agreement")
whereby Vision 21 has agreed to have its professional employees execute
employment agreements in a form substantially the same as this Employment
Agreement, and it is intended that except as otherwise limited herein, Vision
21 be a third-party beneficiary of the restrictive covenants contained in this
Employment Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. Employment. The Practice hereby employs Optometrist, and
Optometrist hereby accepts employment with the Practice, all upon the terms and
subject to the conditions set forth in this Employment Agreement.
2. Duties and Responsibilities.
2.01 Full Time Practice of Optometry. The Optometrist is
employed pursuant to the terms of this Employment Agreement to practice
optometry on behalf of the Practice. The Optometrist shall devote
substantially all of his time, best efforts and attention to the practice of
optometry on behalf of the Practice and shall provide quality patient care. In
addition to the foregoing duties, the Optometrist shall undertake additional
duties as directed by the Practice. During the term hereof and any renewal,
the Optometrist shall not, without the written consent of the Practice and
Vision 21, (1) render professional services to or for any person, firm,
corporation or other organization for compensation; or (2) engage in
<PAGE> 93
any activity that competes with the interest of the Practice or Vision 21
whether Optometrist is acting by himself or as an officer, director,
shareholder, employee, partner or fiduciary. Any consent granted to the
Optometrist shall be revocable by the Practice or Vision 21 at any time upon
thirty (30) days' notice, and the Optometrist agrees to cease and desist upon
receipt of such notice. Notwithstanding the above, the Practice recognizes
that the Optometrist shall have the right to engage in those matters expressly
described on Schedule 2.01 attached hereto so long as such permitted activities
do not result in materially reduced services to the Practice as compared to the
Optometrist's previous services to his practice and so long as the same does
not materially impact the Optometrist's ability to perform hereunder or
materially impact the Optometrist's anticipated productivity.
2.02 Subject to Board Standards and Requirements. The
Practice recognizes that professional regulatory groups and bodies such as the
State Board of Optometry may from time to time establish standards and
requirements with regard to the practice of optometry by optometrists licensed
to practice optometry. All restrictions contained herein with respect to the
duties and obligations of the Optometrist shall be subject to said standards
and requirements of the aforesaid groups and bodies.
3. Authority and Control of Practice.
Subject to Section 2.02 above and to the extent permitted by
law:
3.01 The Optometrist recognizes that the Practice shall
have complete authority with regard to the acceptance for treatment of or the
refusal to treat any patient and the Practice shall have complete authority
with regard to the establishment of the appropriate fee for professional
service.
3.02 The Practice shall direct and control the assignment
of patients to the Optometrist. Such determination shall be solely by the
Practice and in the best interests of the patient and the Practice. The
Optometrist agrees to treat such patients as are assigned to him by the
Practice. The Optometrist recognizes that patients treated by him may
subsequently be assigned to other employees.
3.03 The Optometrist shall perform all professional
services as are assigned to him by the Practice and all work performed by the
Practice shall be subject to the review and study of the Practice.
3.04 The performance of services by the Optometrist on
behalf of the Practice shall be performed at such times and at such places as
shall be determined by the Practice and in accordance with such rules as the
Practice may establish.
3.05 Hours of employment of the Optometrist shall be
determined by the Practice within reasonable standards within the profession.
3.06 The optometrist of record for each patient treated by
Optometrist shall be one of the individual owners of the Practice.
4. Term of Employment. The term of employment of Optometrist by the
Practice pursuant to this Employment Agreement shall be for two (2) years (the
"Employment Period") commencing on the date of this Agreement (the
"Commencement Date") unless otherwise terminated earlier under the provisions
of this Employment Agreement. The term of this Agreement shall renew
automatically at the
Exhibit 4.2B - Page 2
<PAGE> 94
end of each term of this Agreement for an additional two (2) year term
unless either party hereto provides notice to the other at least ninety (90)
days prior to the expiration of the term.
5. Place of Employment. Optometrist's principal place of work shall
be located where designated by the Practice.
6. Compensation. During the Employment Period, subject to all the
terms and conditions of this Employment Agreement and as compensation for all
services to be rendered by Optometrist under this Employment Agreement, the
Practice shall pay to or provide Optometrist with the compensation set forth in
Schedule 6 attached to this Agreement.
7. Adherence to Standards. Optometrist shall comply with the
written policies, standards, rules and regulations of the Practice from time to
time established for all employees of the Practice.
8. Review of Performance. The Practice may periodically review and
evaluate the performance of Optometrist under this Employment Agreement with
Optometrist.
9. Expenses. The Practice may reimburse Optometrist for reasonable,
ordinary and necessary expenses incurred by him in connection with his
employment hereunder that have been approved in advance by the Practice;
provided, however, Optometrist shall render to the Practice a complete and
accurate accounting of all such expenses in accordance with the substantiation
requirements of Section 274 of the Internal Revenue Code of 1986, as amended
(the "Code"), as a condition precedent to such reimbursement.
10. Termination with Cause by the Practice. This Employment
Agreement may be terminated with Cause (as hereinafter defined) by the Practice
provided that the Practice shall (i) give Optometrist the Notice of Termination
(as hereinafter defined) and (ii) pay Optometrist his annual base salary
through the Date of Termination (as hereinafter defined) at the rate in effect
at the time the Notice of Termination is given plus any bonus or incentive
compensation which have been earned or have become payable pursuant to the
terms of any compensation or benefit plan or have vested as of the Date of
Termination, but which have not yet been paid.
11. Termination without Cause by the Practice or with Cause by
the Optometrist. This Employment Agreement may be terminated by the Practice
without cause or by the Optometrist with cause and in the event that the
Practice terminates the Optometrist without cause, the Practice shall give
written notice to the Optometrist at least ninety (90) days prior to the Date
of Termination.
12. Definitions. In addition to the words and terms elsewhere
defined in this Employment Agreement, certain capitalized words and terms used
in this Employment Agreement shall have the meanings given to them by the
definitions and descriptions in this Section 12 unless the context or use
indicates another or different meaning or intent, and such definition shall be
equally applicable to both the singular and plural forms of any of the
capitalized words and terms herein defined. The following words and terms are
defined terms under this Employment Agreement:
12.01 Cause. A termination with "Cause" by the Practice
shall mean a termination of this Employment Agreement for any of the following
reasons:
Exhibit 4.2B - Page 3
<PAGE> 95
(i) Optometrist's failure to promptly and adequately
perform the duties assigned by Practice after being notified by the Practice of
the specific act(s) constituting such failure and being given a period of
thirty (30) days after notification by the Practice to correct such failure;
(ii) upon Optometrist's breach of any provision of
this Employment Agreement which remains uncured for a period of thirty (30)
days after notification by Practice of the specific nature of the breach;
(iii) for good cause which shall include
absenteeism, theft, dishonesty, insubordination, conduct reflecting moral
turpitude, conduct diminishing the goodwill or reputation of the Practice;
conduct disloyal to the Practice, violation of any representation, warranty or
covenant of this Agreement; conviction of any felony, or suspension or
revocation of Optometrist's license to practice optometry;
(iv) upon Optometrist's death; or
(v) upon Optometrist's disability if the
disability renders Optometrist unable to practice optometry on a full-time
basis for a period of more than ninety (90) days in any consecutive six (6)
month period.
12.02 Date of Termination. "Date of Termination" shall mean
the date specified in the Notice of Termination.
12.03 Notice of Termination. "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision
in this Employment Agreement relied upon; provided, however, no such purported
termination shall be effective without such Notice of Termination.
13. Fees and Expenses. The prevailing party in any contest or
dispute under this Employment Agreement shall receive from the other party all
legal fees and related expenses (including the costs of experts, evidence and
counsel) incurred by the prevailing party in any and all proceedings as a
result of a contest or dispute arising out of this Employment Agreement
including trial, appellate and bankruptcy proceedings.
14. Notices. For the purposes of this Employment Agreement, notices
and all other communications provided for in the Employment Agreement shall be
in writing and shall be deemed to have been duly given when personally
delivered or sent by certified mail, return receipt requested, postage prepaid,
or by expedited (overnight) courier with an established national reputation,
shipping prepaid or billed to sender, in either case addressed to the
respective addresses last given by each party in writing to the other (provided
that all notices to the Practice shall be directed to the attention of the
Practice with a copy to the Secretary of the Practice. All notices and
communication shall be deemed to have been received on the date of delivery
thereof, on the third business day after the mailing thereof, or on the second
day after deposit thereof with an expedited courier service, except that notice
of change of address shall be effective only upon receipt.
15. Life Insurance. The Practice may, at any time after the
execution of this Employment Agreement, apply for and procure as owner and for
its own benefit, life insurance on Optometrist, in such amounts and in such
form or forms as the Practice may determine. Optometrist shall, at the request
of
Exhibit 4.2B - Page 4
<PAGE> 96
the Practice, submit to such medical examinations, supply such information,
and execute such documents as may be required by the insurance company or
companies to whom the Practice has applied for such insurance. Optometrist
hereby represents that to his knowledge there are no facts or circumstances
that would preclude the Practice from obtaining life insurance on Optometrist.
16. Proprietary Information and Inventions. Optometrist understands
and acknowledges that:
16.01 Trust. Optometrist's employment creates a relationship
of confidence and trust between Optometrist and the Practice with respect to
certain information applicable to the business of the Practice, and Vision 21
which may be made known to Optometrist by the Practice or Vision 21 or learned
by Optometrist during the Employment Period.
16.02 Proprietary Information. The Practice and Vision 21
possess and will continue to possess information that has been created,
discovered, or developed by, or otherwise become known to, the Practice or
Vision 21 (including, without limitation, information created, discovered or
developed by, or made known to Optometrist during the period of or arising out
of employment by the Practice) or in which property rights have been or may be
assigned or otherwise conveyed to the Practice or Vision 21, which information
has commercial value in the respective businesses in which the Practice and
Vision 21 are engaged and is treated by the Practice and Vision 21 as
confidential. Except as otherwise herein provided, all such information is
hereinafter called "Proprietary Information", which term, as used herein, shall
also include, but shall not be limited to, data, functional specifications,
computer programs, know-how, research, technology, improvements, developments,
designs, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budgets, projections, licenses, prices, costs, patient,
supplier and potential acquisition candidates lists, and patient files and
records. Notwithstanding anything contained in this Employment Agreement to
the contrary, the term "Proprietary Information" shall not include (i)
information which is in the public domain, (ii) information which is published
or otherwise becomes part of the public domain through no fault of Optometrist,
(iii) information which Optometrist can demonstrate was in Optometrist's
possession at the time of disclosure and was not acquired by Optometrist
directly or indirectly from the Practice or Vision 21 on a confidential basis,
(iv) information which becomes available to Optometrist on a non-confidential
basis from a source other than the Practice or Vision 21 and which source, to
the best of Optometrist's knowledge, did not acquire the information on a
confidential basis or (v) information required to be disclosed by any federal
or state law, rule or regulation or by any applicable judgment, order or decree
or any court or governmental body or agency having jurisdiction in the
premises.
All Proprietary Information shall be the sole property of the Practice
and Vision 21 and their respective assigns. Optometrist assigns to the
Practice and Vision 21 any rights Optometrist may have or acquire in such
Proprietary Information. At all times, both during Optometrist's employment by
the Practice and after its termination or expiration, Optometrist shall keep in
strictest confidence and trust all Proprietary Information, and Optometrist
shall not use or disclose any Proprietary Information without the written
consent of the Practice and Vision 21, except as may be necessary in the
ordinary course of performing Optometrist's duties as an employee of the
Practice. This Section 16 shall survive the termination or expiration of this
Employment Agreement.
17. Patient Files and Surrender of Documents. To the extent
permitted by law, all records contained in the files of patients shall be the
property of the Practice. Optometrist shall, at the request of the Practice,
promptly surrender to the Practice any patient files, records, or x-rays, as
well as any
Exhibit 4.2B - Page 5
<PAGE> 97
Proprietary Information or document, memorandum, record, patient
record, letter or other paper in his possession or under his control relating
to the operation, business or affairs of the Practice or Vision 21.
18. Prior Employment Agreements. Optometrist represents and
warrants that Optometrist's performance of all the terms of this Employment
Agreement and as an employee of the Practice does not, and will not, breach any
agreement to keep in confidence proprietary information acquired by Optometrist
in confidence or in trust prior to Optometrist's employment by the Practice.
Optometrist has not entered into, and shall not enter into, any agreement,
either written or oral, which is in conflict with this Employment Agreement or
which would be violated by Optometrist's entering into, or carrying out his
obligations under, this Employment Agreement.
19. Restrictive Covenant. Optometrist acknowledges and recognizes
(i) that Optometrist shall come into possession of Proprietary Information and
(ii) the highly competitive nature of the respective businesses of the Practice
and Vision 21 and, accordingly, agrees that in consideration of the premises
contained herein Optometrist will not, during the period of Optometrist's
employment by the Practice and for a period of one (1) year following the date
of expiration or termination of this Employment Agreement (unless terminated
without cause by the Practice), directly or indirectly (i) except as otherwise
permitted by the terms of this Employment Agreement, practice optometry or
engage in the business of managing optometry practices or related eye care
optometric facilities within the area described in Schedule 19, whether such
engagement shall be as an employer, officer, director, owner, employee,
consultant, stockholder, partner or other participant. Optometrist further
agrees that during the period of Optometrist's employment by Practice, and for
a period of one (1) year following the termination or expiration of this
Employment Agreement, Optometrist will not, directly or indirectly, (i) solicit
any employee or consultant of Vision 21 for the purposes of hiring or retaining
such employee or consultant, (ii) utilize the services of any entity engaged in
the business of managing optometry practices or related eye care or optometric
facilities other than Vision 21, or (iii) contact any present or prospective
client of Vision 21 to solicit such person or entity to enter into a management
contract with any organization other than Vision 21. Optometrist further
agrees that (i) Vision 21 is a third-party beneficiary of this Section 19, (ii)
this Section 19 is intended for the benefit of Vision 21, (iii) this Section 19
may be enforced by Practice's and Vision 21's successors and/or assigns, and
(iv) the enforcement of this Section 19 will not violate public policy. This
Section 19 shall survive the termination or expiration of this Employment
Agreement. Notwithstanding the foregoing, Vision 21 shall not have any right
to enforce any provisions of this Employment Agreement if the Business
Management Agreement terminates pursuant to Section 6.2(a) of the Business
Management Agreement.
20. Remedies. Optometrist acknowledges and agrees that the
Practice's and Vision 21's remedy at law for a breach or a threatened breach of
the provisions herein would be inadequate, and in recognition of this fact, in
the event of a breach or threatened breach by Optometrist of any of the
provisions of this Employment Agreement, it is agreed that the Practice and
Vision 21 shall be entitled to, equitable relief in the form of specific
performance, a temporary restraining order, a temporary or permanent injunction
or any other equitable remedy which may then be available, without posting bond
or other security. Optometrist acknowledges that the granting of a temporary
injunction, a temporary restraining order or other permanent injunction merely
prohibiting Optometrist from engaging in the practice of optometry or engaging
in the management of any optometric practice during the prohibited period
within the prohibited area would not be an adequate remedy upon breach or
threatened breach of this Employment Agreement, and consequently agrees upon
any such breach or threatened breach to the granting of injunctive relief
prohibiting Optometrist from engaging in any activities prohibited by this
Employment Agreement. No
Exhibit 4.2B - Page 6
<PAGE> 98
remedy herein conferred is intended to be exclusive of any other remedy, and
each and every such remedy shall be cumulative and shall be in addition to any
other remedy given hereunder now or hereinafter existing at law or in equity or
by statute or otherwise. It is expressly understood and agreed by Optometrist
that although the parties consider the restrictions contained in this
Employment Agreement to be reasonable, if a court determines that the time or
territory or any other restriction contained in this Employment Agreement is an
unenforceable restriction on the activities of Optometrist, as such provision
in this Employment Agreement shall not be rendered void but shall be deemed to
be amended as to apply to such maximum time and territory and to such extent as
such court may judicially determine or indicate to be reasonable. This Section
20 shall survive the termination or expiration of this Employment Agreement.
21. Business Management Agreement. Optometrist agrees not to commit
any act or engage in any omission that would cause the Practice to breach the
Business Management Agreement with Vision 21.
22. Modification and Waiver. No provision of this Employment
Agreement may be modified, waived or discharged unless such waiver,
modification or discharge is agreed to in writing and signed by Optometrist and
such officer as may be specifically designated by the Board of Directors of the
Practice and by such officer as may be specifically designated by the Board of
Directors of Vision 21. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any condition or
provision of this Employment Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time, and such waiver shall not operate
or be construed as a waiver of any subsequent breach of the same provision or
condition by any of the Practice, Optometrist or Vision 21.
23. Headings. Headings used in this Employment Agreement are for
convenience only and shall not be used to interpret or construe its provisions.
24. Amendments. No amendments or variations of the terms and
conditions of this Employment Agreement shall be valid unless the same are in
writing and signed by all of the parties hereto.
25. Severability. The invalidity or unenforceability of any
provision of this Employment Agreement, whether in whole or in part, shall not
in any way affect the validity and/or enforceability of any other provision
herein contained. Any invalid or unenforceable provision shall be deemed
severable to the extent of any such invalidity or unenforceability. It is
expressly understood and agreed that while the Practice and Optometrist
consider the restrictions contained in this Employment Agreement reasonable for
the purpose of preserving for the Practice the good will, other proprietary
rights and intangible business value of the Practice, if a final judicial
determination is made by a court having jurisdiction that the time or territory
or any other restriction contained in this Employment Agreement is an
unreasonable or otherwise unenforceable restriction against Optometrist, the
provisions of such clause shall not be rendered void but shall be deemed
amended to apply as to maximum time and territory and to such other extent as
such court may judicially determine or indicate to be reasonable.
26. Third Party Beneficiary. Vision 21 is a third-party beneficiary
of Sections 4, 16, 17, 19, 20 and 25 of this Employment Agreement and the
restrictive covenants contained in this Employment Agreement are intended for
the benefit of Vision 21. Except as otherwise provided herein, this
Exhibit 4.2B - Page 7
<PAGE> 99
Employment Agreement shall not confer any rights or remedies upon any
person other than the Practice, ophthalmologist and Vision 21 and their
respective successors and permitted assigns.
27. Successors and Assigns. The Practice's and Vision 21's
successors and/or assigns are authorized to enforce the restrictive covenants
contained in this Employment Agreement.
28. Governing Law. This Employment Agreement shall be construed and
enforced pursuant to the laws of the State in which the Practice conducts its
business.
29. Counterparts. This Employment Agreement may be executed in more
than one (1) counterpart and each counterpart shall be considered an original.
IN WITNESS WHEREOF, this Employment Agreement has been duly executed
by the Practice and Optometrist as of the date first above written.
"PRACTICE"
MILLENNIUM VISION, P.C.
By:
---------------------------------------
Daniel B. Feller, M.D., its President
"OPTOMETRIST"
---------------------------------------
------------------------- , O.D.
Exhibit 4.2B - Page 8
<PAGE> 100
Exhibit 4.2C
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
List of Non-Shareholder Professionals
in Non-Standard Employment Contracts
1. None.
<PAGE> 101
Exhibit 4.17
to Business Management Agreement among Millennium Vision, P.C.
(the "Practice"), and Daniel B. Feller, M.D., P.C. ("Business
Manager")
SHAREHOLDERS' UNDERTAKING TO MAINTAIN PRACTICE'S
CORPORATE EXISTENCE AND ENFORCEMENT OF COVENANTS
NOT TO COMPETE
As an inducement to the Business Manager to enter into this Business
Management Agreement with the Practice or as required in the Business
Management Agreement, each of the undersigned person(s), having an ownership
interest in the Practice, irrevocably and unconditionally covenants and agrees
to maintain in good standing the corporate existence of the Practice under the
laws of the State and to cause the Practice to use its best efforts to enforce
employment agreements (including those covenants not to compete requirements
described in Sections 4.1 and 4.2) against any individuals violating such
employment agreements (and covenants not to compete). The undersigned persons
further unconditionally covenant and agree to indemnify and hold harmless
Business Manager from and against any and all claims requirements, demands,
liabilities, losses, damages, costs and expenses, including reasonable
attorneys' fees, resulting in any manner from the failure of the Practice to
remain in good standing under the laws of the State or the failure of the
Practice to use its best efforts to enforce those employment agreements and
covenants not to compete described in Section 4.1 and 4.2 of such Business
Management Agreement, a copy of which has been delivered to the undersigned for
his review. The undersigned acknowledges that he or she has received adequate
consideration for the execution hereof. After a period of five (5) years from
December 1, 1996, this Undertaking may be assumed by a successor Shareholder or
Shareholders, in accordance with the terms and conditions set forth in Section
4.1 of the Business Management Agreement, whereupon the undersigned shall be
released to the extent of such assumption, provided that any such successor
Shareholder executes a form similar to this.
IN WITNESS WHEREOF, the undersigned(s) have executed this
Shareholders' Undertaking as of the day and year written opposite such
shareholder's name.
Date:
----------------- -------------------------------
Daniel B. Feller, M.D.
<PAGE> 102
Exhibit 5.1
to Business Management Agreement among Millennium Vision,
P.C. (the "Practice"), and Daniel B. Feller, M.D., P.C.
("Business Manager")
Management Fee Percentage
1. The Management Fee Percentage shall be 36.7% percent.
<PAGE> 103
Exhibit 6.4(f)
to Business Management Agreement among Millennium Vision,
P.C. (the "Practice"), and Daniel B. Feller, M.D., P.C.
("Business Manager")
SHAREHOLDERS' UNDERTAKING TO CARRY OUT
PRACTICE'S PURCHASE OBLIGATION
As an inducement to the Business Manager to enter into this Business
Management Agreement with the Practice or as required in Business Management
Agreement, each of the undersigned person(s), having an ownership interest in
the Practice, irrevocably and unconditionally covenants and agrees subject to
the limitations contained in the Business Management Agreement to (i) cause the
Practice to carry out the purchase obligation described in Section 6.4(f) of
the Business Management Agreement, (ii) personally execute and deliver the
personal guarantees and security agreements referred to in Section 6.4(f) of
such Business Management Agreement, a copy of which has been delivered to the
undersigned for his review, and (iii) execute the documents described in
Section 6.6. The undersigned acknowledges that he or she has received adequate
consideration for the execution hereof.
IN WITNESS WHEREOF, the undersigned(s) have executed this
Shareholders' Undertaking as of the day and year written opposite such
shareholder's name.
Date:
------------------ ---------------------------------
Daniel B. Feller, M.D.
<PAGE> 1
EXHIBIT 10.42
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made on May __, 1997, between David R. Hardten, M.D.,
Robert B. Kennedy, O.D., Thomas A. Knox, Gregory W. Kraupa, O.D., John W. Lahr,
O.D., Richard L. Lindstrom, M.D., Jack W. Moore, Thomas W. Samuelson, M.D. and
Bradley D. Richter, O.D. (hereinafter referred to collectively as "Sellers"),
and Vision Twenty-One, Inc., a Florida corporation (hereinafter referred to as
"Buyer").
RECITALS
A. The Sellers own all of the issued and outstanding shares of Midwest
Eye Care Alliance, Inc., a Minnesota corporation ("Corporation").
B. The Sellers as a group have been and will continue to be a
significant presence in the Midwestern United States eye care industry and
recently formalized their relationship by incorporating the Corporation to
consolidate their collective efforts to impact such industry and to assist Buyer
in the growth of their business in the Midwestern region of the United States.
C. Buyer wishes to acquire the Corporation which contains the
knowledge, procedures, plans and other elements of goodwill (the "Business
Concept"), which Business Concept Buyer believes has significant value to Buyer
and will benefit the future development of Buyer's business in the Midwestern
United States.
D. The Sellers desire to sell 100% of the outstanding stock ("Stock")
in the Corporation to the Buyer which desires to purchase the same on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the above premises, the
mutual promises contained herein and the other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Shares to be Purchased. The Sellers shall sell and the Buyer shall
buy all of the Stock of the Corporation.
2. Purchase Price. The Buyer shall pay to the Sellers for all of the
Stock a total sum of Seven Hundred Thousand Dollars ($700,000.00) to be divided
according to their ownership interest payable on the date of any initial public
offering of Buyer.
3. Closing Date. The Closing Date shall be on that date which is two
(2) weeks prior to Buyer's initial public offering either by mail or at the
offices of Buyer's counsel, Shumaker, Loop & Kendrick, Suite 2800, Barnett
Plaza, 101 E. Kennedy Boulevard, Tampa, Florida 33602, or at such other time and
place as mutually agreed to by the parties. The closing by Buyer of the
individual practices constituting the Sellers is a contingency hereof and shall
have occurred before the closing date.
<PAGE> 2
4. Warranties and Representations of Sellers.
Sellers jointly and severally hereby warrant, represent, and agree to
and with Buyer as follows:
(a) Sellers each have full, complete, and absolute title to the
following number of shares of capital stock of the Corporation:
NAME NO. OF SHARES
David R. Hardten, M.D. 3 1/3
Robert B. Kennedy, O.D. 10
Thomas A. Knox 10
Gregory W. Kraupa, O.D. 7
John W. Lahr, O.D. 10
Richard L. Lindstrom, M.D. 3 1/3
Jack W. Moore 10
Thomas W. Samuelson, M.D. 3 1/3
Bradley Richter, O.D. 3
(b) The title of each of Sellers to said shares is free and clear of
any lien, charge, or encumbrance, and said shares aggregating sixty (60) shares,
constitute all of the outstanding capital stock of the Corporation, and by sale
of said shares of Stock hereunder, Buyer will receive good and absolute title
thereto, free from any liens, charges, or encumbrances thereon;
(c) The Corporation is a corporation duly organized and existing under
and by virtue of the laws of the State of Minnesota, and is in good standing
under the laws of that state; said outstanding sixty (60) shares of the capital
stock of said Corporation have heretofore duly been issued; all of said issued
and outstanding shares are valid, fully paid and nonassessable, and no
assessment is outstanding against the same or any part thereof; before the
closing of the sale of Stock hereunder, Sellers will deliver to Buyer the
opinion of Fredickson & Byron, P.A., Seller's counsel, addressed to Buyer,
stating that the sixty (60) shares of capital Stock of the Corporation now
issued and outstanding have been lawfully issued under the laws of the State of
Minnesota and are valid, and that all Stock transfer restrictions affecting the
transfer of said shares of capital stock to Buyer hereunder have been duly
complied with or effectively waived, and that upon the closing hereunder have
been duly complied with or effectively waived, and that upon the closing
hereunder Buyer will have full and absolute title to said shares free and clear
of all liens, charges, or encumbrances;
(d) The present directors and officers of the Corporation are the
following:
Directors: Robert B. Kennedy, O.D.
Thomas A. Knox
Gregory W. Kraupa, O.D.
John W. Lahr, O.D.
Richard L. Lindstrom, M.D.
Jack Moore
2
<PAGE> 3
Officers: Richard L. Lindstrom, M.D. President
Gregory W. Kraupa, O.D. Vice President
John W. Lahr, O.D. Secretary
Thomas A. Knox Treasurer
and the written resignations of said officers and directors to be effective upon
acceptance will be delivered to Buyer concurrently with the delivery of
certificates representing the capital stock sold hereunder;
(e) The Corporation's assets consist solely of the Business Concept and
the Corporation does not have any other assets, nor does the Corporation have
any liabilities except as set forth on Exhibit A attached hereto;
(f) Title to the Corporation's assets are vested in the Corporation as
of the date hereof, free of any liens, charges, or encumbrances. The
Corporation's books of account, records, and files correctly reflect all
operations and transactions and all assets and liabilities of the Corporation;
(g) Between May 30, 1997 and the Closing Date hereunder, the
Corporation has not and will not (1) transfer, sell, or otherwise
dispose of any corporate property or assets material to the operation of its
business other than in the ordinary and usual course of its business as
heretofore conducted, save and except such items as shall have become no longer
useful, obsolete, or worn out, or rendered of no further use and, if
theretofore useful in the conduct of its business and operations, as may have
been replaced with other items of substantially the same value and utility as
the items transferred, sold, exchanged, or otherwise disposed of; (2) create,
participate in, or agree to the creation of, any liens or encumbrances on its
corporate property; (3) enter into any leases, contracts, or agreements of any
kind or character or incur any liabilities save and except those to which it is
presently committed and which are disclosed herein or in the exhibits hereto;
(4) make any payments or distributions to any of its officers, shareholders, or
employees, save and except wages and salaries made to employees in the ordinary
and usual course of the business as heretofore conducted including therein
contributions pursuant to health, insurance, and pension plans presently in
effect; (5) amend or repeal its articles of incorporation or by-laws nor issue
any share of capital stock in addition to,a and other than,the he shares
heretofore issued, or reissue any treasury stocks;
(h) There are no undisclosed or contingent liabilities of the
Corporation, and in the event that any such undisclosed or contingent liability
shall hereafter arise applicable in whole or in part to a period prior to the
closing date, Buyer shall give Sellers written notice thereof, and Sellers will
thereupon within twenty (20) days following receipt of such notice discharge
such liability or liabilities or undertake to defend and hold Buyer free and
harmless therefrom and shall so notify Buyer. Upon failure of Sellers to
discharge or undertake to defend against said liability within the time
specified, Buyer may settle said liability, and the joint and several liability
of Sellers under this subparagraph shall be conclusively established by such
settlement;
(i) The Corporation is not a party to any lease agreements;
(j) The Corporation does not own any fixtures or equipment;
3
<PAGE> 4
(k) The Corporation has no insurance polices presently in effect with
respect to the corporate property and business of the Corporation;
(l) There is no litigation pending against the Corporation, and none of
the Sellers is aware of any threatened litigation;
(m) All tax returns required to be made by the Corporation have been
properly prepared, executed, and duly filed pursuant to applicable laws and
regulations;
(n) The Corporation has not violated any federal, state, or municipal
law, statute, rule, or regulation or any executive order or presidential
directive required by it to be observed or performed; and
5. CONTINUING WARRANTIES
The warranties, representations, and agreements set forth herein shall
be continuous and shall survive the delivery by Sellers and the receipt by Buyer
of the capital stock to be sold hereunder and shall also survive the deduction
of amounts claimed to be due from the purchase price as provided in Section 2
hereof, and Buyer's right of recourse against said purchase price is not
intended to be its exclusive remedy for the breach of any such warranties,
representations, or agreements.
6. INDEMNITY
Without in any way limiting or diminishing the warranties,
representations, or agreements herein contained or the rights or remedies
available to the Buyer for the breach thereof, Sellers hereby jointly and
severally agree to indemnify, defend and hold Buyer harmless from and against
all loss, liability, damage, or expense arising out of any claims, demands,
costs, assessments, penalties, fines, taxes, or other loss resulting directly or
indirectly from the assertion against the Corporation of claims by any
governmental entity, any corporation, partnership, or any person or persons
arising before the Closing Date and not fully disclosed herein or not expressly
excepted by the provisions hereof.
7. WAIVER OF STOCK TRANSFER RESTRICTIONS
Sellers hereby waive all preemptive rights and restrictions on the sale
and transfer of the capital stock sold hereunder and agree to hold Buyer
harmless from and against all liability, loss, damage, or claims arising
directly or indirectly from Buyer's failure to obtain hereunder absolute,
entire and unconditional ownership of the entire outstanding capital stock of
the Corporation, free and clear of all restrictions, liens, charges, or
encumbrances.
8. BINDING AGREEMENT
The provisions of this agreement shall inure to the benefit of and
binds the successors and assigns of Buyer and the executors, administrators,
heirs, successors and assigns of Sellers.
4
<PAGE> 5
9. NOTICES
All notices required or permitted to be given hereunder shall be in
writing and shall be sent by first-class mail postage prepaid, deposited in the
United States mail, and if intended for stockholders or Sellers shall be
addressed to Lindstrom, Samuelson & Hardten, OPH, P.A., Park Avenue Medical
Office Building, Suite 106, 710 East 24th Sheet, Minneapolis, Minnesota 55404,
and, if intended for Buyer shall be addressed to Vision Twenty-One Inc., 7209
Bryan Dairy Road, Largo, Florida 34647. Either party may by written notice to
the other change the address for notice to be sent to it.
10. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF FLORIDA
WITHOUT REGARD TO SUCH STATE'S RULES CONCERNING CONFLICTS OF LAWS. ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR PROCEEDING RELATED TO OR ARISING OUT
OF THIS AGREEMENT IS WAIVED.
11. ARBITRATION
Any dispute or disagreement arising between the parties hereto in
connection with this Agreement, which is not settled to the mutual satisfaction
of the parties within thirty (30) days (or such longer period as may be mutually
agreed upon) from the date that either party informs the other in writing that
such dispute or disagreement exists, shall be submitted to arbitration in Tampa,
Florida to a member of the American Arbitration Association ("AAA") to be
mutually appointed by the parties (or, in the event the parties cannot agree on
a single such member, to a panel of three members selected in accordance with
the rules of the AAA). The dispute or disagreement shall be settled in
accordance with the Commercial Arbitration Rules of the AAA and the decision of
the arbitrator(s) shall be final and binding upon the parties and judgement may
be obtained thereon in a court of competent jurisdiction. The prevailing party
shall be entitled to recover from the other party the fees and expenses of the
arbitrator(s) as well as reasonable attorneys' fees, costs and expenses incurred
by the prevailing party.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this agreement the
day and year first above written.
"SELLERS"
/s/ David Hardten /s/ Robert B. Kennedy
- ------------------------------------ ----------------------------------
DAVID R. HARDTEN, MD. ROBERT B. KENNEDY, O.D.
/s/ Thomas Knox /s/ Gregory Kraupa
- ------------------------------------ ----------------------------------
THOMAS A. KNOX GREGORY W. KRAUPA, O.D.
/s/ John Lahr /s/ Richard L. Lindstrom
- ------------------------------------ ----------------------------------
JOHN W. LAHR, O.D. RICHARD L. LINDSTROM, M.D.
/s/ Jack Moore /s/ Thomas Samuelson
- ------------------------------------ --------------------------------
JACK W. MOORE THOMAS W. SAMUELSON, M.D.
/s/ Bradley Richter
- -----------------------------------
BRADLEY RICHTER, O.D.
"BUYER"
VISION TWENTY-ONE, INC.
BY: /s/ Theodore N. Gillette
--------------------------------
President
6
<PAGE> 1
EXHIBIT 10.43
REGIONAL SERVICES AGREEMENT
THIS REGIONAL COORDINATOR AGREEMENT ("Agreement"), entered into as of
the ___ day of May, 1997, is by and between Vision Twenty-One, Inc. (the
"Company" or "Vision 21") and Richard L. Lindstrom, M.D. (the "Coordinator").
RECITALS
WHEREAS, the Company desires to obtain services from Coordinator and
Coordinator desires to provide such services to the Company, all upon the terms
and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants set forth
herein, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
Section 1. Services to be Rendered. Coordinator agrees to render
advisory services to the Company in connection with identifying potential
ophthalmology and optometry practices (the "Practices") in the Midwest Region of
the United States (which shall be deemed to include the states of Illinois,
Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, North
Dakota, Ohio, South Dakota and Wisconsin) for integration into the Company's
integrated eye care management system through acquisitions by the Company of the
Practices' non-professional assets, employment arrangements with Practice
professionals by affiliated professional associations and business management
agreements with affiliated professional associations and assisting the Practices
after integration in maximizing productivity.
Coordinator agrees to provide such of the following on behalf of the
Company in the Midwest Region during the term hereof as are appropriate and as
the Company may from time to time reasonably request:
(a) assist and advise the Company in identifying and introducing
Practices to the Company;
(b) furnish the Company with information properly available to
Coordinator and disclosable to the Company regarding the Practices including,
without limitation, names and backgrounds of their owners and financial data
pertaining thereto;
(c) consult with the Company as to strategy and tactics for integrating
the Practices;
(d) assist the Company, where requested by the Company, in negotiating
and consummating acquisitions of the Practices;
(e) assist and advise the Practices, where requested by the Company,
after the Practices are integrated into the Company's system;
(f) such other services as the Company may reasonably request.
Section 2. Term. This Agreement shall remain in effect for a period of
three years after the date of the closing of an initial public offering of the
common stock of the Company (the "IPO Date").
Section 3. Compensation. During the term of this Agreement, subject to
all the terms and conditions of this Agreement and as compensation for all
services to be rendered by Coordinator under this Agreement, the Company shall
pay to Coordinator $13,333.34 per year payable on the following dates: (i) the
<PAGE> 2
first payment shall be due on the first day of the month following the IPO Date;
(ii) the second payment shall be due one year after the IPO Date; and (iii) the
final payment shall be due two years after the IPO Date.
The parties agree that Coordinator is an independent contractor and, as
such, shall be responsible for the payment of all federal, state and local
withholding, income and unemployment taxes or charges due or assessed against
all compensation paid hereunder. Coordinator shall be entitled to reimbursement
of reasonable, ordinary and necessary expenses incurred by him in connection
with assisting the Company in locating an acquisition target. Said expenses must
be pre-approved and/or consistent with established guidelines by the Company.
Section 4. Confidentiality.
(a) Coordinator acknowledges that, in the course of providing services
hereunder, Coordinator will learn certain confidential information about Vision
21's business. Coordinator agrees that he will keep all such information
strictly confidential.
(b) The parties acknowledge that the provisions of paragraph (a) of
this Section 4 shall not apply to any information which (i) had been rightfully
in the possession of the recipient prior to its disclosure to the recipient;
(ii) had been in the public domain prior to its disclosure to the recipient;
(iii) has become part of the public domain by publication or by any other means
except an unauthorized act or omission on the part of the recipient; (iv) had
been supplied to the recipient without restriction by a third party who is under
no obligation to maintain such information in confidence; or (v) is required to
be disclosed by any federal or state law, rule or regulation or by any
applicable judgment, order or decree or any court or governmental body or agency
having jurisdiction in the premises.
(c) The terms of this Section 4 shall survive the expiration or
termination of this Agreement.
Section 5. Non-Compete. Coordinator acknowledges and recognizes the
highly competitive nature of the business of Vision 21 and, accordingly, agrees
that in consideration of the premises contained herein, except as set forth on
Schedule 5 hereto, Coordinator will not, during the term of this Agreement and
for a period of two (2) years following the date of expiration or termination of
this Agreement, directly or indirectly, compete against Vision 21 or render
advice or assistance, or have any interest in, or provide any services to any
competitor of Vision 21. Coordinator further agrees that during the term of this
Agreement and for a period of two (2) years following the termination or
expiration of this Agreement, Coordinator will not, directly or indirectly, (i)
solicit any employee or consultant of Vision 21 for the purposes of hiring or
retaining such employee or consultant, or (ii) contact any present or
prospective client of Vision 21 to solicit such person or entity to enter into a
management contract with any organization other than Vision 21. This Section 5
shall survive the termination or expiration of this Agreement.
Section 6. Termination Of Agreement. This Agreement may be terminated
by the Company for any of the following reasons:
(a) for "Cause" (as hereinafter defined) provided that the Company
shall give Coordinator a written notice of termination indicating the specific
termination provision in this Agreement relied upon; provided, however, no such
purported termination shall be effective without such notice of termination. A
termination for "Cause" by the Company shall mean a termination of this
Agreement for any of the following reasons:
(i) Coordinator's failure to promptly and adequately perform the
services and duties assigned by Company, if the failure
unreasonably continues after being notified by the Company of
the specific act(s) constituting such failure and being given
a period of thirty (30) days after notification by the Company
to correct such failure;
<PAGE> 3
(ii) Coordinator's breach of any provision of this Agreement which
remains uncured for a period of thirty (30) days after
notification by the Company of the specific nature of the
breach;
(iii) Coordinator's material breach of any fiduciary duty to
Employer, if the breach unreasonably continues for a period of
thirty (30) days after notification by the Company of the
specific nature of the breach;
(iv) any act of insubordination, fraud, embezzlement or dishonesty;
(v) conduct reflecting moral turpitude;
(vi) conduct diminishing the goodwill or reputation of the Company
or conduct disloyal to the Company; or
(vii) conviction of any felony.
In the event of termination of this Agreement by the Company for
"Cause," the Company shall not be obligated to pay Coordinator any compensation
after the date of the delivery of the notice of termination, which date shall be
for all purposes of this Agreement, the date of termination of this Agreement.
(b) upon termination of any other service or employment agreement
between Coordinator and the Company or between Coordinator and a professional
association or professional corporation to which the Company provides management
services, this Agreement shall immediately terminate, and the Company shall not
be obligated to pay any compensation to Coordinator subsequent to the date of
such termination;
(c) upon Coordinator's death, this Agreement shall immediately
terminate, and the Company shall not be obligated to pay any compensation to
Coordinator subsequent to the date of his death; or
(d) upon Coordinator's disability if the disability renders Coordinator
unable to perform the services hereunder on a full-time basis for a period of
more than ninety (90) days in any consecutive six (6) month period, the Company
may terminate this Agreement by furnishing Coordinator notice of such
termination and the Company shall not be obligated to pay any compensation to
Coordinator subsequent to the date of such notice, which date shall be for all
purposes of this Agreement, the date of termination of this Agreement.
Section 7. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS
OF THE STATE OF FLORIDA WITHOUT REGARD TO SUCH STATE'S RULES CONCERNING
CONFLICTS OF LAWS. ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM OR
PROCEEDING RELATED TO OR ARISING OUT OF THIS AGREEMENT IS WAIVED.
Section 8. Arbitration. Any dispute or disagreement arising between the
parties hereto in connection with this Agreement, which is not settled to the
mutual satisfaction of the parties within thirty (30) days (or such longer
period as may be mutually agreed upon) from the date that either party informs
the other in writing that such dispute or disagreement exists, shall be
submitted to arbitration in Tampa, Florida to a member of the American
Arbitration Association ("AAA") to be mutually appointed by the parties (or, in
the event the parties cannot agree on a single such member, to a panel of three
members selected in accordance with the rules of the AAA). The dispute or
disagreement shall be settled in accordance with the Commercial Arbitration
Rules of the AAA and the decision of the arbitrator(s) shall be final and
binding upon the parties and judgment may be obtained thereon in a court of
competent jurisdiction. The prevailing party shall be entitled to recover from
the other party the fees and expenses of the arbitrator(s) as well as reasonable
attorneys' fees, costs and expenses incurred by the prevailing party.
<PAGE> 4
Section 9. Entire Agreement. This Agreement reflects the entire
agreement between the parties hereto with respect to the subject matter hereof
and no provision hereof may be modified or waived unless such modification or
waiver is in writing and is signed by both of the parties hereto.
It is understood that this Agreement does not supersede any separate
employment or services agreement between Coordinator and the Company. The
services required to be performed under this Agreement are incremental to and in
addition to any other services Coordinator may be required to perform under any
other agreement between Coordinator and the Company. There will be no reduction
in compensation under this Agreement if there is an overlap in services provided
under any such separate agreement.
Section 10. Notices. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered or sent by
certified mail, return receipt requested, postage prepaid, or by expedited
(overnight) courier with an established national reputation, shipping prepaid or
billed to sender, in either case addressed to the respective addresses last
given by each party in writing to the other (provided that all notices to the
Company shall be directed to the attention of the Company with a copy to the
Secretary of the Company). All notices and communication shall be deemed to have
been received on the date of delivery thereof, on the third business day after
the mailing thereof, or on the second day after deposit thereof with an
expedited courier service, except that notice of change of address shall be
effective only upon receipt.
Section 11. Severability. The invalidity or unenforceability of any
provision of this Agreement, whether in whole or in part, shall not in any way
affect the validity and/or enforceability of any other provision herein
contained. Any invalid or unenforceable provision shall be deemed severable to
the extent of any such invalidity or unenforceability. It is expressly
understood and agreed that while the Company and Coordinator consider the
restrictions contained in this Agreement reasonable for the purpose of
preserving for the Company the good will, other proprietary rights and
intangible business value of the Company, if a final judicial determination is
made by a court having jurisdiction that the time or territory or any other
restriction contained in this Agreement is an unreasonable or otherwise
unenforceable restriction against Coordinator, the provisions of such clause
shall not be rendered void but shall be deemed amended to apply as to maximum
time and territory and to such other extent as such court may judicially
determine or indicate to be reasonable.
Section 12. Amendments. No amendments or variations of the terms and
conditions of this Agreement shall be valid unless the same are in writing and
signed by all of the parties hereto.
Section 13. Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of Vision 21, its successors and assigns.
This Agreement shall not be assignable by Coordinator.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VISION TWENTY-ONE, INC.
By:/s/ Theodore N. Gillette
-------------------------------------
Theodore N. Gillette
President and Chief Executive Officer
COORDINATOR
By:/s/ Richard L. Lindstrom
------------------------------------
Richard L. Lindstrom, M.D.
<PAGE> 1
EXHIBIT 10.47
[VISION TWENTY-ONE LOGO]
VISION TWENTY-ONE
A Different Point Of View.
EYE CARE
PROVIDER AGREEMENT
THIS EYE CARE PROVIDER AGREEMENT is made and entered into as of __________
(the "Effective Date") by and between Vision Twenty-One Managed Eye Care, Inc.,
a Florida corporation (Vision Twenty-One), and __________________________,
a __________________________________ ("Provider").
W I T N E S S E T H:
WHEREAS, Vision Twenty-One markets its managed care services to and
negotiates agreements with purchasers and providers of such services, including
various health maintenance organizations (HMOs), preferred provider
organizations (PPOs) and other third party payers; and
WHEREAS, Provider is in the business of providing care to patients
through its staff of professional employees and independent contractors who are
licensed or otherwise authorized to provide such Eye Care Services; and
WHEREAS, Vision Twenty-One desires to engage the services of Provider,
and Provider desires to be so engaged, to provide services (as hereinafter
defined) to persons subscribing with, enrolling in, or otherwise contracting
with all HMOs, PPOs and other health care providers and third party payers with
which Vision Twenty-One Managed Eye Care, Inc. and/or Visionworks, Inc.
contracts such services to be provided under the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the promises, which shall be deemed
to be an integral part of this Agreement and not mere recitals hereto, the
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following terms shall have the meanings
indicated unless the context requires otherwise:
1.1 "Payment Schedule" means the schedule of payments that Provider has agreed
to accept (if identified in Exhibit A)as compensation for providing services to
Enrollees, the initial schedule (which is subject to change as provided in this
Agreement) being set forth in Exhibit A to this Agreement.
1.2 "Emergency" means an illness or accident in which the onset of symptoms is
both sudden and so severe as to require immediate professional treatment. An
"Emergency" includes a medical emergency of a life-threatening nature or when
serious impairment of functions would result if treatment were not rendered
immediately.
1.3 "Enrollee" means any individual eligible for Eye Care benefits pursuant to
an Enrollee Contract (as hereinafter defined).
1.4 "Eye Care Provider" means a professional employee or independent contractor
of Provider who is licensed or otherwise authorized to provide Eye Care Services
on behalf of Provider.
<PAGE> 2
1.5 "Eye Care Services" means Medically Appropriate outpatient and inpatient
treatment for services for the diagnosis and treatment of ocular disorders. The
specific Eye Care Services to be provided, and the conditions under which such
services may be provided, shall be specified pursuant to each Enrollee's
applicable Enrollee Contract, and those services may be varied pursuant to
specific provisions contained in such Enrollee Contract.
1.6 "Geographic Area" means the Counties or zip code areas set forth in Exhibit
B.
1.7 "Medically Appropriate" means medical and surgical eye care services or
supplies which are appropriate and necessary for the symptoms, diagnosis or
treatment of an injury or disease and which are: (i) provided for the diagnosis
or direct care and treatment of the injury or disease; (ii) within customary
standards of medical practice within the organized medical community; (iii) not
primarily for the convenience of the Enrollee or of the provider of such
services or supplies; and (iv) an appropriate supply or level of service needed
to provide safe and adequate care.
1.8 "Other Health Services" means health care services and supplies other than
Eye Care Services.
1.9 "Participating Affiliated Provider" means any licensed general or specialty
hospital, or any other facility authorized under applicable state law to provide
services, which has entered into an agreement with the network to provide
medical services to Enrollees and is designated as such from time to time by the
network to Provider.
1.10 "Enrollee Contract" means either the agreement entered into by a Plan and
employees or an agreement entered into by a Plan and enrollees or subscribers,
each of which sets forth covered benefits and eligibility requirements for
Enrollees.
1.11 "Physician" means any individual licensed to practice optometry or
ophthalmology in the State of ___________ per chapters _____________ of the
_________________ Statute.
1.12 Plan" means any HMO, PPO or other health care provider or third party payer
with which Vision Twenty-One forms a relationship and so notifies Provider of
such relationship.
1.13 "Plan Employee" means any individual designated to Vision Twenty-One, and
thereafter designated by Vision Twenty-One to Provider, as a full-time employee
of any Plan.
1.14 "Plan Physician" means a Physician employed by a specific Plan, or under
contract to a specific Plan as an independent contractor, designated as such
from time to time to Vision Twenty-One, and thereafter designated by Vision
Twenty-One to Provider.
1.15 "QA/UR Program" means the quality assessment and utilization review
program, all case management services, policies and procedures, clinical
protocols, and any internal or external peer review system developed,
established and administered by Vision Twenty-One or as otherwise authorized by
Vision Twenty-One.
1.16 "Consultation Form" document to request referrals for services beyond
Provider's scope of services.
1.17 "Third Party Management Services Agreement" means agreement by which Vision
Twenty-One would handle the billing and collection administration for Provider.
2. RESPONSIBILITIES OF PROVIDER.
2.1 Engagement; Scope of Services. Vision Twenty-One hereby engages Provider,
and Provider hereby agrees, to provide services to Enrollees upon receipt of
authorization from Vision Twenty-One. Such authorization from Vision Twenty-One
shall be according to QA/UR program guidelines which have been delivered to
Provider. In addition, the following conditions shall apply:
<PAGE> 3
2.1.1 Except in an Emergency, any services which involve inpatient services will
be provided at a Participating Affiliated Provider, unless use of a
nonaffiliated entity is approved in advance by the Plan.
2.1.2 If: (a) an Enrollee is referred to Provider for Eye Care Services that are
outside the normal scope of Provider's existing Eye Care practice or that
Provider is reasonably unwilling or unable to provide or to continue providing,
or (b) if an Enrollee requests that Provider cease providing Eye Care Services,
then Provider shall notify Vision Twenty-One of Provider's inability or
unwillingness to provide the authorized Eye Care Services, or treatment, as the
case may be. In that event, Vision Twenty-One shall have the right to substitute
or replace Provider with another qualified professional who shall render the
authorized Eye Care Services.
2.1.3 Provider shall provide Eye Care Services to Enrollees in the same physical
setting and according to the same schedules and in the same manner as such
services are customarily provided to other similarly situated patients. Provider
shall not differentiate or discriminate in the treatment of Enrollees either in
quantity or cost of services rendered, or in any other manner, on the basis of
race, sex, age, religion, place of residence, health status, or source of
payment for services rendered.
2.1.4 All services provided by the Provider shall be provided by professional
personnel and at physical facilities in compliance with any applicable standard
of medical practice, including any rule or regulation of any state or federal
administrative agency, department or other pertinent governing or advisory body
having the authority to set standards for physicians. Additionally, Provider
shall perform all medical services in conformance with the standards for his
specialty as established by the local medical community.
2.2 Emergency Services. Notwithstanding any provision of this Section 2 to the
contrary, Eye Care Services shall be provided to Enrollees without prior
authorization from Vision Twenty-One for such services if, in the opinion of the
attending Eye Care Provider, an Emergency exists. In the event Eye Care Services
are rendered in an Emergency, Provider agrees that consultation with Vision
Twenty-One or, with Vision Twenty-One's approval, a Plan Physician (or other
Plan Employee to which Provider is referred by such Plan) shall be undertaken as
soon as medically reasonable, and no further Eye Care Services shall be rendered
without authorization from Vision Twenty-One for such treatment in accordance
with the provisions of paragraph 2.1 above.
2.3 Referrals for Other Health Services. In the event that any Enrollee referred
to Provider for Eye Care Services is in need of Other Health Services, Provider
shall refer the Enrollee only to the network, or to the Plan Physician (or such
other Plan Employee to which Provider is referred by such Plan) and Provider
shall notify Vision Twenty-One of such action in writing. Provider shall have no
right or responsibility to refer the Enrollee to any other Physician or other
health care provider for such Other Health Services. In the event that Provider
makes any unauthorized referral of an Enrollee for Other Health Services,
Provider shall be solely responsible, and shall reimburse Vision Twenty-One for
any charges, losses, or claims incurred by Vision Twenty-One or the applicable
Plan for medical treatment rendered as the result of such unauthorized referral.
2.4 Services to Plan Employees. Provider hereby further agrees to provide Eye
Care Services to any Plan Employee and his or her covered dependent(s) under any
applicable employee benefit program maintained by a Plan upon receipt of an
authorization for such services from Vision Twenty-One. If so specified by the
applicable Plan, and upon notice to Provider of same from Vision Twenty-One, a
Plan Employee and his or her covered dependent(s) entitled to receive Eye Care
Services under an applicable employee benefit program shall not be required to
pay any co-payment otherwise required of Enrollees under any Enrollee Contract.
2.5 QA/UR Program. Provider shall cooperate with the QA/UR Program implemented
by Vision Twenty-One with respect to Eye Care Services provided to Enrollees,
and to comply with all final determinations rendered in accordance with the
QA/UR Program.
2.6 Grievance Procedures. Provider agrees to notify Vision Twenty-One, and
agrees to require all Eye Care Providers to notify Vision Twenty-One, upon
receipt of any Enrollee complaint received by Provider or any Eye Care Provider.
Provider agrees to cause its Eye Care Providers to cooperate with Vision
Twenty-One and each Plan in the administration of the Enrollee grievance system,
as the same may be set forth from time to time in any Enrollee Contract or any
other information then provided to Provider by Vision Twenty-One.
<PAGE> 4
2.7 Licenses. Provider hereby agrees to maintain in good standing, and to cause
its Eye Care Providers to maintain in good standing: (a) all licenses or other
authorizations necessary to provide Eye Care Services pursuant to the provisions
of this Agreement, and (b) all licenses or other authorizations required to
participate in the Medicare program under Title XVIII of the Social Security
Act. Provider shall make available to Vision Twenty-One upon request copies of
the currently effective licenses or other authorizations, and Provider shall
notify Vision Twenty-One of any change in the status of same.
2.8 Admission to Practice in Participating Affiliated Providers. Provider hereby
agrees that, when appropriate and requested by Vision Twenty-One, Provider shall
cause its Eye Care Providers to seek staff privileges in any Participating
Affiliated Provider which serves the Geographic Area and which requires that
providers be granted staff privileges prior to admitting patients to or treating
patients in such Participating Affiliated Provider. Provider's failure to seek
or maintain any such privilege shall constitute a breach of a material part of
this Agreement.
2.9 Insurance: Provider and all physicians will at all times throughout the term
of this Agreement maintain professional liability insurance with a carrier
approved by Vision Twenty-One on a reasonable basis in an amount no less than
$1,000,000.00 per occurrence and $3,000,000.00 in the aggregate. Moreover, in
the event that any physician ceases to provide services hereunder, and upon the
termination or expiration of this Agreement, Provider, and each physician whose
insurance is "claims made" insurance rather than "occurrence" insurance will
either (i) purchase "tail" coverage to continue the liability insurance coverage
for the period during which the physician rendered services hereunder or (ii)
continue in full force and effect the same level of liability insurance coverage
on a claims made basis until the longest statute of limitations for professional
liability for acts committed under this agreement has tolled (it is understood
that the Statute of Limitations as to a minor does not begin running until they
reach the age of majority). Provider shall also maintain general liability in
these same amounts. Provider's insurance policy shall cover all professional
personnel who do not maintain their own coverage. Provider and each physician
will deliver to Vision Twenty-One at least annually in advance a certificate of
insurance evidencing the required coverage, both during the term of this
Agreement and thereafter. Upon execution of this Agreement, the Provider shall
provide Vision Twenty-One with evidence of the existence and periods of coverage
of the insurance required by this Section. The Provider shall immediately notify
Vision Twenty-One of any cancellation of or changes in the insurance coverage
required herein and shall provide a certificate of such insurance coverage to
Vision Twenty-One upon reasonable request. Provider agrees to indemnify and hold
Vision Twenty-One harmless from any claims and for all damages incurred by
Vision Twenty-One, including attorneys' fees and costs, due to the failure of
Provider, its employees or agents, to maintain, or require the maintenance of,
the insurance required in this Section.
In addition to the above, Provider will notify Vision Twenty-One in writing
immediately upon notification of any potential claim against Provider that is
required to be made to Provider's insurance company and as to any patient or
actual or potential DBPR complaint or investigation relating to an Enrollee.
2.10 Coverage. If the Provider is to be unavailable to provide Eye Care Services
to Enrollees for whatever reason, including, but not limited to, illness or
vacation, Provider shall arrange for another Participating Affiliated Provider
to cover for Provider. In the case of an emergency, if the Provider must arrange
for coverage and no other Participating Affiliated Provider is available,
Provider may provide coverage through a physician who is not a Participating
Affiliated Provider, if, prior to the beginning of such coverage, Provider
obtains the express written consent of the President of Vision Twenty-One and
the agreement of such covering physician to accept, as payment in full, the fees
negotiated for Provider by Vision Twenty-One.
2.11 Vision Twenty-One Rules and Regulations. Provider shall comply with and be
bound by all reasonable rules and regulations applicable to Provider as
developed and established by Vision Twenty-One from time to time.
2.12 Vision Twenty-One Indemnification. Provider shall indemnify, defend and
hold Vision Twenty-One, its officers, directors and employees harmless from and
against, and in respect to, any and all claims or liabilities, including
reasonable attorneys' fees and costs, that Vision Twenty-One, its officers,
directors and employees shall incur of suffer, which arises our of, results from
or relates to (i) any breach of, or failure by the Provider to perform any of
its representations, warranties, covenants, guarantees or agreements in this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or to be furnished by Vision Twenty-One under this Agreement; and (ii) any
claims arising from or allegedly arising from the negligence of Vision
Twenty-One, or any of its agents, employees or representatives.
<PAGE> 5
3. COMPENSATION FOR SERVICES: CHARGES TO ENROLLEES.
3.1 Compensation For Services. As compensation for its rendering of all
authorized Eye Care Services to Enrollees, and for its rendering of all
authorized Eye Care Services to Plan Employees pursuant to any applicable
employee benefit program, Provider shall be paid according to Exhibit A. Payment
shall be made by Vision Twenty-One to the Provider 45 (forty-five) days from
receipt of an approved HCFA 1500, a consultation report if necessary and payment
by the plan. If payment involves a billing to the plan, such billing will be
administered by Vision Twenty-One under a separate Third Party Management
Services Agreement.
3.2 Charges to Enrollees.
3.2.1 In accordance with the terms of each Enrollee Contract, an Enrollee may be
required to make a co-payment, or to participate in the cost of care through a
deductible, for authorized Eye Care Services rendered by Provider. Vision
Twenty-One hereby agrees to notify Provider of the co-payments and any
deductibles required under specific Enrollee Contracts, as well as any changes
in co-payments or deductibles that may be made from time to time. Provider
hereby agrees to use its best efforts to collect any required co-payment or
deductible from each Enrollee, and Provider understands that neither Vision
Twenty-One nor the applicable Plan shall be responsible for payment of any such
amount that Provider fails or is unable to collect.
3.2.2 Provider hereby agrees that it will not, under any circumstances,
including the bankruptcy or insolvency of Vision Twenty-One or any applicable
Plan, bill or charge any Enrollee for any amount in excess of any authorized Eye
Care Service rendered by Provider. Furthermore, Provider agrees that Provider
will not bill or charge an Enrollee any amount for any treatment that is not an
authorized Eye Care Service unless, prior to providing that treatment (except in
the case of an Emergency), Provider has obtained the written consent of the
applicable Enrollee.
3.2.3 If an Enrollee shall exhaust his or her benefits under any Enrollee
Contract, or if the requested or required services are not authorized by Vision
Twenty-One, then Provider may require the Enrollee to arrange for payment to be
made directly to Provider, and such arrangements shall not constitute a breach
of this Agreement.
4. RESPONSIBILITIES OF VISION TWENTY-ONE.
4.1 Availability of Information. To facilitate Provider's ability to carry out
its responsibilities under this Agreement to make provision for Eye Care
Services only when such services are authorized by Vision Twenty-One upon the
request of a Plan Physician (except in an Emergency), Vision Twenty-One shall
provide the following information to Provider: (a) a current list of all Plan
Physicians with authority to refer Enrollees for Eye Care Services, and updated
lists as same become available; and (b) a list of eye care benefits to which
Enrollees are entitled under applicable Enrollee Contract(s), and the conditions
under which such services may be provided. Furthermore, to facilitate Provider's
ability to recover all co-payments or deductibles to which it is entitled from
Enrollees, Vision Twenty-One hereby agrees that it shall provide to Provider
information regarding changes in required co-payments and deductibles under
existing Enrollee Contracts and information regarding new Enrollee Contract or
prior to the effective date of any new Enrollee Contract.
4.2 QA/UR Program. Vision Twenty-One has developed and utilizes the QA/UR
Program in connection with fulfillment of its responsibilities to the Plans.
Vision Twenty-One may amend the QA/UR Program as it deems necessary to carry out
its functions.
4.3 Grievance Procedures. Vision Twenty-One shall develop and manage grievance
procedures for the Enrollees of each Plan, which procedures may differ for each
Plan, and such procedures may be modified from time to time by Vision
Twenty-One. Vision Twenty-One shall notify Provider of the terms of each
Enrollee grievance procedure upon execution of this Agreement and of any
modifications in any procedure within a reasonable time after such modifications
are made.
<PAGE> 6
4.4 Obligations. The relationship between Vision Twenty-One and the Provider is
not exclusive and Vision Twenty-One shall be under no obligation to refer
patients to Provider or require Payers to refer patients to Provider. Any fees
paid hereunder shall not be determined in any manner that takes into account the
volume or value of any potential referrals between the parties. No amount paid
hereunder is intended to be, nor shall it be construed to be, any inducement or
payment for referral of patients by Vision Twenty-One to Provider or by Provider
to Vision Twenty-One.
5. BOOKS AND RECORDS.
5.1 Medical Records. Provider hereby agrees, at Provider's cost, to maintain all
appropriate medical records or other eye care records on Enrollees receiving Eye
Care Services. All medical or other eye care records shall be maintained for at
least seven (7) years, in accordance with prudent record-keeping requirements,
and shall meet all requirements of laws or of governmental regulatory agencies.
5.2 Availability of Medical Records. Provider further agrees, to the extent
consistent with legal and ethical limitations, to make available all relevant
medical or other eye care records to any Plan Physician responsible for
continuing treatment of an Enrollee, or any other Plan Employee who may be
permitted access to such records under the laws of the State of ___________, for
the purpose of obtaining copies of the records, such copies to be made at the
expense of Vision Twenty-One or the applicable Plan in an amount not exceeding
actual copy costs to the Provider, for the purpose of continuing treatment of
such Enrollee or for research, litigation defense, quality assurance,
utilization review, case management or audit.
5.3 Government Access to Records. Until the expiration of four (4) years after
the furnishing of Eye Care Services pursuant to this Agreement, Provider shall
make available to the Secretary of the Department of Health and Human Services,
or the Comptroller General of the United States, or to any of their duly
authorized representatives, this Agreement and books, documents and records of
Provider that are necessary to certify the nature and extent of costs incurred
with respect to any Eye Care Services furnished for which payments may be made
under the Medicare and Medicaid programs. Provider further agrees to notify
Vision Twenty-One immediately after receiving a request for access as described
herein.
6. CONFIDENTIALITY; TRADEMARKS AND COPYRIGHTS.
6.1 Non-Disclosure of Confidential Information. Each party (and such party's
respective officers, directors, employees, agents, successors and assigns)
shall, during the term of this Agreement and at all times following the
termination of this Agreement by any means or for any reason whatsoever, with or
without cause, hold any and all Confidential Information in the strictest
confidence as a fiduciary, and shall not, voluntarily or involuntarily, sell,
transfer, publish, disclose, display or otherwise make available to others any
portion of the Confidential Information without the express written consent of
the other party. Each party shall use its best efforts to protect the
Confidential Information consistent with the manner in which it protects its
most confidential business information. "Confidential Information" shall mean
information of either party that shall be subject to patent, copyright,
trademark, trade name or service mark protection, or is described as
confidential by such party, or is not otherwise in the public domain and relates
to the business and operations of such party, including, without limitation,
this Agreement and the exhibits hereto, lists of providers, Plans and Enrollees
and information relating thereto, information relating to earnings, volume of
business, methods, systems, practices or plans of a party, and all similar
information of any kind or nature whatsoever which is known only to persons
having a fiduciary or confidential relationship with the party that owns
proprietary rights in or to such information.
6.2 Trademarks and Copyrights; Use of Names. Each party acknowledges the other
party's sole and exclusive ownership of its respective trade names, commercial
symbols, trademarks and service marks, whether presently existing or later
established (collectively "Marks"). Neither party shall use the other party's
Marks in advertising or promotional materials or otherwise without the owner's
prior written consent. All uses of any Mark shall inure exclusively to the
benefit of the Mark's owner. Each party reserves the right to terminate any
consent previously given for the use of a Mark by providing the other party with
written notice of such termination. In no event shall the party's use of the
other party's Mark continue after termination of this Agreement. Each party
acknowledges that any use of the other party's mark without the consent of such
other party would cause the owner of such Mark irreparable injury, entitling it
to obtain injunctive relief and such other remedies from the infringer as may be
appropriate. Each party hereby grants the other party the right to use its name,
address and telephone number in connection with the other party's obligations
hereunder. Provider hereby authorizes Vision Twenty-One and its Plans to use
Provider's name, and the names of its Eye Care Providers, for promotional and
advertising purposes.
<PAGE> 7
7. THIRD PARTY REIMBURSEMENT.
7.1 Coordination of Benefits. Provider hereby agrees to comply with all
reasonable record keeping and billing requirements necessary for Vision
Twenty-One and the applicable Plan to coordinate all benefits available to
Enrollees and to secure any available third-party reimbursements, including any
reimbursement from private insurers, Medicare or Medicaid.
7.2 No Billing of Third Parties. Provider hereby agrees that it will not bill or
charge any party, other than Vision Twenty-One or an Enrollee, in accordance
with the applicable provisions of Section 3 of this Agreement, for any
authorized Eye Care Services rendered to an Enrollee.
8. TERM AND TERMINATION.
8.1 Initial Term; Renewal Terms. Subject to the provisions on termination as
hereinafter provided, the initial term of this Agreement (the "Initial Term")
shall begin on the Effective Date of this Agreement and shall terminate on
December 31, 1995. Upon the lapse of the Initial Term, this Agreement shall be
renewed automatically for successive one (1) year terms (each such subsequent
one-year term being referred to as a "Renewal Term"), unless either party shall
give the other at least ninety (90) days prior written notice of termination,
with or without cause, such termination to be effective upon lapse of the
current Initial Term or Renewal Term.
8.2 Termination.
8.2.1 Either party may terminate this Agreement upon: (a) the material breach of
this Agreement not remedied within thirty (30) days after written notice of such
breach from the other party. (b) Immediately if the Provider fails to maintain
all licenses required under ________________ law, fails to maintain medical
staff privileges as required herein, fails to maintain insurance as required
herein, or is no longer able to perform Eye Care Services pursuant to this
Agreement, or in the opinion of Vision Twenty-One takes any action or fails to
take action which jeopardizes the health, safety or well-being of any patient.
8.3 Procedure Upon Termination. In the event of termination for any reason, all
rights and obligations hereunder shall cease, except: (a) those provided in this
Section 8 and (b) those which shall have theretofore accrued as a result of the
operation of this Agreement.
8.3. 1In the event of termination, Vision Twenty-One shall remain liable for
payment to Provider pursuant to the terms of this Agreement for authorized Eye
Care Services furnished to Enrollees prior to such termination.
8.3.2 If this Agreement is terminated pursuant to the provisions of paragraphs
8.1 or 8.2 above, Provider agrees that, if requested by Vision Twenty-One, it
will continue to provide Eye Care Services under this Agreement to Enrollees
then receiving treatment from Provider, upon the same terms and conditions,
including compensation, as were in effect immediately preceding the termination
until the services are no longer necessary for the health and safety of that
Enrollee. This provision shall no longer apply to an Enrollee upon: (a)
Provider's receipt of notice from Vision Twenty-One of the transfer of the
Enrollee to another eye care professional or the arrangement by the applicable
Plan of an alternative source of Eye Care Services, or (b) the expiration of the
applicable Enrollee Contract under which the Enrollee is enrolled. As of the
date twelve (12) months after termination of this Agreement, this provision
shall no longer apply to any Enrollee; provided, however, that Eye Care Services
shall be continued for those Enrollees who are hospitalized on the effective
date of termination.
8.3.3 The provisions of this Agreement which require the performance of
obligations by either party after the termination of this Agreement shall
survive such termination.
9. GENERAL PROVISIONS.
9.1 Entire Agreement; Amendment. Except as may be specified otherwise herein,
this Agreement and its exhibits contain the entire agreement of the parties. It
may not be changed orally, but only by an agreement in writing signed by both
parties. In addition, if Vision Twenty-One's contract with any Plan so provides,
any amendment of a material part of this Agreement shall not become effective
until written approval of such Plan is received.
<PAGE> 8
9.2 Waiver of Breach. The waiver by either party of a breach of any condition of
this Agreement by the other party shall not be construed as a waiver of any
subsequent breach by such party.
9.3 Governing Law. This Agreement shall be interpreted under and construed in
accordance with the laws of the State of _______. Notwithstanding the foregoing,
this Agreement shall be subject to all rules and regulations promulgated at any
time by any state or federal regulatory agency or authority having supervisory
authority over applicable health care providers, and this Agreement shall be
deemed to be amended from time to time to conform therewith. If any provision of
this Agreement is inconsistent with any rule and regulation in effect from time
to time as promulgated by a state or federal regulatory agency or authority
having supervisory authority over health care providers, then the rule or
supervisory authority over health care providers, then Vision Twenty-One shall
provide notice thereof to Provider, and Provider shall have the option to
terminate this Agreement upon thirty (30) days prior written notice to Vision
Twenty-One.
9.4 Assignability: Because if its character as a personal service agreement,
neither this Agreement nor any right or interest hereunder shall be assignable
by a Provider, but shall inure to the benefit of and be binding upon his, her or
its legal representatives and successors. The rights of Vision Twenty-One
hereunder may be assigned.
9.5 Notice. Any notice required or permitted to be given under this Agreement
shall be deemed given upon receipt and shall be sufficient if in writing and if
sent by certified or registered mail, return receipt requested, to the parties
at the following addresses:
To Vision Twenty-One at:
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: President
To Provider at: _________________________________
______________________, _________
Attn: President
or at such other address as either party may from time to time specify in
writing.
9.6 Relationship Between the Parties. Provider is retained by Vision Twenty-One
only for the purpose of and to the extent set forth in this Agreement, and its
relationship with Vision Twenty-One during the term of this Agreement shall be
that of an independent contractor. Provider shall have the full power and
authority to select the means, manner and method of performing its services
hereunder, subject to the QA/UR Program, peer review and grievance procedures of
Vision Twenty-One, and it shall not be considered as being employed by Vision
Twenty-One or as having any other relationship with Vision Twenty-One by reason
of the provisions of this Agreement.
9.7 Compliance with Other Agreements. Each party represents and warrants to the
other that the execution and performance of the obligations imposed on it by
this Agreement will not conflict with, result in the breach of any provision of
or the termination of, or constitute a default under any agreement to which it
is a party or by which it is or may be bound.
9.8 Severability. If any portions of this Agreement shall, for any reason, be
deemed invalid or unenforceable, such portions shall be ineffective only to the
extent of such invalidity or unenforceability and the remaining portion or
portions shall nevertheless be valid, enforceable and of full force and effect.
<PAGE> 9
9.9 Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
taken together shall constitute a single instrument.
9.10 No Conflict. The execution and delivery of this Agreement in compliance
with the provisions hereof by each party is hereby represented by each party to
not be in any material respect in conflict with or a default on the part of such
party with respect to any other agreement, arrangement, applicable law,
regulation or court order as to which each such party is subject.
9.11 Arbitration. If a dispute arises out of this Agreement, or in any other
manner between the parties, which the parties cannot resolved by negotiation or
voluntary mediation, then the dispute shall be settled by arbitration. Unless
otherwise provided in this Agreement, the arbitration shall be conducted in
accordance with the rules and regulations of the American Arbitration
Association then in effect. Such arbitration may be initiated by any party by
making a written demand for arbitration on the other party. The demand shall
contain a statement setting forth the nature of the dispute, the amount of
damages involved, if any, and the remedy sought.
Within ten (10) business days of that demand, Vision Twenty-One and Provider
will appoint a mutually agreed upon arbitrator. If the parties are unable to
agree upon an arbitrator, arbitrator(s) shall be selected in the manner provided
for by the American Arbitration Association. The arbitrator will hold a hearing
and decide the matter within thirty (30) days after his or her appointment.
Arbitration proceedings shall take place in Clearwater, Florida. The results of
the arbitration will be final and binding on both parties. Judgment upon an
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any counterclaim, cross-claim or third-party claim for
indemnity or contribution between Provider and Vision Twenty-One in any
Enrollee's action against Provider or Vision Twenty-One is expressly excluded
from this arbitration clause, unless Enrollee's entire action is judicially
required to be submitted to arbitration.
If either party brings an arbitration (or equitable action, as permitted under
this Section of the Agreement) regarding any dispute arising out of this
Agreement, the non-prevailing party shall pay all reasonable attorneys' fees
incurred by the prevailing party in connection with such arbitration or action.
Costs of any arbitration, including any fees of the arbitrator, shall be shared
by the parties.
9.12 Agreement Participation. In that each party has participated in the
decision to enter the terms of this Agreement, the terms of this Agreement shall
not be construed against Vision Twenty-One.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the day
and year first above written.
WITNESSES:
VISION TWENTY-ONE MANAGED EYE CARE INC.
By:
- --------------------------- -------------------------------
President
P.A.
- ---------------------------------------------
Provider
By: President
- --------------------------- -------------------------------
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended Three-month period ended
December 31 March 31
----------------------------------------------------------------------------
1994 1995 1996 1996 1997
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PRIMARY
Average shares outstanding 5,282,365 5,282,365 5,282,365 5,282,365 5,282,365
Net effect of anti-dilutive stock
options and deferred
compensation arrangements
based on the treasury stock
method using the estimated
initial public offering price 426,346 426,346 426,346 426,346 426,346
Net effect of anti-dilutive
warrants based on the
treasury stock method using
the estimated initial public
offering price 427,499 427,499 427,499 427,499 427,499
----------------------------------------------------------------------------
Total 6,136,210 6,136,210 6,136,210 6,136,210 6,136,210
============================================================================
Net loss $ (152,576) $(1,226,436) $(6,119,637) $ (824,798) $ (447,758)
============================================================================
Per share loss $(0.02) $(0.20) $(1.00) $(0.13) $(0.07)
============================================================================
FULLY DILUTED
Average shares outstanding 5,282,365 5,282,365 5,282,365 5,282,365 5,282,365
Assumed issuance of
contingent shares 79,805 79,805 79,805 79,805 79,805
Net effect of anti-dilutive stock
options and deferred
compensation arrangements
based on the treasury stock
method using the estimated
initial public offering price 426,346 426,346 426,346 426,346 426,346
Net effect of anti-dilutive
warrants based on the
treasury stock method using
the estimated initial public
offering price 427,499 427,499 427,499 427,499 427,499
----------------------------------------------------------------------------
Total 6,216,015 6,216,015 6,216,015 6,216,015 6,216,015
============================================================================
Net loss $ (152,576) $(1,226,436) $(6,119,637) $ (824,798) $ (447,758)
============================================================================
$(0.02) $(0.20) $(.98) $(0.13) $(0.07)
Per share loss ============================================================================
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF VISION 21, INC. SUBSIDIARIES
<TABLE>
<CAPTION>
% of
Outstanding
Stock Owned by
Company
Directly or
State of Through a
Corporation Incorporation Subsidiary
----------- ------------- ---------------
<S> <C> <C>
Vision 21 Physician Florida 100%
Practice Management
Company (practice
management company)
Vision 21 Managed Eye Florida 100%
Care of Tampa Bay, Inc.
(managed care
organization)
Vision 21 of Southern Arizona 100%
Arizona, Inc.
Midwest Eye Care Minnesota 100%
Alliance, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 23.2
Consent of Independent Certified Public Accountants
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our reports as follows in the
Registration Statement (Form S-1) and the related Prospectus of Vision
Twenty-One, Inc. dated June 13, 1997.
<TABLE>
<CAPTION>
REPORT ON REPORT
FINANCIAL STATEMENTS DATE
- ------------------------------------------------------------- -------------------------------------------
<S> <C>
Vision Twenty-One, Inc. and Subsidiaries March 22, 1997, except for Note 11, as
to which the date is June 6, 1997
Schedule I--Valuation and Qualifying Accounts June 6, 1997
Gillette, Beiler & Associates, P.A. March 22, 1997
Northwest Eye Specialists, P.L.L.C. January 15, 1997
Cambridge Eye Clinic, P.A.--John W. Lahr, Optometrist, P.A. and
Eyeglass Express Optical Lab, Inc. January 10, 1997
J & R Kennedy, O.D., P.A. and Roseville
Opticians, Inc. March 21, 1997
Lindstrom, Samuelson & Hardten Ophthalmology Associates, P.A.
and Vision Correction Centers, Inc. January 14, 1997
Jerald B. Turner, M.D., P.A. February 26, 1997
Eye Institute of Southern Arizona, P.C. January 15, 1997
Optometric Eye Care Centers, P.A. January 17, 1997
Dr. Smith and Associates, P.A. #6950, Dr. Smith and Associates,
P.A. #6958, and Dr. Smith and Associates, P.A. #6966 January 17, 1997
Daniel B. Feller, M.D., P.C., d/b/a Paradise Valley Eye
Specialists; Eye Specialists of Arizona Network, P.C.; and
Sharona Optical, Inc. January 17, 1997
</TABLE>
Tampa, Florida Ernst & Young LLP
June 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VISION TWENTY-ONE, INC. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 67,353
<SECURITIES> 0
<RECEIVABLES> 1,968,587
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,413,992
<PP&E> 1,941,259
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,712,231
<CURRENT-LIABILITIES> 5,270,657
<BONDS> 7,570,974
0
0
<COMMON> 3,716
<OTHER-SE> 2,532,008
<TOTAL-LIABILITY-AND-EQUITY> 15,712,231
<SALES> 0
<TOTAL-REVENUES> 9,563,693
<CGS> 0
<TOTAL-COSTS> 15,523,846
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159,484
<INCOME-PRETAX> (6,119,637)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,960,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,119,637)
<EPS-PRIMARY> (1.00)
<EPS-DILUTED> (1.00)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VISION TWENTY-ONE, INC. AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,072,275
<SECURITIES> 0
<RECEIVABLES> 2,052,738
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,065,691
<PP&E> 2,130,420
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,989,642
<CURRENT-LIABILITIES> 10,223,930
<BONDS> 5,993,510
0
0
<COMMON> 5,336
<OTHER-SE> 3,389,466
<TOTAL-LIABILITY-AND-EQUITY> 19,989,642
<SALES> 0
<TOTAL-REVENUES> 7,718,345
<CGS> 0
<TOTAL-COSTS> 7,938,996
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227,107
<INCOME-PRETAX> (447,758)
<INCOME-TAX> 0
<INCOME-CONTINUING> (220,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (447,758)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
