<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1997
REGISTRATION NO. 333-29213
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VISION TWENTY-ONE, INC.
(Exact name of registrant as specified in its charter)
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<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>
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<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>
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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>
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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. [ ]
---------------------
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.
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<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 AUGUST 14, 1997
PROSPECTUS
- --------------------------------------------------------------------------------
2,100,000 Shares
[VISION TWENTY-ONE LOGO] [VISION TWENTY-ONE 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 15 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
, 1997
<PAGE> 3
[The inside front cover depicts a graphic of the Company's Local Area
Delivery System. The graphic sets forth the four elements contained within the
Local Area Delivery System. The four elements are labeled primary, secondary,
tertiary and surgical facilities on four separate boxes, one on top of the
other, and each box is successively smaller, forming the shape of a pyramid.
Within each box is a description of these elements within a Local Delivery
System. In addition, the inside front cover folds out to depict a map of the
United States with the states in which the Company operates highlighted in a
different color.]
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"); "Managed Professional Associations" refers to the
professional associations 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
660 Affiliated Providers deliver eye care services. Of these Affiliated
Providers, 72 are Managed Providers, consisting of 46 optometrists and 26
ophthalmologists practicing at 48 clinic locations and five ASCs, and 588 are
Contract Providers, consisting of 258 optometrists and 330 ophthalmologists
practicing at over 300 clinic locations and 35 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 approximately 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
industry sources, 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 July 1997,
the Company acquired the business assets of 28 optometry clinics, 20
ophthalmology clinics, 21 optical dispensaries and five ASCs. Business assets
consist of certain non-medical and non-optometric assets, including accounts
receivable, leases, contracts, equipment and other tangible and intangible
assets. Concurrently with the acquisitions, the Company entered into long-term
management agreements with the related professional associations employing 46
optometrists and 26 ophthalmologists. See "The Acquisitions."
THE OFFERING
Common Stock Offered by the Company....... 2,100,000 shares
Common Stock to be Outstanding after the
Offering(1)............................... 8,176,258 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 682,667 shares have been granted as of
July 22, 1997, (b) an aggregate of 751,666 shares of Common Stock which are
issuable upon the exercise of warrants granted by the Company and (c) an
aggregate of 177,204 shares of Common Stock which are being held in escrow
as contingent consideration in several acquisitions. See "The Acquisitions,"
"Management -- 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, SIX MONTHS ENDED JUNE 30,
---------------------------------------- ------------------------------
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 $ 40,712 $ 4,036 $17,379 $ 23,190
Operating expenses............... 1,340 4,299 15,524 45,998 6,216 17,875 23,074
------- ------- ------- ---------- ------- ------- ----------
Income (loss) from operations.... (148) (1,217) (5,960) (5,286) (2,180) (496) 116
Net income (loss)................ (153) (1,226) (6,120) (5,291) (2,210) (1,027) 110
Pro forma net income (loss) per
common share(3)................ $ (0.69) $ 0.01
Pro forma weighted average number
of common shares
outstanding(3)................. 7,625,197 7,625,197
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(7,648) $(7,648) $ 9,658
Total assets.............................................. 29,713 30,232 37,912
Long-term debt and capital lease obligations,
including current maturities............................ 13,975 13,975 948
Stockholders' equity...................................... 8,426 8,944 31,480
</TABLE>
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(1) Gives effect to the following transactions as if they were completed on
January 1, 1996: (i) the 1996 Acquisitions, (ii) the 1997 Acquisitions,
(iii) the Recent Acquisition, and (iv) 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, 1996: (i) the 1997 Acquisitions, (ii) the Recent Acquisition, and
(iii) 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 income (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 income (loss) per
common share.
(4) Gives effect to the Recent Acquisition as if it were completed as of June
30, 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 financial prospects of the Company; (ii) potential acquisitions by the
Company and the successful integration of both completed and future
acquisitions; (iii) the ability of the Company to efficiently and effectively
manage its Managed Providers; (iv) the use of the proceeds of the Offering; (v)
the Company's financing plans; (vi) trends affecting the Company's financial
condition or results of operations; (vii) the Company's growth strategy and
operating strategy; (viii) trends in the health care and managed care
industries; (ix) government regulations; (x) the declaration and payment of
dividends; (xi) the Company's current and future managed care contracts; (xii)
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; (xiii) the Company's relationship with BSM Consulting
Group and Bruce Maller; and (xiv) 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 six months ended June 30, 1997. As
of June 30, 1997, the Company had an accumulated deficit of $8.6 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 Provider
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
6
<PAGE> 8
personnel and require the integration of reporting and tracking systems,
management information systems 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 network 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.
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.
Additionally, the practice management fees earned by the Company pursuant to
substantially all of its Management Agreements will fluctuate depending on
variances in revenues and expenses of the Managed Professional Association and
thus the Company's revenue and profitability in connection with its Management
Agreements will be directly and adversely affected by poor operating results of
its Managed Professional Associations.
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 21.1% and 25.0% of the Company's pro forma revenues for
the year ended December 31, 1996 and the six month period ended June 30, 1997,
respectively. Revenue derived from contractual arrangements with certain
affiliates of Humana Inc. ("Humana") accounted for 60.3% and 15.8% of the
Company's historical revenues for the year ended December 31, 1996 and the six
months ended June 30, 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. Furthermore, the Management Agreements between
the Company and the Managed Professional Associations specifically provide
that all decisions required by law to be made by professionals shall be
made by such professionals. While certain shareholders of Managed
Professional Associations that perform the practice of medicine or
optometry are also involved in Company management, they act independently
when making decisions on behalf of their professional corporations and the
Company has no right (and does not attempt to exercise any right) to
control those decisions.
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. For example, the Florida
fee-splitting law prohibits
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paying or receiving any commission, bonus, kickback, or rebate, or
engaging in any split-fee arrangement in any form for patient referrals
to providers of health care goods or services. According to a Florida
court of appeals decision interpreting this law, it does not prohibit a
management fee that is based on a percentage of gross income of a
professional practice if the manager does not refer patients to the
practice. Similarly, the Arizona law prohibits "dividing a professional
fee" only if it is done "for patient referrals". Other states, such as
Illinois and New York, have fee-splitting statutes that have been
interpreted to prohibit any compensation arrangements that are based on
a percentage of physician's revenue, and such laws preclude the Company
from using its typical management arrangement in those states.
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 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.
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"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 -- 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."
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.
On August 5, 1997, the
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President signed into law a number of Medicare provisions as part of the
Balanced Budget Act of 1997. When compared to projected Medicare spending levels
under current law, the legislation would reduce Medicare spending by $115
billion over five years. The vast majority of these savings would come from
reductions in payments for services of health care facilities, practitioners and
other providers. The legislation will eliminate disparities in payment rates for
similar services by physicians in different specialties effective January 1,
1998. Payment rates for physician services will no longer necessarily be updated
for inflation. Beginning in 1998, inflation increases will be adjusted based on
a "sustainable growth rate" defined with reference to the change in (i) the
number of Medicare beneficiaries, (ii) the gross domestic product per capita,
and (iii) the level of expenditures for physician services. The legislation will
also revise Medicare payments for practice expense costs. See
"Business -- Government Regulations." The legislation will also, among other
things, change payments to managed care plans from the current rate of 95% of
fee-for-service rates in the area to a system based on nationwide average per
capita fee-for-service spending, with an adjustment factor for local area wage
rates. This will result in curbing future increases in high payment urban areas
while increasing payments in rural areas. The legislation will also reduce the
annual inflation adjustment for ASC fees by two percentage points. It is
impossible to determine precisely how these changes will affect payments for
services of ophthalmologists, optometrists and ASC facilities. 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."
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.
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 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
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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.
At June 30, 1997, intangible assets represent approximately 62.7% of total
assets and over two times total stockholders' equity. The intangible asset value
represents the excess of cost over the fair value of the separate net 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 method over an average life of 25 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 ECCA Managed Vision Care, Inc. ("ECCA") and For
Eyes Managed Care, Inc. ("For Eyes"), subsidiaries of retail optical chains,
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 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
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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 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 providing management
services pursuant to its Management Agreements, the Company may 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 $5.0 million per incident, and $5.0 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 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
43.2% 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 8,176,258 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 6,076,258 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. 2,791,431 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 3,284,827 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 "Descrip-
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tion 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 682,667 shares have been granted. See "Management -- Stock Option
Plans." In addition, 751,666 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 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
allow 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 enable 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
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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 $10.49 per share in the net tangible book value per share of
Common Stock from the assumed initial public offering price. See "Dilution."
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.
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THE COMPANY
Vision 21 Physician Practice Management Company, Inc., a current subsidiary
of the Company ("Vision 21 PPMC"), 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. At such time, Vision 21 PPMC contracted with
VisionWorks and Eckerd Optical (subsidiaries of Eckerd Corporation) to manage
optometry practices located within VisionWorks and Eckerd retail optical
centers. As Vision 21 PPMC 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,
management services were provided 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, Vision 21 PPMC
began to form strategic relationships with independent ophthalmologists to
provide its optometric patients with access to secondary and tertiary eye care
services.
In 1986, Vision 21 Managed Eye Care of Tampa Bay, Inc., a current
subsidiary of the Company ("Vision 21 MCO"), began to provide management and
administrative services to networks of eye care providers that offered primary,
secondary and tertiary eye care services. Vision 21 MCO was awarded its first
managed care contract in 1988 covering in excess of 18,000 patient lives, with
retail optical and optometric services provided by its 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. See "Certain Transactions."
The Company's 660 Affiliated Providers provide eye care services to 11 LADS
located in six states. Of these Affiliated Providers, 72 are Managed Providers,
consisting of 46 optometrists and 26 ophthalmologists practicing at 48 clinic
locations and five ASCs, and 588 are Contract Providers, consisting of 258
optometrists and 330 ophthalmologists practicing at over 300 clinic locations
and 35 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 approximately 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
receivable, 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. These acquisitions were accounted for by recording the assets
and liabilities at fair value and allocating the remaining costs to the related
Management Agreements. 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, which was accounted for under the
purchase method of accounting (collectively, the "1996 Acquisitions"). In
connection with the 1996 Acquisitions, the Company provided aggregate
consideration of $11.2 million, consisting of 2.1 million shares of Common
Stock, 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
16
<PAGE> 18
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 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.
1997 ACQUISITIONS
Between March 1, 1997 and June 30, 1997, the Company completed the
acquisitions of the business assets of one optometry clinic, 11 ophthalmology
clinics, six optical dispensaries and three ASCs located in Pinellas Park and
Ft. Lauderdale, Florida and Sierra Vista, Mesa and Phoenix, Arizona.
Concurrently, the Company entered into Management Agreements with the related
professional associations employing six optometrists and 13 ophthalmologists
(collectively the "1997 Acquisitions"). These acquisitions were accounted for by
recording assets and liabilities at fair value and allocating the remaining cost
to the related Management Agreements. In connection with the 1997 Acquisitions,
the Company provided aggregate consideration of $6.8 million, consisting of
738,186 shares of Common Stock, a promissory note in the amount of $264,000 and
$29,000 in cash, subject to closing adjustments.
RECENT ACQUISITION
In July 1997, pursuant to a December 1996 Purchase Agreement, the Company
closed in escrow the acquisition of the business assets of one ASC located in
Tucson, Arizona (the "Recent Acquisition"). This acquisition is being accounted
for by recording the assets and liabilities at fair value and allocating the
remaining cost to the related Management Agreement. In connection with the
Recent Acquisition, the Company provided aggregate consideration of $519,000,
consisting of 131,050 shares of Common Stock, subject to closing adjustments.
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 and 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 $13.8 million to repay outstanding
indebtedness as follows: (i) $4.9 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
the earlier of the completion of the initial public offering or 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 $8.7 million to finance the future
acquisition and development of optometry and ophthalmology clinics and ASCs. At
this time, the Company has no other pending or anticipated acquisitions which
are reasonably certain to occur. 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 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 June
30, 1997, (i) on an actual basis, (ii) on a pro forma basis to give effect to
the Recent Acquisition 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>
JUNE 30, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt and capital lease
obligations(1)............................................ $ 7,862 $ 7,862 $ 798
------- ------- -------
Long-term debt and capital lease obligations(1)............. 6,113 6,113 150
------- ------- -------
Stockholders' equity(2):
Common Stock: $.001 par value; 50,000,000 shares
authorized, 5,945,208 shares outstanding, 6,076,258
shares outstanding, pro forma, 8,176,258 shares
outstanding, pro forma as adjusted..................... 6 6 8
Additional paid-in capital................................ 17,504 18,022 40,556
Deferred compensation..................................... (463) (463) (463)
Retained earnings......................................... (8,621) (8,621) (8,621)
------- ------- -------
Total stockholders' equity........................ 8,426 8,944 31,480
------- ------- -------
Total capitalization......................... $22,401 $22,919 $32,428
======= ======= =======
</TABLE>
- ---------------
(1) Actual and proforma exclude $700,000 of additional indebtedness incurred by
the Company pursuant to certain acquisition debt committed in 1996 which
will be paid upon completion of the initial public offering.
(2) Excludes (a) an aggregate of 1,600,000 shares of Common Stock reserved for
issuance under the Plans, pursuant to which options to purchase 682,667
shares of Common Stock have been granted as of July 22, 1997, (b) an
aggregate of 751,666 shares of Common Stock which are issuable upon the
exercise of warrants granted by the Company and (c) an aggregate of 177,204
shares of Common Stock which are being held in escrow as contingent
consideration in several acquisitions. See "The Acquisitions,"
"Management -- 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 June 30, 1997, the pro forma net tangible book
value (deficit) of the Company was $(10.9 million), or $(1.80) 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 Acquisition) 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 $12.3 million, or $1.51 per share. This
represents an immediate increase in pro forma net tangible book value of $3.31
per share to existing stockholders and an immediate dilution in net tangible
book value of $10.49 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 June 30,
1997.................................................. $ (1.80)
-------
Increase attributable to new investors................. 3.31
-------
Pro forma net tangible book value after the Offering........ 1.51
-------
Dilution in net tangible book value to new investors........ $ 10.49
=======
</TABLE>
The following table sets forth, on a pro forma basis at June 30, 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 cash 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............. 6,076,258 74.3% $ 18,028,519 41.7% $ 2.97
---------- ----- ------------ ------
New investors..................... 2,100,000 25.7 25,200,000 58.3 12.00
---------- ----- ------------ ------
Total(1)................ 8,176,258 100.0% $ 43,228,519 100.0%
========== ===== ============ ======
</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 682,667
shares have been granted as of July 22, 1997, (b) an aggregate of 751,666
shares of Common Stock which are issuable upon the exercise of warrants
granted by the Company and (c) an aggregate of 177,204 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 -- 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 5,894,534 shares, or 70.9% of the total number of shares outstanding
after the Offering, and the number of shares held by new investors will
increase to 2,415,000 shares, or 29.1% 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 1997
Acquisitions, (iii) the Recent Acquisition, 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 Statement of Operations Data for the six
months ended June 30, 1997 give effect to the following transactions as if they
had occurred on January 1, 1996: (i) the 1997 Acquisitions, (ii) the Recent
Acquisition, and (iii) 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 June 30, 1997 give effect to the Recent
Acquisition 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 June 30, 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>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------ ---------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues:
Managed care............................................ $ 8,583 $ 5,788
Practice management fees................................ 31,820 17,115
Other revenue........................................... 309 287
-------- --------
Total revenues..................................... 40,712 23,190
-------- --------
Operating expenses:
Medical claims.......................................... 10,269 5,042
Practice management expenses............................ 26,342 14,336
Salaries, wages and benefits............................ 4,365 2,183
Business development.................................... 1,927 --
General and administrative.............................. 1,605 802
Depreciation and amortization........................... 1,490 711
-------- --------
Total operating expenses........................... 45,998 23,074
-------- --------
Income (loss) from operations........................... (5,286) 116
Interest expense........................................ 5 6
-------- --------
Income (loss) before income taxes....................... (5,291) 110
Income taxes............................................ -- --
-------- --------
Net income (loss)....................................... $(5,291) $ 110
======== ========
Net income (loss) per common share...................... $ (0.69) $ 0.01
======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------
(IN THOUSANDS)
<S> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital........................................... $ 9,658
Total assets.............................................. 37,912
Long-term debt and capital lease obligations,
including current maturities............................ 948
Stockholders' equity...................................... 31,480
</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 six months ended June 30, 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 six months ended June 30,
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>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
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 $ 3,697 $ 5,788
Practice management fees................. 645 653 392 424 1,943 234 11,304
Other revenue............................ 8 6 131 212 306 105 287
-------- -------- -------- -------- -------- -------- --------
Total revenues...................... 653 659 1,192 3,082 9,564 4,036 17,379
-------- -------- -------- -------- -------- -------- --------
Operating expenses:
Medical claims........................... -- -- 551 2,934 9,129 5,130 5,042
Practice management expenses............. -- -- -- -- 1,244 -- 9,281
Salaries, wages and benefits............. 494 501 538 904 1,889 690 2,183
Business development..................... -- -- -- -- 1,927 -- --
General and administrative............... 167 168 238 443 1,209 380 802
Depreciation and amortization............ 11 8 13 18 126 16 567
-------- -------- -------- -------- -------- -------- --------
Total operating expenses............ 672 677 1,340 4,299 15,524 6,216 17,875
-------- -------- -------- -------- -------- -------- --------
Loss from operations....................... (19) (18) (148) (1,217) (5,960) (2,180) (496)
Interest expense........................... 1 5 5 9 160 30 531
-------- -------- -------- -------- -------- -------- --------
Loss before income taxes................... (20) (23) (153) (1,226) (6,120) (2,210) (1,027)
Income taxes............................... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss................................... $ (20) $ (23) $ (153) $ (1,226) $ (6,120) $ (2,210) $ (1,027)
======== ======== ======== ======== ======== ======== ========
Net loss per common share(2)............... $ (1.02) $ (0.16)
======== ========
Weighted average number of common shares
outstanding(2)........................... 5,980 6,409
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996 1997
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................ $ 19 $ (5) $ (193) $ (1,499) $ (2,857) $ (7,648)
Total assets............................. 53 67 49 165 15,712 29,713
Long-term debt and capital lease
obligations, including current
maturities............................. 56 89 85 363 7,735 13,975
Stockholders' equity (deficit)........... (16) (38) (191) (1,439) 2,536 8,426
</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
660 Affiliated Providers deliver eye care services. Of these Affiliated
Providers, 72 are Managed Providers, consisting of 46 optometrists and 26
ophthalmologists practicing at 48 clinic locations and five ASCs, and 588 are
Contract Providers, consisting of 258 optometrists and 330 ophthalmologists
practicing at over 300 clinic locations and 35 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 approximately 1.8 million patient
lives.
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 which obligate the Company to provide
certain facilities and equipment, accounting services, purchasing, assistance in
managed care, contract negotiations, management and clinical personnel,
information systems, training, and billing and collection services. 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 Managed Professional
Association is responsible for, among other things, hiring, supervising, and
directing certain of the Managed Professional Association's professional
employees, adopting a peer review/quality assurance program and maintaining
appropriate worker's compensation, professional and comprehensive general
liability insurance. See "Business -- Management Agreements."
The initial term of the Management Agreement is typically 40 years. Under
substantially all of the Company's Management Agreements, the management fee
ranges from 24% to 37% of the Managed Professional Association's 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 Association. Therefore, in connection with the Management
Agreements, the amount of such fees will be significantly affected by the degree
of success of operations of the Managed Professional Association and the
Company's ability to successfully manage the practice. See "Risk
Factors -- Reliance on Affiliated Providers" and "Business -- Management
Agreements."
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. The Company manages risk of capitated managed care contracts by
monitoring utilization of each Affiliated Provider and comparing their
utilization to national averages, expected utilization at the time the contract
was bid, utilization of other providers and historical utilization of the
Affiliated Provider. Abnormal utilization of an Affiliated Provider results in a
medical chart review by the Company and further counseling on appropriate
clinical protocols. To further manage the risk of capitated managed care
contracts, the Company, in certain instances, enters into agreements to pay
Affiliated Providers a fixed per member per month fee for eye care services
rendered or a pro rata share of managed care capitated payments received (as
determined by the number of eye care procedures performed relative to other
Affiliated Providers). The Company targets these payments at a range of 80% to
90% of total payments received pursuant to the Company's capitated managed
24
<PAGE> 26
care contracts. 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 June 30, 1997, the Company maintained
16 capitated managed care contracts and administered six fee-for-service plans
for its Affiliated Providers. See "Risk Factors -- Risks Associated with Managed
Care Contracts and Capitated Fee Arrangements."
In December 1996, the Company completed the 1996 Acquisitions 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
receivable, 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. These acquisitions were accounted for by recording the assets
and liabilities at fair value and allocating the remaining costs to the related
Management Agreements. 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, which was accounted for under the
purchase method of accounting. In connection with the 1996 Acquisitions, the
Company provided aggregate consideration of $11.2 million, consisting of 2.1
million shares of Common Stock, 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. If
the 1996 Acquisitions had occurred at the beginning of 1996, the Company would
have recorded $16.8 million in additional practice management fee revenue for
1996. The Company recorded a one-time charge of $1.4 million in the fourth
quarter of 1996 for expenses associated with the planned acquisition of the
business assets of certain Contract Providers at the time of the 1996
Acquisitions which the Company chose not to continue to pursue.
Between March 1, 1997 and June 30, 1997, the Company completed the 1997
Acquisitions resulting in the acquisition of the business assets of one
optometry clinic, 11 ophthalmology clinics, six optical dispensaries and three
ASCs located in Pinellas Park and Fort Lauderdale, Florida and Sierra Vista,
Mesa, and Phoenix, Arizona. Concurrently, the Company entered into Management
Agreements with the related professional associations employing six optometrists
and 13 ophthalmologists. These acquisitions were accounted for by recording the
assets and liabilities at fair value and allocating the remaining cost to the
related Management Agreements. In connection with the 1997 Acquisitions, the
Company provided aggregate consideration of $6.8 million, consisting of 738,186
shares of Common Stock, promissory notes in the aggregate principal amount of
$264,000 and $29,000 in cash, subject to closing adjustments. On a pro forma
basis, had the 1997 Acquisitions occurred at the beginning of 1996, the Company
would have recorded $12.0 million and $6.7 million in practice management fee
revenue for 1996 and the six months ended June 30, 1997, respectively.
In July 1997, the Company closed in escrow the Recent Acquisition resulting
in the acquisition of the business assets of one ASC located in Tucson, Arizona.
At the date of receipt by the related professional association of the license to
conduct the ASC business which is expected in September 1997, the escrow will be
released and all income associated with such ASC business will become subject to
the Management Agreement with the professional association. The Recent
Acquisition is being accounted for by recording the assets and liabilities at
fair value and allocating the remaining cost to the related Management
Agreement. In connection with the Recent Acquisition, the Company provided
aggregate consideration of $519,000, consisting of 131,050 shares of Common
Stock, subject to closing adjustments. On a pro forma basis, had the Recent
Acquisition occurred at the beginning of 1996, the Company would have recorded
$1,556,000 and $778,000 in practice management fee revenue for 1996 and the six
months ended June 30, 1997, respectively.
25
<PAGE> 27
Effective October 1996, the Company renegotiated its 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. Previously, the Company had paid these Contract Providers pursuant to
a fee schedule for eye care services provided under the same capitated and
managed care contract. In exchange for entering into the renegotiated agreement,
selected ophthalmology Contract Providers obtained dedicated groups of managed
care members and the right to manage the utilization by these members. The
renegotiated capitation agreements improved the Company's medical claims ratio
(medical claims expense divided by managed care revenue) from 136.0% for the
third quarter of 1996 to 90.1% for the fourth quarter of 1996 and 87.1% for the
six month period ended June 30, 1997. On a pro forma basis for 1996, assuming
the renegotiated capitation agreement had been in place for the entire period,
medical claims expense would have been reduced by $2.6 million.
Effective June 1997, the Company renegotiated its agreement to pay the
existing 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. Previously, the Company had
paid these Contract Providers pursuant to a fee schedule for eye care services
provided under the same capitated managed care contract. In exchange for
entering into the renegotiated agreement, the facility operator obtained
dedicated groups of managed care members. On a pro forma basis for the six
months ended June 30, 1997, assuming the renegotiated capitation agreement had
been in place for the entire period, medical claims expense would have been
reduced by $267,000. The effect of the renegotiated agreements of October 1996
and June 1997 was to shift the risk of any increased utilization for services by
members from the Company to the Contract Providers.
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 five internally
developed optometry clinics located in Louisiana and Florida and entering into
Management Agreements with the related professional association employing five
optometrists. As of June 1, 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 period
presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <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
26
<PAGE> 28
following table indicates the mix of revenues received by the Managed
Professional Associations for the period presented:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------
(UNAUDITED)
<S> <C>
Optometry fees.............................................. 41.5%
Ophthalmology fees.......................................... 41.1
Optical goods............................................... 14.1
ASCs........................................................ 3.3
------
Total............................................. 100.0%
======
</TABLE>
A change in the future mix of payment sources and services of the Managed
Professional Associations could affect the Company's overall business, revenues,
profitability and cash flows, as the Company's management fees payable under
significantly all of the Company's Management Agreements are directly affected
by the revenues and expenses of the Managed Professional Association. Therefore,
certain changes in the mix of payment sources resulting in a change in margins
for services provided by the Managed Professional Association, or a change in
timeliness and success in the collection of fees for services provided by these
practices, could affect the operating results of the Company. See "Risk
Factors -- Reliance on Affiliated Providers" and "-- Risks Associated with
Managed Care Contracts and Capitated Fee Arrangements."
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
Acquisition 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 six months ended June 30, 1996 and
1997 reflect the Company's expected future operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Revenues:
Managed care.................................... 56.1% 79.4% 76.5% 91.6% 33.3%
Practice management fees........................ 32.9 13.8 20.3 5.8 65.0
Other revenue................................... 11.0 6.8 3.2 2.6 1.7
----- ----- ----- ----- ------
Total revenues.......................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ------
Operating expenses:
Medical claims.................................. 46.3 95.2 95.5 127.1 29.0
Practice management expenses.................... -- -- 13.0 -- 53.4
Salaries, wages and benefits.................... 45.1 29.3 19.8 17.1 12.6
Business development............................ -- -- 20.1 -- --
General and administrative...................... 19.9 14.4 12.6 9.4 4.6
Depreciation and amortization................... 1.1 0.6 1.3 0.4 3.3
----- ----- ----- ----- ------
Total operating expenses................ 112.4 139.5 162.3 154.0 102.9
----- ----- ----- ----- ------
Loss from operations.............................. (12.4) (39.5) (62.3) (54.0) (2.9)
Interest expense.................................. 0.3 0.3 1.7 0.7 3.1
----- ----- ----- ----- ------
Loss before income taxes.......................... (12.7) (39.8) (64.0) (54.7) (6.0)
Income taxes...................................... -- -- -- -- --
----- ----- ----- ----- ------
Net loss.......................................... (12.7)% (39.8)% (64.0)% (54.7)% (6.0)%
===== ===== ===== ===== ======
Medical claims ratio.............................. 82.5% 120.0% 124.8% 138.8% 87.1%
===== ===== ===== ===== ======
</TABLE>
27
<PAGE> 29
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Revenues increased 330.6% from $4.0 million for the six months
ended June 30, 1996 to $17.4 million for the six months ended June 30, 1997.
This increase was caused primarily by an increase in practice management fees
attributable to the 1996 Acquisitions and the 1997 Acquisitions, which accounted
for $11.1 million of the increase, and a 56.6% increase in managed care revenues
attributable to the addition of one capitated contract and the expansion of an
existing contract, which accounted for $2.1 million of the increase.
Medical Claims. Medical claims expense decreased 1.7% from $5.1 million
for the six months ended June 30, 1996 to $5.0 million for the six months ended
June 30, 1997. The Company's medical claims ratio decreased from 138.8% for the
six months ended June 30, 1996 to 87.1% for the six months ended June 30, 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 fixed payments
per member per month, a pro rata share of managed care capitated payments
received (as determined by the number of eye care procedures performed relative
to other Affiliated Providers) or negotiated fee-for-service schedules.
Capitated payments and pro rata payments collectively represented 59.4% and
fee-for-service claims represented 40.6% of total medical claims expense for the
six months ended June 30, 1997. Medical claims for the six months ended June 30,
1996 were based entirely on negotiated fee-for-service schedules.
Practice Management Expenses. Practice management expenses were $9.3
million for the six months ended June 30, 1997 as a result of the 1996
Acquisitions and the 1997 Acquisitions. Prior to the 1996 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 216.2% from $690,000 for the six months ended June 30, 1996 to $2.2
million for the six months ended June 30, 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 expense decreased from
17.1% for the six months ended June 30, 1996 to 12.6% for the six months ended
June 30, 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
110.9% from $380,000 for the six months ended June 30, 1996 to $803,000 for the
six months ended June 30, 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 9.4% for the six
months ended June 30, 1996 to 4.6% for the six months ended June 30, 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 $16,000 for the six months ended June 30, 1996 to $567,000 for
the six months ended June 30, 1997. As a percentage of revenues, depreciation
and amortization expense increased from 0.4% for the six months ended June 30,
1996 to 3.3% for the six months ended June 30, 1997. These increases were caused
primarily by the amortization of intangibles attributable to the 1996
Acquisitions and the 1997 Acquisitions.
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,
28
<PAGE> 30
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.
Capitated payments and pro rata payments represented 11.3% and fee-for-service
payments represented 88.7% of total medical claim expense for 1996. Medical
claims for 1995 were based entirely on negotiated fee-for-service schedules.
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, because the Company was not liable for
expenses of the practices.
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 expense 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.
General and Administrative. General and administrative expenses increased
172.6% 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 432.1% 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. All medical claims for 1995 and
1994 were based on negotiated fee-for-service schedules.
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
because the Company was not liable for the expenses of the practices.
Salaries, Wages and Benefits. Salaries, wages and benefits expense
increased 68.1% from $538,000 in 1994 to $904,000 in 1995. This increase was
caused primarily by an increase in corporate staff necessary to
29
<PAGE> 31
support the Company's expanded practice management and managed care business. As
a percentage of revenues, salaries, wages and benefits expense 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
expenses during 1994 or 1995.
General and Administrative. General and administrative expenses increased
86.5% 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 19.9% 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 37.9% 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
six months ended June 30, 1997 was $138,000, $4.2 million and $2.5 million,
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 six months ended
June 30, 1997 was caused primarily by net losses offset in part by increases in
medical claims payable, deferred compensation and accrued acquisition expenses.
Net cash used in investing activities for 1994, 1995 and 1996 and the six
months ended June 30, 1997 was $14,000, $88,000, $1.6 million and $2.6 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 six months ended June
30, 1997 was $256,000, $5.8 million and $6.2 million, respectively. The amounts
for 1996 and for the six months ended June 30, 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 the 1996 Acquisitions for an
aggregate consideration of $11.2 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
30
<PAGE> 32
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.
Between March 1, 1997 and June 30, 1997, the Company completed the 1997
Acquisitions, and provided aggregate consideration of $6.8 million, consisting
of 738,186 shares of Common Stock, promissory notes in the aggregate principal
amount of $264,000 and $29,000 in cash, subject to closing adjustments.
In July 1997, the Company closed in escrow the Recent Acquisition which
provides aggregate consideration of $519,000, consisting of 131,050 shares of
Common Stock, subject to closing adjustments. Final completion is expected as of
September 1997.
In April 1997, the Company entered into a credit facility in the aggregate
amount of $4.9 million with Prudential Securities Group Inc. ("Prudential")
pursuant to a Note and Warrant Purchase Agreement (as amended and restated, the
"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 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 Note and Warrant
Purchase Agreement includes a detachable warrant to purchase 210,000 shares of
Common Stock at an exercise price per share equal to the price of the Common
Stock in the Company's initial public offering. The Prudential Note will be
repaid by the Company from the net proceeds of the Offering. See "Underwriting".
The Note and Warrant Purchase Agreement contains negative and affirmative
covenants and agreements requiring the maintenance of certain financial ratios.
The Company has treated as deferred compensation the issuance of shares of
restricted stock in September and October 1996, for future services related to
various business development initiatives and management incentives. In September
1996, the Company entered into a five year services agreement with its Chief
Medical Officer and current director of the Company and issued 108,133 shares of
restricted stock. These shares were valued at $2.77 per share or $300,068. Of
these shares, 40% vested immediately and the Company recorded a business
development charge of $120,027. The remaining 60% of the shares were recorded as
an offset in stockholders' equity as deferred compensation for $180,041. In
October 1996, the Company entered into a five year advisory agreement with an
industry consultant and issued 125,627 shares of restricted stock which vest
over the life of the advisory agreement. These shares were valued at $2.77 per
share or $348,614. The Company recorded the issuance of these shares as an
offset in stockholder's equity as deferred compensation. This deferred
compensation is being amortized as the shares vest on a pro rata basis. See
"Certain Transactions."
Intangible assets consist of the Management Agreements with the Managed
Professional Associations. The Management Agreements have 40-year terms and are
being amortized over an average life of 25 years. Intangible assets represent
62.7% of the Company's total assets as of June 30, 1997. In determining the
useful life of a Management Agreement, the Company considers the operating
history and other characteristics of each practice. A principal consideration is
the degree to which the practice has demonstrated its ability to extend its
existence indefinitely. The Company will review 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 amortization periods need to be modified. Among the
factors the
31
<PAGE> 33
Company considers in making the valuation are changes in the Managed
Professional Associations market position, reputation, profitability, and
geographic penetration. See "Risk Factors -- Risks Related to Amortization of
Intangible Value in Management Agreements" and Note 3 to Notes to Consolidated
Financial Statements.
In addition to the business assets purchased, the Company assumes certain
payables and accrued expenses. Generally, the acquired tangible assets exceed
the assumed liabilities. The Company has assumed liabilities of $3.0 million,
including $791,000 of long-term debt, for acquisitions completed through June
30, 1997.
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.
32
<PAGE> 34
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
660 Affiliated Providers deliver eye care services. Of these Affiliated
Providers, 72 are Managed Providers, consisting of 46 optometrists and 26
ophthalmologists practicing at 48 clinic locations and five ASCs, and 588 are
Contract Providers, consisting of 258 optometrists and 337 ophthalmologists
practicing at over 300 clinic locations and 35 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 approximately 1.8 million patient
lives.
THE EYE CARE INDUSTRY
The Eye Care Market. According to industry sources, 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 The Journal of the American
Medical Association, 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,
utilize the excimer laser to surgically correct nearsightedness. Additionally,
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
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<PAGE> 35
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 making the
retail optical center an important access point for eye care delivery networks.
While some ophthalmologists provide certain primary eye care services, such
as eye exams, their main focus is on the delivery of secondary care, such as
cataract surgery, and tertiary care, such as retina/vitreous procedures,
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 as 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 41.0 million members in 1992 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 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 eye 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 administrative 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
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in response to the demand by managed care companies for larger practice groups
which can offer full service, quality eye care over a wide geographic area. This
consolidation is still in the early stages as 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 affiliated retail optical center that is located within a LADS.
Once patients have initially accessed a LADS to obtain primary eye care
services, they are well positioned 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
subspecialty ophthalmologists (including subspecialties such as oculoplastics,
retina/vitreous and cornea) 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 assets, 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 52 Contract Providers.
In addition, the Company intends to add optometry clinics located within retail
optical centers of leading national retail optical chains. To date, the Company
has added five 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 "V-21 TEAM CARE" program).
The V-21 TEAM 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
V-21 TEAM 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
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is accomplished through the V-21 TEAM CARE management and governance programs.
The V-21 TEAM CARE management program includes (i) development of LADS-specific
and practice-specific strategic plans, (ii) integration of operations,
personnel, facilities and equipment, (iii) consolidation of specialty and
ancillary services and (iv) coordination of marketing initiatives. The V-21 TEAM
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 also 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 and
more complicated tertiary care to rural areas where such care might otherwise
not be available.
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 eye care level on new products and
procedures, including refractive surgery, oculoplastic procedures, pediatric
services, 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 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 thereby reducing costs per patient. 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.
The Company's ability to successfully manage and develop the Managed
Providers will depend on its ability to increase patient revenue and achieve
cost efficiencies for the Managed Professional Associations. The Company's
future results of operations will depend on the Company's ability to
successfully manage and develop its Managed Providers as the Company's
management fees are directly related to the revenues and expenses of the Managed
Professional Associations. See "Risk Factors -- Reliance on Affiliated
Providers", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Management Agreements."
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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 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 intends to utilize such practices to assist in identifying
additional acquisition candidates for the LADS. In determining the consideration
for each acquisition, the Company primarily evaluates the acquisition criteria
along with projected future cash flows for the practice and the projected
management fee to be received.
The Company's ability to successfully expand the LADS model to new markets
will depend on a number of factors including the ability to obtain acceptable
financing to fund expansion, identify and consummate suitable acquisitions,
successfully integrate the acquisitions and effectively expand its managed care
relationships into such local markets. See "Risk Factors -- Risk Associated With
Expansion Strategy."
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.......................... 93 109 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 12 1 4 5,000
Chicago............................ 66 17 -- 18 10,000
Phoenix............................ 31 15 4 11 107,000
Tucson............................. 19 9 3 -- 50,000
Minneapolis........................ 4 11 -- -- --
Long Island........................ 57 1 -- 4 225,000
New Orleans........................ -- 4 -- 13 --
--- --- -- --- ---------
Total.................... 356 304 40 107 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.
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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 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
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<PAGE> 40
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, benefits 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.
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.
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The Company enters into Management Agreements with professional
associations managed by the Company, the initial term of which is typically 40
years. Under significantly all of the Company's 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, (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
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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.
Each Managed Professional Association has the sole authority to set its
fees for patients, subject to obligations pursuant to managed care contracts. In
connection with managed care contracts the Managed Professional Associations may
contract directly with third-party payors. Otherwise, the managed care contracts
are entered into by the Company and at the option of the Managed Professional
Association the practice can be part of the provider group offered by the
Company in connection with the contract. See "-- Managed Care Contracts."
In accordance with its standard Management Agreement entered into with each
Managed Professional Association, the Company is responsible for, and authorized
to bill, in the Managed Professional Association's name, patients, third-party
payors and other fiscal intermediaries for all billable health care services
rendered by the practice. The Company is responsible for collecting and
receiving all payments for such health care services. Collections from
receivables are deposited by the Company into a cash collateral account from
which all amounts for the payment of expenses and other obligations are drawn.
In the event that any payments for billable services are received by the Managed
Professional Association or its employed professionals, such entities and
individuals are obligated to transfer such funds to the cash collateral account.
The Company has been provided a security interest in the cash collateral account
whereupon the Company is permitted, except where specifically limited by the
Management Agreement, to borrow against the account as well as against
receivables of the practice. The Company has the power to endorse checks payable
to the Managed Professional Association. The Company continuously monitors
outstanding accounts receivable and is authorized to take certain collection
actions, including extending the time for payment of accounts, and jointly
decides with the Managed Professional Association concerning any decision to
undertake extraordinary collection efforts. The Company has the obligation to
fund shortages in the account as necessary to pay practice management expenses
which must be paid as they become due. The Company reconciles the results of its
billing and collection efforts for its Managed Professional Associations on a
quarterly basis.
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 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
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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. and For Eyes Managed Care, Inc. 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 five internally developed Managed
Provider optometry clinics adjacent to five 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.
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
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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 six fee-for-service plans. 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 15.8% 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 14.2% and 11.8% of the Company's revenues for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively.
RECENT TRANSACTIONS
The Company was incorporated on May 9, 1996. The principal operating
subsidiaries of the Company are Vision 21 PPMC and Vision 21 MCO both of which
merged with the Company in November 1996. In the merger, all of the outstanding
shares of stock of Vision 21 PPMC and Vision 21 MCO were exchanged for an
aggregate of 2,685,318 shares of Common Stock of the Company. The previous
shareholders of these two entities consisted of certain executive officers and
directors of the Company. See "Certain Transactions."
In December 1996, the Company completed the 1996 Acquisitions 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. These acquisitions were accounted for by recording the assets
and liabilities at fair value and allocating the remaining cost to the related
Management Agreements. Additionally, the Company acquired the business assets of
a managed care company servicing four capitated managed care contracts covering
over 100,000 patient lives which was accounted for under the purchase method of
accounting. In connection with the 1996 Acquisitions, the Company provided
aggregate consideration of $11.2 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."
Between March 1, 1997 and June 30, 1997, the Company completed the 1997
Acquisitions resulting in the acquisition of the business assets of one
optometry clinic, 11 ophthalmology clinics, six optical dispensaries and three
ASCs located in Sierra Vista, Mesa and Phoenix, Arizona and Pinellas Park and
Fort Lauderdale, Florida. Concurrently, the Company entered into Management
Agreements with the related professional associations employing six optometrists
and 13 ophthalmologists. In connection with the 1997 Acquisitions, the Company
provided aggregate consideration of $6.8 million, consisting of 738,186 shares
of Common Stock, $264,000 in promissory notes and $29,000 in cash, subject to
closing adjustments.
In July 1997, the Company closed in escrow the Recent Acquisition resulting
in the acquisition of the business assets of one ASC located in Tucson, Arizona.
At the date of the related professional association's receipt of an ASC license
from the State of Arizona, all income associated with such ASC business shall
become subject to the Management Agreement with the related professional
association. In connection with the Recent Acquisition, the Company provided
aggregate consideration of $519,000, consisting of 131,050 shares of Common
Stock, subject to closing adjustments.
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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. 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. Medicare rates for physician services include a work-related component
and a practice expense component. The agency that administers the Medicare
program is required by law to institute a resource-based method for establishing
the practice expense component. The initial proposal to implement this mandate
would result in a redistribution of Medicare funds from specialists and surgeons
to primary care physicians. There are two options currently being considered.
The first would increase optometrists' Medicare revenue by 11% and decrease
ophthalmologists' revenue by 6%. The second would increase optometrists'
Medicare revenue by 11% and decrease ophthalmologists' revenue by 15%. Recently
passed Medicare budget legislation delays implementation of the resource-based
method of paying for physician practice expenses until 1999, except that rates
for certain services typically provided outside a physician's office will be
reduced in 1998 where the practice expense component of the rate exceeds 110% of
the work component. The legislation also calls for a phase in that would be
completed in 2002. 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 -- Governmental
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
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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. Furthermore, the
Management Agreements between the Company and the Professional Associations
specifically provide that all decisions required by law to be made by
professionals shall be made by the professionals. While certain
shareholders of such Managed Professional Associations which perform the
practice of medicine or optometry are also involved in Company management,
they act independently when making decisions on behalf of their
professional corporations and the Company has no right (and does not
attempt to exercise any right) to control those decisions.
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. For example, the Florida fee-splitting law prohibits paying or
receiving any commission, bonus, kickback, or rebate, or engaging in any
split-fee arrangement in any form for patient referrals to providers of
health care goods or services. According to a Florida court of appeals
decision interpreting this law, it does not prohibit a management fee that
is based on a percentage of gross income of a professional practice if the
manager does not refer patients to the practice. Similarly, the Arizona law
prohibits "dividing a professional fee" only if it is done "for patient
referrals." Other states, such as Illinois and New York, have fee-splitting
statutes that have been interpreted to prohibit any compensation
arrangements that are based on a percentage of physician's revenue, and
such laws preclude the Company from using its typical management
arrangement in those states.
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 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
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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 "Risk Factors -- Government
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 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
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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 June 30, 1997,
the Company had 421 employees, of which approximately 86 were employed at the
Company's headquarters and 335 were employed by the Company at Managed Provider
practices. The Company believes that its relationship with its employees is
good.
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 $5.0 million per incident, and $5.0 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.
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.
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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.
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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.......................... 46 Chief Financial Officer, Treasurer and Director
Michael L. Sandnes........................ 42 Chief Operating Officer
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.
MICHAEL SANDNES, CHIEF OPERATING OFFICER. Mr. Sandnes has served as Chief
Operating Officer of the Company since August 1997. From 1996 until assuming his
position with the Company, Mr. Sandnes served as Chief Operating Officer of
Horizon/CMS Health Care Corporation, a specialty physician practice management
company. From 1993 to 1996, he served as Chief Executive Officer of Advantage
Health Network, Inc., a physician practice management company. Prior to 1993,
Mr. Sandnes served as Vice President of Hospital Operations for Rehabilitation
Hospital Corporation of America since 1991. Mr. Sandnes obtained his Masters of
Health Care Administration from Central Michigan University in 1985, and his
Bachelors of Administration from Eastern Michigan University in 1978.
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
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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 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
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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 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.
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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.
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. For the year ended December 31, 1996, no officer of
the Company other than Theodore N. Gillette, Chief Executive Officer and Richard
L. Sanchez, Chief Development Officer, received compensation in excess of
$100,000.
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 L. 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
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<PAGE> 54
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 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. Additionally, in June 1997 Mr. Welch received non-statutory stock
options to purchase 20,000 shares of Common Stock pursuant to the Company's
Stock Incentive Plan. The options are exercisable at the initial offering price
and vest equally on April 1, 1999 and April 1, 2000. 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.
The Company and Michael Sandnes are parties to an oral understanding
pursuant to which Mr. Sandnes has agreed to serve as Chief Operating Officer of
the Company. Subject to future execution of written agreements to be agreed to
by the parties, the Company expects to finalize its arrangement with Mr. Sandnes
for an employment term of two years ending on July 31, 1999, to be renewable for
subsequent one-year terms by mutual agreement of the parties. Under such future
written agreement, Mr. Sandnes is expected to receive an annual base salary of
not less than $130,000 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 shall deem appropriate. Under the future
written employment agreement, Mr. Sandnes will be expected to devote his best
efforts and substantially all of his business time and services to the business
and affairs of the Company. Mr. Sandnes is expected to 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.
Upon execution of the agreement, Mr. Sandnes is expected to receive a grant of
non-statutory stock options to purchase 30,000 shares of Common Stock pursuant
to the Company's Stock Incentive Plan. The options are expected to be
exercisable at a per share price equal to the initial public offering price and
to vest pro rata on an equal basis over a four year period. Mr. Sandnes is
expected to be further 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 to be appropriate. The employment agreement is
expected to further contain a covenant not to compete with the Company for a
period of twelve months following the termination of employment, as well as
other provisions to be agreed to by the parties.
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
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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 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
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<PAGE> 56
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
682,667 shares of Common Stock which are generally exercisable 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.
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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. In addition, in November 1996, the Company completed an
acquisition of all of the outstanding stock of Dr. Gillette & Associates, Inc.
(renamed Vision 21 Physician Practice Management Company). The shareholders of
these entities acquired by the Company were 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
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 a gross percentage of the
revenue of G&A's eye care practice. Payments earned by the Company under the new
Management Agreement in the six months ended June 30, 1997 were $569,403.
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
144,705 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 $241,824
in 1996 and the six months ended June 30, 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
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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 $193,176
under the Management Agreement in the six months ended June 30, 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 $301,811 under the Management Agreement in the six months ended
June 30, 1997. The Company, the former shareholders of Eye Institute and certain
other related entities closed in escrow an agreement dated as of July 31, 1997
to transfer certain ASC assets from Vital Sight, P.C. and such shareholders'
limited liability company to Vision 21 of Southern Arizona, Inc. When the State
of Arizona approves Vital Sight, P.C.'s application for a license to conduct an
ASC business (which is expected by the end of September 1997), all income
associated with such ASC business shall be subject to the business management
fee. The Company's obligation to
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purchase the ASC business shall terminate if the ASC license is not obtained
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 Dr. Katz will be entitled, subject to post-closing adjustments,
to receive 65,525 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, a Selling
Shareholder, 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 $146,933 for the six months ended June 30, 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 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 $307,389 under the
Management Agreement in the six months ended June 30, 1997.
Effective May 1, 1997, the Company acquired all the medical assets of Drs.
Smith, Porter & Associates, P.A. ("Smith P.A."). Dr. Paul R. Smith is the sole
shareholder of Smith P.A and a Selling Shareholder. 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. The Company earned fees of $7,904
under the Management Agreement in the six months ended June 30, 1997.
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<PAGE> 60
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 August 14, 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 28.0% 21.0% -- 1,702,494 20.5%
Theodore N. Gillette,
O.D.(5)............. 1,898,558 31.2 23.2 12,000 1,886,558 22.7
Sanchez Family Limited
Partnership(6)...... 593,329 9.8 7.3 12,000 581,329 7.0
Richard L.
Sanchez(7).......... 593,329 9.8 7.3 -- 581,329 7.0
Peter J. Fontaine..... 360,422 5.9 4.4 -- 360,422 4.3
Michael Sandnes....... -- -- -- -- -- --
Richard L. Lindstrom,
M.D.(8)............. 231,686 3.8 2.8 23,169 208,517 2.5
Bruce S. Maller(9).... 270,331 4.4 3.3 13,523 256,808 3.1
BSM Investments
Ltd................. 108,976 1.8 1.3 -- 108,976 1.3
Jeffrey I. Katz,
M.D................. 263,831 4.3 3.2 -- 263,831 3.2
Richard T.
Welch(10)........... 64,000 1.0 * -- 64,000 *
All directors and
executive officers
as a group (8
persons)............ 3,682,157 60.0 44.7 60,692 3,621,465 43.2
OTHER 5% STOCKHOLDER
Piper Jaffray
Healthcare Fund II
Limited
Partnership(11)..... 333,333 5.2 3.9 -- 333,333 3.8
OTHER SELLING
STOCKHOLDERS
Barry Kusman, M.D..... 263,831 4.3 3.2 26,383 237,448 2.9
Paul R. Smith, O.D.... 181,735 3.0 2.2 3,635 178,100 2.1
William J. Fishkind,
M.D................. 171,723 2.8 2.1 8,586 163,137 2.0
Brock K. Bakewell,
M.D................. 155,993 2.6 2.0 15,599 140,394 1.7
Jerald Turner,
M.D.(12)............ 129,398 2.1 1.6 6,470 122,928 1.5
Richard L. Short,
D.O................. 128,541 2.1 1.6 12,854 115,687 1.4
David R. Hardten,
M.D.(8)............. 82,369 1.4 1.0 8,237 74,132 1.0
Robert Kennedy,
O.D.(13)............ 76,895 1.3 1.0 3,845 73,050 1.0
John W. Lahr, O.D..... 77,554 1.3 1.0 7,755 69,799 *
Thomas Samuelson,
M.D.(8)............. 41,185 1.0 * 4,119 37,066 *
Mark Salta, O.D....... 23,971 * * 2,397 21,574 *
Daniel Palmisano,
O.D................. 21,054 * * 1,053 20,001 *
Al Lappano, O.D....... 21,049 * * 2,105 18,944 *
Mona Henri, O.D....... 15,252 * * 1,525 13,727 *
Jennifer Stanley,
O.D................. 11,980 * * 958 11,022 *
ACFS Limited
Partnership(14)..... 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 and Executive Officers," "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.
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<PAGE> 61
(2) Based on 6,076,258 shares of Common Stock outstanding prior to this
Offering (excluding 177,204 shares held in escrow in conjunction with
certain acquisitions, the "Contingent Shares") and 8,176,258 shares of
Common Stock to be outstanding immediately after the Offering excluding
Contingent Shares (8,309,534 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 133,276 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 to Piper Jaffray Healthcare Fund II Limited
Partnership, c/o Piper Jaffray Ventures, Inc. Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota 55401 pursuant to warrants
exercisable at the time of completion of the Offering.
(12) 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.
(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) ACFS Limited Partnership, c/o Advent International, 101 Federal Street,
Boston, Massachusetts 02110.
60
<PAGE> 62
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 August 14, 1997, an aggregate of 6,076,258 shares of Common Stock
were outstanding and held of record by 39 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 July 1997, the Company entered into an amended and restated credit
facility in the aggregate amount of $4.9 million with Prudential, pursuant to
the Note and Warrant Purchase Agreement. Under the Note and Warrant Purchase
Agreement, the Company sold to Prudential for $126,000 a warrant exchangeable
for 210,000 shares of Common Stock at any time during the five-year period
commencing at the effective date of the Company's initial public offering, at an
exercise price per share equal to the initial public offering price. 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.
61
<PAGE> 63
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.
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
62
<PAGE> 64
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 3,609,037 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 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 751,666 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
63
<PAGE> 65
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.
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<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,176,258 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) except for those shares, if any, purchased by "affiliates" of
the Company as that term is defined in Rule 144 under the Securities Act. The
remaining 6,076,258 shares outstanding are "Restricted Securities" as that term
is defined in Rule 144 and fall into three categories: (i) 2,791,431 shares held
by "affiliates" who have already held their shares for more than one year, (ii)
1,289,004 shares held by affiliates who have not held their shares for more than
one year and (iii) 1,995,823 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 682,667 shares have been
granted (the "Option Shares"). See "Management -- Stock Option Plans." Finally,
751,666 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 81,762 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, 2,791,431
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; May 1, 1998 and July 31, 1998, respectively, 43,252; 375,983; 592,787;
11,411 and 65,525 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; March 27, 1988; April 1, 1998; May 1, 1998;
June 1, 1998 and July 31, 1998, respectively, 275,860; 898,611; 29,053; 128,541;
169,150; 429,084 and 65,525 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 4,425,487 Restricted Securities,
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 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
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<PAGE> 67
to options granted to the Underwriters to purchase an additional 315,000 shares
to cover over-allotment 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 1,966,770 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.
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<PAGE> 68
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
.
Certain of the Company's officers and directors, who in the aggregate will
beneficially own approximately 2,993,904 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, stock issued by the Company in connection with acquisitions, 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.
67
<PAGE> 69
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.
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 July 1997, an affiliate of Prudential Securities Incorporated, loaned an
aggregate of $4.9 million to the Company. The loan is represented by a senior
secured note that bears interest at 10% per annum, payable monthly, and is due
at the earlier of January 1, 1998 or upon completion of an initial public
offering. In connection with the loan, the Company has sold to Prudential for
$126,000 a warrant to purchase 210,000 shares of Common Stock at a purchase
price per share equal to the initial public offering price. The warrants are
exchangeable at any time during the five-year period commencing at the effective
date of the Company's initial public offering. Subject to the restrictions on
transfer, the shares of Common Stock underlying the warrant are accorded one
demand registration right exercisable at any time between one and five years
after the effective date of the Company's initial public offering and unlimited
piggyback registration rights exercisable at any time before seven years after
the effective date of the Company's initial public offering. Under the terms of
the Warrant, neither the warrants nor the Common Stock issued upon exercise of
the warrants may be transferred, assigned, pledged or hypothecated for a period
of one year following the effective date of the Company's initial public
offering. See "Description of Capital Stock -- Warrants" and "-- Registration
Rights," and "Shares Eligible for Future Sale."
Under the Conduct Rules of the National Association of Securities Dealers,
Inc. ("NASD"), because Prudential may be deemed to have a "conflict of interest"
with the Company and more than ten percent of the net proceeds from the Offering
are intended to be used to repay the loan made by Prudential, the Offering will
be made in compliance with Rule 2720 and the public offering price will 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
68
<PAGE> 70
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.
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".
69
<PAGE> 71
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.
70
<PAGE> 72
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 -- Six-Month Period Ended June 30, 1997........ F-6
Unaudited Pro Forma Consolidated Balance Sheet as of June
30, 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-11
Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (Unaudited)............................. F-12
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 and the Six-Month Periods
Ended June 30, 1996 and 1997 (Unaudited).................. F-13
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1994, 1995 and 1996 and
the Six-Month Period Ended June 30, 1997 (Unaudited)...... F-14
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 and the Six-Month Periods
Ended June 30, 1996 and 1997 (Unaudited).................. F-15
Notes to Consolidated Financial Statements.................. F-17
FINANCIAL STATEMENTS OF EYE INSTITUTE OF SOUTHERN ARIZONA, P.C.
Report of Independent Certified Public Accountants.......... F-30
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-31
Statements of Operations for the Year Ended December 31,
1995 and Eleven-Month Period Ended November 30, 1996...... F-32
Statements of Stockholders' Equity (Deficit) for the Year
Ended December 31, 1995 and Eleven-Month Period Ended
November 30, 1996......................................... F-33
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-34
Notes to Financial Statements............................... F-35
</TABLE>
F-1
<PAGE> 73
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>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Certified Public Accountants.......... F-39
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-40
Combined Statements of Income for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-41
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and the Eleven-Month Period Ended
November 30, 1996......................................... F-42
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-43
Notes to Combined Financial Statements...................... F-44
FINANCIAL STATEMENTS OF NORTHWEST EYE SPECIALISTS, P.L.L.C.
Report of Independent Certified Public Accountants.......... F-50
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-51
Statements of Income for the Year Ended December 31, 1995
and for the Eleven-Month Period Ended November 30, 1996... F-52
Statements of Partners' Equity for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-53
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-54
Notes to Financial Statements............................... F-55
FINANCIAL STATEMENTS OF LINDSTROM, SAMUELSON & HARDTEN
OPHTHALMOLOGY ASSOCIATES, P.A. AND
VISION CORRECTION CENTERS, INC.
Report of Independent Certified Public Accountants.......... F-59
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-60
Combined Statements of Operations for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-61
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended November 30, 1996................................... F-62
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-63
Notes to Combined Financial Statements...................... F-64
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-69
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-70
Combined Statements of Operations for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-71
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended December 31, 1996................................... F-72
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-73
Notes to Combined Financial Statements...................... F-74
FINANCIAL STATEMENTS OF OPTOMETRIC EYE CARE CENTERS, P.A.
Report of Independent Certified Public Accountants.......... F-80
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-81
</TABLE>
F-2
<PAGE> 74
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statements of Income for the Year Ended December 31, 1995
and for the Eleven-Month Period Ended November 30, 1996... F-82
Statements of Stockholders' Equity for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-83
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-84
Notes to Financial Statements............................... F-85
FINANCIAL STATEMENTS OF JERALD B. TURNER, M.D., P.A.
Report of Independent Certified Public Accountants.......... F-89
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-90
Statements of Income for the Year Ended December 31, 1995
and for the Eleven-Month Period Ended November 30, 1996... F-91
Statements of Stockholder's Equity for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-92
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-93
Notes to Financial Statements............................... F-94
FINANCIAL STATEMENTS OF GILLETTE, BEILER & ASSOCIATES, P.A.
Report of Independent Certified Public Accountants.......... F-97
Balance Sheets as of December 31, 1995 and November 30,
1996...................................................... F-98
Statements of Operations for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-99
Statements of Stockholders' Deficit for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-100
Statements of Cash Flows for the Year Ended December 31,
1995 and for the Eleven-Month Period Ended November 30,
1996...................................................... F-101
Notes to Financial Statements............................... F-102
FINANCIAL STATEMENTS OF J&R KENNEDY, O.D., P.A.
AND ROSEVILLE OPTICIANS, INC.
Report of Independent Certified Public Accountants.......... F-107
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-108
Combined Statements of Income for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-109
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended November 30, 1996................................... F-110
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-111
Notes to Combined Financial Statements...................... F-112
FINANCIAL STATEMENTS OF DR. SMITH AND ASSOCIATES, P.A.
#6950, DR. SMITH AND ASSOCIATES,
P.A. #6958, AND DR. SMITH AND
ASSOCIATES P.A. #6966
Report of Independent Certified Public Accountants.......... F-117
Combined Balance Sheets as of December 31, 1995 and November
30, 1996.................................................. F-118
Combined Statements of Income for the Year Ended December
31, 1995 and for the Eleven-Month Period Ended November
30, 1996.................................................. F-119
Combined Statements of Stockholders' Equity for the Year
Ended December 31, 1995 and for the Eleven-Month Period
Ended November 30, 1996................................... F-120
Combined Statements of Cash Flows for the Year Ended
December 31, 1995 and for the Eleven-Month Period Ended
November 30, 1996......................................... F-121
Notes to Combined Financial Statements...................... F-122
</TABLE>
F-3
<PAGE> 75
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. From
March 1, 1997 to June 30, 1997, the Company acquired the business assets of five
eye care practices located in Arizona and Florida (the "1997 Acquisitions"). In
conjunction with the 1997 Acquisitions, the Company entered into Management
Agreements with the professional associations operating the practices. In July
1997, the Company closed in escrow the acquisition of the business assets of an
ASC located in Arizona. Upon receipt by the related professional association of
an ASC license from the State of Arizona, the income of the ASC business shall
become subject to a Management Agreement with the entity operating the ASC (the
"Recent Acquisition"). The 1996 Acquisitions, the 1997 Acquisitions and the
Recent Acquisition are collectively referred to as the "Acquisitions." Each of
the Acquisitions has been accounted for by recording the assets and liabilities
at fair value and allocating the remaining cost to the related management
agreements.
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 1997
Acquisitions, (iii) the Recent Acquisition, and (iv) the Offering and the
application of the estimated net proceeds therefrom. The unaudited pro forma
consolidated statements of operations of the Company for the six-month period
ended June 30, 1997 give effect to the following transactions as if they had
occurred on January 1, 1996: (i) the 1997 Acquisitions, (ii) the Recent
Acquisition, and (iii) the Offering and the application of the estimated net
proceeds therefrom. The unaudited pro forma consolidated balance sheet of the
Company as of June 30, 1997 gives effect to the Recent Acquisition 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> 76
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 29,877,000(2) 31,819,843 31,819,843
Other revenue.......... 305,654 3,000(1) 308,654 308,654
----------- ----------- -------------- -----------
9,563,693 31,148,000 40,711,693 40,711,693
Operating expenses:
Medical claims......... 9,128,659 1,140,000(1) 10,268,659 10,268,659
Practice management
expenses............ 1,244,173 25,098,000(2) 26,342,173 26,342,173
Salaries, wages and
benefits............ 1,889,395 38,000(1) 4,365,395 4,365,395
2,438,000(9)
Business development... 1,926,895 -- 1,926,895 1,926,895
General and
administrative...... 1,208,678 166,000(1) 1,604,678 1,604,678
230,000(9)
Depreciation and
amortization........ 126,046 1,364,000(3) 1,490,046 1,490,046
----------- ----------- -------------- -----------
15,523,846 30,474,000 45,997,846 45,997,846
----------- ----------- -------------- -----------
Income (loss) from
operations............. (5,960,153) 674,000 (5,286,153) (5,286,153)
Interest expense......... 159,484 204,000(4) 363,484 $(359,000)(5) 4,484
----------- ----------- -------------- --------- -----------
Income (loss) before
income taxes........... (6,119,637) 470,000 (5,649,637) (359,000) (5,290,637)
Income taxes............. -- -- -- -- --
----------- ----------- -------------- --------- -----------
Net income (loss)........ $(6,119,637) $ 470,000 (5,649,637) $(359,000) $(5,290,637)
=========== =========== ============== ========= ===========
Net loss per common
share.................. $ (1.02) $ (0.86) $ (0.69)(6)
=========== ============== ===========
Weighted average number
of common shares
outstanding............ 5,979,543 6,539,677 7,625,197(6)
=========== ============== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-5
<PAGE> 77
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
SIX-MONTH PERIOD ENDED JUNE 30, 1997
<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............ $ 5,788,391 $ -- $ 5,788,391 $5,788,391
Practice management
fees................. 11,304,405 5,811,000(2) 17,115,405 17,115,405
Other revenue........... 286,792 -- 286,792 286,792
----------- ---------- ----------- ----------
17,379,588 5,811,000 23,190,588 23,190,588
Operating expenses:
Medical claims.......... 5,042,385 -- 5,042,385 5,042,385
Practice management
expenses............. 9,281,172 5,055,000(2) 14,336,172 14,336,172
Salaries, wages and
benefits............. 2,182,538 -- 2,182,538 2,182,538
General and
administrative....... 802,461 -- 802,461 802,461
Depreciation and
amortization......... 567,419 144,000(3) 711,419 711,419
----------- ---------- ----------- ----------
17,875,975 5,199,000 23,074,975 23,074,975
----------- ---------- ----------- ----------
Income (loss) from
operations.............. (496,387) 612,000 115,613 115,613
Interest expense.......... 531,400 -- 531,400 $(525,000)(5) 6,400
----------- ---------- ----------- --------- ----------
Income (loss) before
income taxes............ (1,027,787) 612,000 (415,787) (525,000) 109,213
Income taxes.............. -- -- -- -- --
----------- ---------- ----------- --------- ----------
Net income (loss)......... $(1,027,787) $ 612,000 $ (415,787) $(525,000) $ 109,213
=========== ========== =========== ========= ==========
Net income (loss) per
common share............ $ (0.16) $ (0.06) $ 0.01(6)
=========== =========== ==========
Weighted average number of
common shares
outstanding............. 6,408,627 6,539,677 7,625,197(6)
=========== =========== ==========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-6
<PAGE> 78
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
JUNE 30, 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.... $ 1,137,793 $ -- $ 1,137,793 $ 8,412,962(8) $ 9,550,755
Accounts receivable.......... 4,666,640 -- 4,666,640 4,666,640
Other receivables............ 1,219,382 -- 1,219,382 1,219,382
Prepaid expenses and other
current assets............. 240,023 -- 240,023 240,023
----------- ---------- ----------- ----------- -----------
Total current
assets............. 7,263,838 -- 7,263,838 8,412,962 15,676,800
Fixed assets, net.............. 2,911,183 -- 2,911,183 2,911,183
Intangible assets, net......... 18,632,205 519,000(7) 19,151,205 19,151,205
Deferred offering costs........ 732,792 -- 732,792 (732,792)(8) --
Other assets................... 173,136 -- 173,136 173,136
----------- ---------- ----------- ----------- -----------
Total assets.......... $29,713,154 $ 519,000 $30,232,154 $ 7,680,170 $37,912,324
=========== ========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable............. $ 1,042,943 $ -- $ 1,042,943 $ 1,042,943
Accrued expenses............. 967,279 -- 967,279 967,279
Accrued acquisition and
offering costs............. 1,829,589 -- 1,829,589 $(1,829,589)(8) --
Accrued compensation......... 1,177,015 -- 1,177,015 1,177,015
Due to Managed Professional
Associations............... 691,096 -- 691,096 691,096
Current portion of long-term
debt....................... 7,805,551 -- 7,805,551 (7,063,264)(8) 742,287
Current portion of
obligations under capital
leases..................... 55,975 -- 55,975 55,975
Medical claims payable....... 1,342,381 -- 1,342,381 1,342,381
----------- ---------- ----------- ----------- -----------
Total current
liabilities........ 14,911,829 -- 14,911,829 (8,892,853) 6,018,976
Deferred rent payable.......... 262,378 -- 262,378 262,378
Obligations under capital
leases....................... 99,631 -- 99,631 99,631
Long-term debt, less current
portion...................... 6,013,752 -- 6,013,752 (5,962,977)(8) 50,775
Stockholders' equity:
Common stock................. 5,946 131(7) 6,077 2,100(8) 8,177
Additional paid-in capital... 17,503,573 518,869(7) 18,022,442 22,533,900(8) 40,556,342
Deferred compensation........ (462,885) -- (462,885) (462,885)
Accumulated deficit.......... (8,621,070) -- (8,621,070) (8,621,070)
----------- ---------- ----------- ----------- -----------
Total stockholders'
equity............. 8,425,564 519,000 8,944,564 22,536,000 31,480,564
----------- ---------- ----------- ----------- -----------
Total liabilities and
stockholders'
equity............. $29,713,154 $ 519,000 $30,232,154 $ 7,680,170 $37,912,324
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial
information.
F-7
<PAGE> 79
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL INFORMATION
(1) These adjustments to managed care revenue, medical claims, 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, as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH
PERIOD ENDED
11/30/96
------------
<S> <C>
Revenues:
Managed care.............................................. $1,268,000
Other..................................................... 3,000
----------
1,271,000
----------
Expenses:
Medical claims............................................ 1,140,000
Salaries, wages and benefits.............................. 38,000
General and administrative................................ 166,000
----------
1,344,000
----------
Net loss.................................................... $ (73,000)
==========
</TABLE>
The unaudited pro forma consolidated statement of operations for the
six-month period ended June 30, 1997 did not include any acquisition adjustments
for managed care since the 1997 Acquisitions and the Recent Acquisition did not
include any managed care companies.
(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 1997
Acquisitions and the Recent Acquisition 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 six-month period ended June 30, 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 1997 Acquisitions and the Recent Acquisition had occurred on
January 1, 1996. 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.
F-8
<PAGE> 80
The following analysis summarizes the adjustments related to practice
management fees:
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS
---------------------------
ELEVEN-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
11/30/96 6/30/97
------------ ------------
<S> <C> <C>
Practice management fee summary:
Reimbursement of practice management expenses:
Practice management expenses.............................. $25,098,000 $5,055,000
Depreciation.............................................. 758,000 70,000
----------- ----------
25,856,000 5,125,000
Share of Managed Professional Associations' net
earnings(a)............................................... 4,500,000 686,000
----------- ----------
30,356,000 5,811,000
Less management fee earned by the Company through a
management agreement with a Managed Professional
Association for the eleven-month period ended November 30,
1996...................................................... (479,000) --
----------- ----------
Practice management fee revenue............................. $29,877,000 $5,811,000
=========== ==========
</TABLE>
The share of Managed Professional Associations' net earnings was computed
as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
11/30/96 6/30/97
------------ ------------
<S> <C> <C>
Gross practice revenues..................................... $40,856,000 $7,412,000
less defined practice expenses including depreciation..... 25,856,000 5,125,000
Managed Professional Associations'
Net earnings.............................................. $15,000,000 $2,287,000
Weighted-average management fee percentage.................. 30% 30%
----------- ----------
Share of Managed Professional Associations'
Net earnings.............................................. $ 4,500,000 $ 686,000
=========== ==========
</TABLE>
The pro forma adjustments for practice management fees and practice
management expenses are based on the actual results of operations of the
individual practices, as adjusted for the terms of the Management Agreements.
While the Company expects the operations of the practices to improve under its
management, there can be no assurance that operations will not deteriorate.
However, the Company believes this information is the best available objective
information to evaluate the performance of the practices.
(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 an average life of 25 years:
<TABLE>
<CAPTION>
ACQUISITION ADJUSTMENTS
---------------------------
ELEVEN-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
11/30/96 6/30/97
------------ ------------
<S> <C> <C>
Fixed assets(a)............................................. $ 758,000 $ 70,000
Intangible assets(b)........................................ 606,000 74,000
----------- ----------
$ 1,364,000 $ 144,000
=========== ==========
</TABLE>
(a) Depreciation on fixed assets is calculated on a straight-line method
over the estimated useful lives of the various classes of assets, which range
from three to seven years.
(b) Amortization of intangible assets is calculated on a straight-line
method over an average life of 25 years.
F-9
<PAGE> 81
(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, as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT INTEREST INTEREST
DESCRIPTION 12/31/96 RATE PERIOD EXPENSE
- ----------- ---------- -------- ----------------- --------
<S> <C> <C> <C> <C>
Unsecured notes payable issued to
stockholders of the Managed
Professional Associations on
12/1/96............................ $1,924,959 8.00% 1/1/96 -- 11/30/96 $141,000
Certain notes payable and capital
lease obligations assumed of the
Managed Professional Associations
on 12/1/96......................... 744,481 9.25% 1/1/96 -- 11/30/96 63,000
--------
$204,000
========
</TABLE>
(5) The adjustment reflects the savings on interest expense due to the
repayment of debt discussed in note 8 as follows:
<TABLE>
<CAPTION>
ELEVEN-MONTH SIX-MONTH
PERIOD ENDED PERIOD ENDED
11/30/96 6/30/97
------------ ------------
<S> <C> <C>
Unsecured notes payable, 8%................................. $274,000 $198,000
Senior subordinated note, 10%............................... 1,300 82,000
Senior subordinated note, 10%............................... -- 88,000
Certain notes payable and capital lease obligations,
9.25%..................................................... 83,700 --
Credit facilities, 10%...................................... 157,000
-------- --------
$359,000 $525,000
======== ========
</TABLE>
(6) To reflect the pro forma net income (loss) per common share assuming an
increase in the weighted average number of outstanding shares to the extent
necessary to repay the existing debt as shown in pro forma adjustment (8),
representing an increase of 1,085,520 shares.
(7) The adjustment reflects the Recent Acquisition. The fair value of the
net assets and Management Agreements associated with the Recent Acquisition is
expected to approximate $519,000 and will be financed through the issuance of
131,050 shares of the Company's Common Stock valued at $3.96 per share. The
acquisition adjustment assumes the fair value of the net business assets is
immaterial and, accordingly, allocates the entire fair value of $519,000 to
intangible assets, principally representing the fair value of the Management
Agreements.
(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 $13.0 million of outstanding
debt.
(9) The adjustment increases the general and administrative expenses for
1996 by $230,000 to the level incurred in the first six months of 1997 to
reflect the expense of the additional infrastructure needed to manage the 1996
Acquisitions, the 1997 Acquisitions and the Recent Acquisition. The adjusted
1996 general and administrative expenses equals the annualized expenses incurred
through June 30, 1997 for the same activities.
F-10
<PAGE> 82
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
July 29, 1997
ERNST & YOUNG LLP
F-11
<PAGE> 83
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 42,272 $ 67,353 $ 1,137,793
Accounts receivable, net of allowance for doubtful
accounts of $685,000 and $1,624,000 in 1996 and
1997, respectively................................. -- 1,968,587 4,666,640
Other receivables..................................... -- 185,263 1,219,382
Prepaid expenses and other current assets............. 999 192,789 240,023
----------- ----------- -----------
Total current assets.......................... 43,271 2,413,992 7,263,838
Fixed assets, net....................................... 98,726 1,941,259 2,911,183
Intangible assets, net of accumulated amortization of
$29,125 and $298,340 in 1996 and 1997, respectively... -- 11,022,396 18,632,205
Deferred offering costs................................. -- 287,792 732,792
Other assets............................................ 23,222 46,792 173,136
----------- ----------- -----------
Total assets.................................. $ 165,219 $15,712,231 $29,713,154
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable...................................... $ 99,931 $ 529,427 $ 1,042,943
Accrued expenses...................................... 1,617 946,519 967,279
Accrued acquisition and offering costs................ -- 1,362,012 1,829,589
Accrued compensation.................................. 55,872 546,740 1,177,015
Due to Managed Professional Associations.............. 27,741 -- 691,096
Note payable to related party......................... 250,000 -- --
Current portion of long-term debt ($2,889,264 to
related parties in 1997)........................... 51,127 48,249 7,805,551
Current portion of obligations under capital leases... -- 43,849 55,975
Medical claims payable................................ 1,056,141 1,793,861 1,342,381
----------- ----------- -----------
Total current liabilities..................... 1,542,429 5,270,657 14,911,829
Deferred rent payable................................... -- 263,006 262,378
Obligations under capital leases........................ -- 71,870 99,631
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 6,013,752
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
5,945,208 (1997) shares issued and outstanding..... 2,325 3,716 5,946
Additional paid-in capital............................ 32,271 4,736,361 17,503,573
Common stock to be issued (1,491,397 shares in
1996).............................................. -- 5,905,965 --
Deferred compensation................................. -- (517,035) (462,885)
Accumulated deficit................................... (1,473,646) (7,593,283) (8,621,070)
----------- ----------- -----------
Total stockholders' equity (deficit).......... (1,439,050) 2,535,724 8,425,564
----------- ----------- -----------
Total liabilities and stockholders' equity
(deficit)................................... $ 165,219 $15,712,231 $29,713,154
=========== =========== ===========
</TABLE>
See accompanying notes.
F-12
<PAGE> 84
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- -------------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Managed care................... $ 668,590 $ 2,446,010 $ 7,315,196 $ 3,697,093 $ 5,788,391
Practice management fees
($392,206, $423,890 and
$479,004 from a related
party in 1994, 1995 and
1996, respectively)......... 392,206 423,890 1,942,843 234,315 11,304,405
Other revenue.................. 131,098 211,746 305,654 105,074 286,792
---------- ----------- ----------- ----------- -----------
1,191,894 3,081,646 9,563,693 4,036,482 17,379,588
Operating expenses:
Medical claims................. 551,408 2,934,180 9,128,659 5,130,011 5,042,385
Practice management expenses... -- -- 1,244,173 -- 9,281,172
Salaries, wages and benefits... 537,864 903,966 1,889,395 690,254 2,182,538
Business development........... -- -- 1,926,895 -- --
General and administrative
(including $53,000 to
related parties for rent in
1996)....................... 237,702 443,374 1,208,678 380,559 802,461
Depreciation and
amortization................ 13,052 18,005 126,046 15,714 567,419
---------- ----------- ----------- ----------- -----------
1,340,026 4,299,525 15,523,846 6,216,538 17,875,975
---------- ----------- ----------- ----------- -----------
Loss from operations............. (148,132) (1,217,879) (5,960,153) (2,180,056) (496,387)
Interest expense................. 4,444 8,557 159,484 29,738 531,400
---------- ----------- ----------- ----------- -----------
Loss before income taxes......... (152,576) (1,226,436) (6,119,637) (2,209,794) (1,027,787)
Income taxes..................... -- -- -- -- --
---------- ----------- ----------- ----------- -----------
Net loss......................... $ (152,576) $(1,226,436) $(6,119,637) $(2,209,794) $(1,027,787)
========== =========== =========== =========== ===========
Net loss per common share........ $ (0.03) $ (0.21) $ (1.02) $ (0.37) $ (0.16)
========== =========== =========== =========== ===========
Weighted average number of common
shares outstanding............. 5,979,543 5,979,543 5,979,543 5,979,543 6,408,627
========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-13
<PAGE> 85
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 1996 Acquisitions consummated
effective December 1, 1996....... 651,842 652 2,580,645 -- -- -- 2,581,297
1,491,397 shares of common stock to
be issued in 1997 for 1996
Acquisitions consummated
effective December 1, 1996....... -- -- -- 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........ 2,229,583 2,230 12,392,262 (5,905,965) -- -- 6,488,527
Issuance of detachable stock
purchase warrants................ -- -- 203,500 -- -- -- 203,500
Sale of detachable stock purchase
warrant.......................... -- -- 126,000 -- -- -- 126,000
Compensatory stock options
accounted for under SFAS 123..... -- -- 45,450 -- -- -- 45,450
Amortization of deferred
compensation..................... -- -- -- -- 54,150 -- 54,150
Net loss........................... -- -- -- -- -- (1,027,787) (1,027,787)
--------- ------ ----------- ---------- --------- ----------- -----------
BALANCE AT JUNE 30,
1997(Unaudited).................... 5,945,208 $5,946 $17,503,573 -- $(462,885) $(8,621,070) $ 8,425,564
========= ====== =========== ========== ========= =========== ===========
</TABLE>
See accompanying notes.
F-14
<PAGE> 86
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- --------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................... $(152,576) $(1,226,436) $(6,119,637) $(2,209,794) $(1,027,787)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 13,052 18,005 126,046 15,714 567,419
Noncash compensation expense..... -- -- 521,582 -- 45,450
Amortization of deferred
compensation................... -- -- 11,620 -- 54,150
Interest accretion............... -- -- -- -- 41,477
Changes in operating assets and
liabilities, net of effects
from business combinations:
Accounts receivable, net....... 13,827 -- (298,328) (224,654) (1,277,081)
Other receivables.............. -- -- (185,263) -- (1,034,119)
Prepaid expenses and other
current assets............... 308 516 (22,766) 999 7,204
Other assets................... -- -- (32,984) (122,836) (126,344)
Accounts payable............... 5 87,141 429,496 (11,133) 191,168
Accrued expenses............... 170 614 119,955 (1,617) 20,132
Accrued acquisition and
offering costs............... -- -- 522,963 -- (522,963)
Accrued compensation........... 10,525 43,138 48,342 29,153 295,919
Medical claims payable......... 127,539 928,602 737,720 2,143,197 (451,480)
Due to Managed Professional
Associations................. 17,557 10,184 (27,741) (27,741) 691,096
--------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating
activities.............. 30,407 (138,236) (4,168,995) (408,712) (2,525,759)
INVESTING ACTIVITIES
Purchases of furniture and
equipment, net................... (13,783) (68,138) (443,577) (69,452) (280,926)
Payments for capitalized
acquisition and offering costs... -- (20,240) (1,138,829) -- (2,291,598)
--------- ----------- ----------- ----------- -----------
Net cash used in investing
activities.............. (13,783) (88,378) (1,582,406) (69,452) (2,572,524)
FINANCING ACTIVITIES
Proceeds from notes payable........ -- 265,554 3,700,000 -- --
Net proceeds from issuance of
senior notes and warrants........ -- -- 1,250,000 -- 2,000,000
Proceeds from bank loan............ 11,700 44,859 -- 86,672 --
Borrowings on line of credit....... -- -- 1,489,707 -- 2,000,000
Repayments on line of credit....... -- -- (1,305,443) -- (2,000,000)
Proceeds from credit facility...... -- -- -- -- 4,874,000
Payments on long-term debt and
lease obligations................ (15,451) (32,694) (56,729) (22,173) (831,277)
Sale of detachable stock purchase
warrant.......................... -- -- -- -- 126,000
Proceeds from sale of common
stock............................ -- -- 750,000 750,000 --
Capital distribution............... -- (21,914) (51,053) (49,855) --
--------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) financing
activities.............. (3,751) 255,805 5,776,482 764,644 6,168,723
--------- ----------- ----------- ----------- -----------
</TABLE>
F-15
<PAGE> 87
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- --------------------------
1994 1995 1996 1996 1997
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase in cash................... $ 12,873 $ 29,191 $ 25,081 $ 286,480 $ 1,070,440
Cash and cash equivalents at
beginning of period.............. 208 13,081 42,272 42,272 67,353
--------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of
period........................... $ 13,081 $ 42,272 $ 67,353 $ 328,752 $ 1,137,793
========= =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid during the period for
interest......................... $ 4,000 $ 9,000 $ 17,000 $ 10,000 $ 106,000
========= =========== =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING
ACTIVITIES
Common stock issued upon conversion
of a note payable................ $ -- $ -- $ 250,000 $ 250,000 $ --
========= =========== =========== =========== ===========
</TABLE>
See Note 2 regarding affiliations with practices financed through the issuance
of common stock and notes payable.
See accompanying notes.
F-16
<PAGE> 88
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.
Vision Twenty-One was formed to be a holding company to own the MSO and
MCO. The MSO and MCO were owned in identical proportions by two executive
officers and a member of the Board of Directors of the Company. During 1996, the
Company acquired the MSO and MCO through an exchange of 2,685,318 shares of
Common Stock for all of the outstanding shares of the MSO and MCO. There was no
other consideration paid by 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. 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 1996 Acquisitions were accounted for by recording the assets
and liabilities at fair value and allocating the remaining cost to the related
Management Agreements. 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.
F-17
<PAGE> 89
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
Vision Twenty-One issued 651,842 shares in 1996 and 1,491,397 shares of
Common Stock in 1997. The shares which were issued in 1997 were reported as
common stock to be issued as of December 31, 1996, in connection with the 1996
Acquisitions. All 2,143,239 shares of Common Stock were valued at $3.96 per
share based on an independent valuation. An additional 79,805 shares of common
stock are held in escrow. The shares held in escrow 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. Based upon
information to date, management of the Company believes that few of the
financial goals will be met in the future and, accordingly, believes that the
issuance of any such shares held in escrow will not have a material adverse
effect on the results of operations, financial condition or liquidity of the
Company.
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 five acquisitions completed in 1997 (Note 11) had been
consummated as of January 1, 1996; and for the six-month period ended June 30,
1997 as if the five acquisitions completed in 1997 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, SIX-MONTH
------------------------- PERIOD ENDED
1995 1996 JUNE 30, 1997
----------- ----------- --------------
<S> <C> <C> <C>
Pro forma information (unaudited):
Total revenues....................................... $18,983,325 $39,155,693 $22,412,588
Net income (loss).................................... $ 836,374 $(3,219,637) $ (535,787)
Net income (loss) per common share................... $ 0.14 $ (0.54) $ (0.08)
</TABLE>
F-18
<PAGE> 90
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 INTERIM FINANCIAL STATEMENTS
The interim financial statements as of June 30, 1997 and for the six-month
periods ended June 30, 1996 and 1997 do not provide all disclosures included in
the annual financial statements. These interim statements should be read in
conjunction with the annual audited financial statements and the footnotes
thereto. Results for the 1997 interim period are not necessarily indicative of
the results for the year ending December 31, 1997. However, the accompanying
interim 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.
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 expense of $54,164 and
$298,204 for the year ended December 31, 1996 and the six-month period ended
June 30, 1997, respectively. 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
F-19
<PAGE> 91
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
related Management Agreements. For the year ended December 31, 1996 and the
six-month period ended June 30, 1997, this revenue was as follows:
<TABLE>
<CAPTION>
SIX-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED)
<S> <C> <C>
Medical service revenues of Managed Professional
Associations........................................... $1,667,025 $13,449,943
Less amounts retained by physician shareholders of
Managed Professional Associations...................... (203,186) (2,145,538)
---------- -----------
Management fees under Management Agreements with Managed
Professional Associations.............................. $1,463,839 $11,304,405
========== ===========
</TABLE>
Included in net management fees are amounts representing reimbursement of
expenses for practice management expenses and a portion of depreciation and
amortization. These amounts were $1,298,337 for the year ended December 31, 1996
and $9,488,919 for the six-month period ended June 30, 1997.
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.
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
F-20
<PAGE> 92
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, external legal, accounting and other costs associated with
successful acquisitions are capitalized as part of the related purchase price
allocation. External 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.
All internal costs associated with acquisitions are expensed as incurred.
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 on a straight-line method over an average life of 25 years. In
evaluating 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 members, 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
$269,215 (unaudited) for the year ended December 31, 1996 and the six-month
period ended June 30, 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 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.
F-21
<PAGE> 93
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
including options granted to non-employees and professionals employed by the
Managed Professional Associations. 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).
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.
F-22
<PAGE> 94
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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,
----------------------- JUNE 30,
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 --
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
</TABLE>
F-23
<PAGE> 95
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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 $1,943,824
Unsecured notes payable to three Managed
Professional Associations, interest at 8%.
Principal and interest due on the earlier of
April 1, 1998 or upon completion of an initial
public offering.................................. -- -- 245,440
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 2,962,977
Note payable to a corporation under a $4.88 million
credit facility, due on the earlier of January 1,
1998 or upon completion of an initial public
offering, bearing interest at 10%. Interest due
monthly. The note is collateralized by
substantially all assets of the Company (Note
11).............................................. -- -- 4,874,000
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
</TABLE>
F-24
<PAGE> 96
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
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 69,331
---------- ---------- ----------
112,967 7,619,223 13,819,303
Less current portion............................... (51,127) (48,249) (7,805,551)
---------- ---------- ----------
$ 61,840 $7,570,974 $6,013,752
========== ========== ==========
</TABLE>
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:
F-25
<PAGE> 97
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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 Managed Professional
Associations. The Company also is named in the suit; however, management of the
Company believes that the Company ultimately will be dismissed from the suit.
The claim, which alleges medical malpractice, and which relates to an incident
which occurred prior to December 1, 1996, is currently in the discovery stage
and no trial date has been set. The Managed Professional Association has
determined that its insurer is liable for any damages resulting from the claim
which are within the Managed Professional Association policy limits, as well as
the professional costs to defend the Managed Professional Association against
the claim. The insurer is currently providing the defense for the claim. In the
opinion of Management, the ultimate result of this matter will not have a
material adverse effect on the results of operations, financial condition or
liquidity 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>
F-26
<PAGE> 98
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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%.
10. STOCKHOLDERS' EQUITY
Issuance of Stock
The Company entered into an agreement in 1993 to issue common stock in
exchange for cash received in 1993. 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 since the ownership interest in those shares had transferred 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 459,667 and 102,333 stock
options to employees and non-employees, respectively, 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. Compensation expense
under SFAS No. 123 for the 102,333 options issued to nonemployees was immaterial
for the year ended December 31, 1996 and approximately $45,000 for the six-month
period ended June 30, 1997. The options vest over three to four-year periods.
A summary of the Plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
<S> <C> <C>
Options outstanding......................................... 562,000 647,667
Options exercisable......................................... -- --
</TABLE>
F-27
<PAGE> 99
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average grant-date fair value of all 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 $(1.04), 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.
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,
as determined by an investment banking firm. 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). An amount equal
to the estimated value of the warrants will be amortized using the interest
method over the term of the Senior Notes.
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 as determined by an investment banking firm. 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
F-28
<PAGE> 100
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
proceeds will be used to provide additional working capital. An amount equal to
the estimated value of the warrants will be amortized using the interest method
over the term of the note.
On April 11, 1997, the Company entered into a $4.88 million credit facility
bearing interest at 10%. The terms of the credit facility were amended on June
13, 1997 and July 29, 1997. The terms of the credit facility 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 credit facility require the
Company to sell to the lender a warrant to purchase up to 210,000 shares of
common stock at a purchase price per share equal to the initial public offering
price. The warrant will be exercisable during the five-year period commencing at
the effective date of the Company's initial public offering. In addition to the
exercise price, the lender will pay the Company $126,000 for the warrant. The
Company believes the consideration paid and the exercise prices represent the
fair value of the warrant. Accordingly, no amounts will be amortized to interest
expense. The terms of the credit facility extend the maturity of the credit
facility to the earlier of January 1, 1998 or completion of 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 five 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 by
recording assets and liabilities at fair value and allocating the remaining cost
to the related Management Agreements. The fair value of the net assets and
business management agreements associated with these entities is expected to
approximate $7.0 million (subject to certain adjustments), and will be financed
through the issuance of 869,236 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 $9.00 per share.
An additional 97,399 shares of common stock will be held in escrow. The shares
held in escrow 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. Based upon information to date, management of the
Company believes that few of the financial goals will be met in the future and,
accordingly, believes that the issuance of any such shares held in escrow will
not have a material adverse effect on the results of operations, financial
condition or liquidity of the Company.
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-29
<PAGE> 101
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-30
<PAGE> 102
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-31
<PAGE> 103
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-32
<PAGE> 104
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-33
<PAGE> 105
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-34
<PAGE> 106
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-35
<PAGE> 107
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-36
<PAGE> 108
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-37
<PAGE> 109
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-38
<PAGE> 110
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-39
<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.
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-40
<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.
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-41
<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.
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-42
<PAGE> 114
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-43
<PAGE> 115
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-44
<PAGE> 116
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-45
<PAGE> 117
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-46
<PAGE> 118
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-47
<PAGE> 119
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-48
<PAGE> 120
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-49
<PAGE> 121
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-50
<PAGE> 122
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-51
<PAGE> 123
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-52
<PAGE> 124
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-53
<PAGE> 125
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-54
<PAGE> 126
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-55
<PAGE> 127
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-56
<PAGE> 128
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-57
<PAGE> 129
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-58
<PAGE> 130
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-59
<PAGE> 131
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-60
<PAGE> 132
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-61
<PAGE> 133
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-62
<PAGE> 134
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-63
<PAGE> 135
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-64
<PAGE> 136
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-65
<PAGE> 137
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-66
<PAGE> 138
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-67
<PAGE> 139
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-68
<PAGE> 140
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-69
<PAGE> 141
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-70
<PAGE> 142
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-71
<PAGE> 143
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-72
<PAGE> 144
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-73
<PAGE> 145
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-74
<PAGE> 146
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-75
<PAGE> 147
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-76
<PAGE> 148
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-77
<PAGE> 149
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-78
<PAGE> 150
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-79
<PAGE> 151
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-80
<PAGE> 152
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-81
<PAGE> 153
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-82
<PAGE> 154
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-83
<PAGE> 155
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-84
<PAGE> 156
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-85
<PAGE> 157
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-86
<PAGE> 158
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-87
<PAGE> 159
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-88
<PAGE> 160
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-89
<PAGE> 161
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-90
<PAGE> 162
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-91
<PAGE> 163
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-92
<PAGE> 164
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-93
<PAGE> 165
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-94
<PAGE> 166
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-95
<PAGE> 167
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-96
<PAGE> 168
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-97
<PAGE> 169
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-98
<PAGE> 170
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-99
<PAGE> 171
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-100
<PAGE> 172
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-101
<PAGE> 173
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-102
<PAGE> 174
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-103
<PAGE> 175
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-104
<PAGE> 176
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, and which relates to an incident which
occurred prior to December 1, 1996, is currently in the discovery stage and no
trial date has been set. The Company has determined that its insurer is liable
for any damages resulting from the claim which are within the Company's policy
limits, as well as the costs to defend the Company against the claim. The
insurer is currently providing the defense for the claim. In the opinion of
management, the ultimate result of this matter will not have a material adverse
effect on the results of operations, financial condition or liquidity of the
Company.
Losses resulting from unreported claims cannot be estimated by management
and, therefore, are not included in the accompanying financial statements.
F-105
<PAGE> 177
GILLETTE, BEILER & ASSOCIATES, P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-106
<PAGE> 178
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-107
<PAGE> 179
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-108
<PAGE> 180
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-109
<PAGE> 181
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-110
<PAGE> 182
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-111
<PAGE> 183
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-112
<PAGE> 184
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-113
<PAGE> 185
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-114
<PAGE> 186
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-115
<PAGE> 187
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-116
<PAGE> 188
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-117
<PAGE> 189
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-118
<PAGE> 190
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-119
<PAGE> 191
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-120
<PAGE> 192
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-121
<PAGE> 193
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-122
<PAGE> 194
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-123
<PAGE> 195
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-124
<PAGE> 196
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-125
<PAGE> 197
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-126
<PAGE> 198
[INSIDE BACK COVER]
[THE INSIDE BACK COVER SETS FORTH THE COMPANY NAME AND LOGO WITH PICTURES
DEPICTING EYEGLASSES, A COLLAGE OF VARIOUS MANAGED CARE MEMBERS IN THE PROCESS
OF RECEIVING EYE CARE AT MANAGED CLINICS; A MANAGED PROVIDER; AND A TELEPHONE
OPERATOR/RECEPTIONIST TAKING CALLS.]
<PAGE> 199
============================================================
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, 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.................................. 33
Management................................ 49
Certain Transactions...................... 56
Principal and Selling Stockholders........ 59
Description of Capital Stock.............. 61
Shares Eligible for Future Sale........... 65
Underwriting.............................. 67
Legal Matters............................. 69
Experts................................... 69
Additional Information.................... 69
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
============================================================
============================================================
2,100,000 Shares
[VISION TWENTY-ONE LOGO]
Common Stock
-------------------------
PROSPECTUS
-------------------------
PRUDENTIAL SECURITIES INCORPORATED
WHEAT FIRST BUTCHER SINGER
, 1997
============================================================
<PAGE> 200
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.......................... 38,032
Printing expenses........................................... 250,000
Accounting fees and expenses................................ 225,000
Legal fees and expenses..................................... 350,000
Fees and expenses (including legal fees) for qualifications
under state securities laws............................... 10,000
Registrar and Transfer Agent's fees and expenses............ 10,000
Miscellaneous............................................... 3,814
--------
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> 201
(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> 202
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 Inc. in the
maximum aggregate amount of $4.7 million and warrants exchangeable into 210,000
shares of Common Stock at an exchange price per share equal to the initial
public offering price of the Company's Common Stock. 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 682,667 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, $19,000 in a
non-negotiable promissory note and $26,000 in cash 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).
In June 1997, the Company issued 109,084 shares of Common Stock and
$245,440 in non-negotiable promissory notes in connection with the acquisition
agreements with Craig R. Cassidy, D.O., P.C., Sanford L. Moretsky, D.O., P.C.,
and Valley Outpatient Surgical Center, Inc. pursuant to a binding commitment
existing prior to the filing of the registration statement. This transaction was
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2).
II-3
<PAGE> 203
In June 1997, the Company issued 320,000 shares of Common Stock in
connection with the acquisition of certain assets of Swagel-Wootton Eye Care
Center, Ltd. and Aztec Optical pursuant to a binding commitment existing prior
to the filing of the registration statement. This transaction was exempt from
the registration requirements of the securities requirements of the Securities
Act pursuant to Section 4(2).
Effective July 1997, the Company issued 131,050 shares of Common Stock into
escrow pending final closing upon the professional corporation obtaining a
license in connection with the Merger Agreement with Eye Institute of Southern
Arizona, P.C. pursuant to a binding commitment existing since December 1996.
This transaction is exempt from the registration of the Securities Act pursuant
to Section 4(2).
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* -- First Amendment to Amended and Restated Note and Warrant
Purchase Agreement dated August 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.
</TABLE>
II-4
<PAGE> 204
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------
<C> <C> <S>
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.
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* -- First Amendment to Amended and Restated Note and Warrant
Purchase Agreement dated August 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.
</TABLE>
II-5
<PAGE> 205
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------
<C> <C> <S>
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.
10.30+** -- 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.
10.33+** -- 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.
10.36+*** -- 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.
10.47** -- Form of Contract Provider agreement.
10.48+*** -- Joint Venture Agreement dated May 1, 1996 by and between for
Eyes Managed Care, Inc. and Vision 21 Managed Eye Care of
Tampa Bay, Inc.
10.49 -- Amendment to Agreement and Plan of Reorganization dated July
31, 1997 by and among Kuscat Investments, L.L.C.,
Ocusite-ASC, Inc., Jeffrey I. Katz, M.D. and Barry Kusman,
M.D., Vital Site, P.C., Vision Twenty-One, Inc., Vision 21
of Southern Arizona, Inc., and the escrow agent.
</TABLE>
II-6
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------
<C> <C> <S>
</TABLE>
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).
27.3 -- Financial Data Schedule for six months ended June 30, 1997
(for SEC Use Only).
- ---------------
* To be filed by amendment.
** Previously filed as an Exhibit with the same Exhibit Number identification
in the Company's Registration Statement on Form S-1 filed on June 13, 1997
(File No. 333-29213) and incorporated herein by reference.
*** Previously filed as an Exhibit with the same Exhibit Number identification
in the Company's Amendment No. 1 to Registration Statement on Form S-1
filed on July 23, 1997 and incorporated herein by reference.
**** Previously filed as an Exhibit with the same Exhibit Number identification
in the Company's Amendment No. 2 to Registration Statement on Form S-1
filed July 30, 1997 and incorporated herein by reference.
+ 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:
SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS
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.
II-7
<PAGE> 207
(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-8
<PAGE> 208
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 August 14, 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)
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 August 14, 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
* Director
- --------------------------------------------------------
Richard L. Sanchez
* Director
- --------------------------------------------------------
Peter Fontaine
* Director
- --------------------------------------------------------
Herbert U. Pegues II, M.D.
* Director
---------------------------------------------------
Bruce S. Maller
* Director
---------------------------------------------------
Richard L. Lindstrom, M.D.
* Director
---------------------------------------------------
Jeffrey Katz, M.D.
*By /s/ THEODORE N. GILLETTE as attorneys in fact pursuant to the power
------------------------------------------------ of attorney included in the Registration
Theodore N. Gillette Statement as originally filed on June 13,
1997.
*By /s/ RICHARD T. WELCH
------------------------------------------------
Richard T. Welch
</TABLE>
II-9
<PAGE> 209
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 July
29, 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
July 29, 1997
S-1
<PAGE> 210
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> 211
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* -- First Amendment to Amended and Restated Note and Warrant
Purchase Agreement dated August 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.
</TABLE>
<PAGE> 212
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------
<C> <C> <S>
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.
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* -- First Amendment to Amended and Restated Note and Warrant
Purchase Agreement dated August 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.
</TABLE>
2
<PAGE> 213
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- -------------------
<C> <C> <S>
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.
10.30+** -- 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.
10.33+** -- 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.
10.36+*** -- 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.
10.47** -- Form of Contract Provider agreement.
10.48+*** -- Joint Venture Agreement dated May 1, 1996 by and between for
Eyes Managed Care, Inc. and Vision 21 Managed Eye Care of
Tampa Bay, Inc.
10.49 -- Amendment to Agreement and Plan of Reorganization dated July
31, 1997 by and among Kuscat Investments, L.L.C.,
Ocusite-ASC, Inc., Jeffrey I. Katz, M.D. and Barry Kusman,
M.D., Vital Site, P.C., Vision Twenty-One, Inc., Vision 21
of Southern Arizona, Inc., and the escrow agent.
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>
3
<PAGE> 214
<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).
27.3 -- Financial Data Schedule for six months ended June 30, 1997
(for SEC Use Only).
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed as an Exhibit with the same Exhibit Number identification
in the Company's Registration Statement on Form S-1 filed on June 13, 1997
(File No. 333-29213) and incorporated herein by reference.
*** Previously filed as an Exhibit with the same Exhibit Number identification
in the Company's Amendment No. 1 to Registration Statement on Form S-1
filed on July 23, 1997 and incorporated herein by reference.
**** Previously filed as an Exhibit with the same Exhibit Number identification
in the Company's Amendment No. 2 to Registration Statement on Form S-1
filed July 30, 1997 and incorporated herein by reference.
+ 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 aeriform and filed separately with the Securities and Exchange
Commission.
4
<PAGE> 1
EXHIBIT 1.1
VISION TWENTY-ONE, INC.
2,100,000 Shares(1)
Common Stock
UNDERWRITING AGREEMENT
August __, 1997
PRUDENTIAL SECURITIES INCORPORATED
WHEAT, FIRST SECURITIES, INC.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
Vision Twenty-One, Inc., a Florida corporation (the "Company"), and
the selling securityholders named in Schedule 2 hereto (each a "Selling
Securityholder" and together the "Selling Securityholders") hereby confirm
their agreement with the several underwriters named in Schedule 1 hereto (the
"Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth
below. If you are the only Underwriters, all references herein to the
Representatives shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the several Underwriters
an aggregate of 2,100,000 shares (the "Firm Securities") of the Company's
Common Stock, par value $0.001 per share ("Common Stock"). The Company and the
Selling Securityholders also propose to sell to the several Underwriters not
more than 315,000 additional shares of Common Stock if requested by the
Underwriters as provided in Section 3 of this Agreement. Any and all shares of
Common Stock to be purchased by the
__________________________________
1 Plus an option to purchase from the Company and the Selling Securityholders
up to 315,000 additional shares to cover over-allotments.
<PAGE> 2
Underwriters pursuant to such option are referred to herein as the "Option
Securities," and the Firm Securities and any Option Securities are collectively
referred to herein as the "Securities."
2. Representations and Warranties of the Company and the Selling
Securityholders.
(a) The Company represents and warrants to, and agrees
with, each of the several Underwriters that:
(i) A registration statement on
Form S-1 (File No. 333-29213) with respect to the
Securities, including a prospectus subject to
completion, has been filed by the Company with the
Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the
"Act"), and one or more amendments to such
registration statement may have been so filed. After
the execution of this Agreement, the Company will
file with the Commission either (A) if such
registration statement, as it may have been amended,
has been declared by the Commission to be effective
under the Act, either (1) if the Company relies on
Rule 434 under the Act, a Term Sheet (as hereinafter
defined) relating to the Securities, that shall
identify the Preliminary Prospectus (as hereinafter
defined) that it supplements containing such
information as is required or permitted by Rules 434,
430A and 424(b) under the Act or (2) if the Company
does not rely on Rule 434 under the Act, a prospectus
in the form most recently included in an amendment to
such registration statement (or, if no such amendment
shall have been filed, in such registration
statement), with such changes or insertions as are
required by Rule 430A under the Act or permitted by
Rule 424(b) under the Act, and in the case of either
clause (A)(1) or (A)(2) of this sentence as have been
provided to and approved by the Representatives prior
to the execution of this Agreement, or (B) if such
registration statement, as it may have been amended,
has not been declared by the Commission to be
effective under the Act, an amendment to such
registration statement, including a form of
prospectus, a copy of which amendment has been
furnished to and approved by the Representatives
prior to the execution of this Agreement. The
Company may also file a related registration
statement with the Commission pursuant to Rule 462(b)
under the Act for the purpose of registering certain
additional Securities, which registration shall be
effective upon filing with the Commission. As used
in this Agreement, the term "Original Registration
Statement" means the registration statement initially
filed relating to the Securities, as amended at the
time when it was or is declared effective, including
(A) all financial schedules and exhibits thereto and
(B) any information omitted therefrom pursuant to
Rule 430A under the Act and included in the
Prospectus (as hereinafter defined); the term "Rule
462(b) Registration Statement" means any registration
statement filed with the Commission pursuant to Rule
462(b) (including the Registration Statement and any
Preliminary Prospectus or Prospectus incorporated
therein at the time such Registration Statement
becomes effective); the term "Registration Statement"
includes both the Original Registration Statement and
any Rule 462(b) Registration Statement; the term
"Preliminary Prospectus" means each prospectus
subject to completion filed with the Registration
Statement or any amendment thereto (including the
prospectus subject to completion, if any,
included in the Registration
2
<PAGE> 3
Statement or any amendment thereto at the time it was or is
declared effective); the term "Prospectus" means:
(A) if the Company relies on Rule 434 under the
Act, the Term Sheet relating to the Securities that is first
filed pursuant to Rule 424(b)(7) under the Act, together with
the Preliminary Prospectus identified therein that such Term
Sheet supplements;
(B) if the Company does not rely on Rule 434
under the Act, the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act; or
(C) if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Act, the prospectus included
in the Registration Statement.
The term "Term Sheet" means any abbreviated Term Sheet that satisfies
the requirements of Rule 434 under the Act. Any reference in this
Agreement to the "date" of a Prospectus that includes a Term Sheet
shall mean the date of such Term Sheet.
(ii) The Commission has not
issued any order preventing or suspending the use of
any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission it (A)
contained all statements required to be stated
therein in accordance with, and complied in all
material respects with the requirements of, the Act
and the rules and regulations of the Commission
thereunder, and (B) did not include any untrue
statement of a material fact or omit to state any
material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading. When the
Registration Statement or any amendment thereto was
or is declared effective, it (A) contained or will
contain all statements required to be stated therein
in accordance with, and complied or will comply in
all material respects with the requirements of, the
Act and the rules and regulations of the Commission
thereunder and (B) did not or will not include any
untrue statement of a material fact or omit to state
any material fact necessary to make the statements
therein not misleading. When the Prospectus or any
Term Sheet that is a part thereof or any amendment or
supplement to the Prospectus is filed with the
Commission pursuant to Rule 424(b) (or, if the
Prospectus or part thereof or such amendment or
supplement is not required to be so filed, when the
Registration Statement or the amendment thereto
containing such amendment or supplement to the
Prospectus was or is declared effective) and on the
Firm Closing Date and any Option Closing Date (both
as hereinafter defined), the Prospectus, as amended
or supplemented at any such time, (A) contained or
will contain all statements required to be stated
therein in accordance with, and complied or will
comply in all material respects with the requirements
of, the Act and the rules and regulations of the
Commission thereunder and (B) did not or will not
include any untrue statement of a material fact or
omit to state any material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading. The
3
<PAGE> 4
foregoing provisions of this paragraph (ii) do not
apply to statements or omissions made in any
Preliminary Prospectus, the Registration Statement or
any amendment thereto or the Prospectus or any
amendment or supplement thereto in reliance upon and
in conformity with written information furnished to
the Company by any Underwriter through the
Representatives specifically for use therein.
(iii) If the Company has elected
to rely on Rule 462(b) and the Rule 462(b)
Registration Statement has not been declared
effective (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is
effective upon filing pursuant to Rule 462(b) and has
received confirmation of its receipt and (ii) the
Company has given irrevocable instructions for
transmission of the applicable filing fee in
connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111
promulgated under the Act or the Commission has
received payment of such filing fee.
(iv) The Company, each of its
subsidiaries and, to the Company's knowledge, each of
the eye care entities with which the Company has a
management agreement (collectively, the "Eye Care
Entities") have been duly organized and are validly
existing as corporations in good standing under the
laws of their respective jurisdictions of
incorporation and are duly qualified to transact
business as foreign corporations and are in good
standing under the laws of all other jurisdictions
where the ownership or leasing of their respective
properties or the conduct of their respective
businesses requires such qualification, except where
the failure to be so qualified does not amount to a
material liability or disability to the Company.
(v) The Company, each of its
subsidiaries and, to the Company's knowledge, each
Eye Care Entity have full power (corporate and other)
to own or lease their respective properties and
conduct their respective businesses to the extent
described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus; and the
Company has full power (corporate and other) to enter
into this Agreement and to carry out all the terms
and provisions hereof to be carried out by it.
(vi) The issued shares of capital
stock of each of the Company's subsidiaries have been
duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially by the
Company free and clear of any security interests,
liens, encumbrances, equities or claims.
(vii) The Company has an
authorized, issued and outstanding capitalization as
set forth in the Prospectus or, if the Prospectus is
not in existence, the most recent Preliminary
Prospectus. All of the issued shares of capital
stock of the Company (including but not limited to
the Option Securities to be sold by the Selling
Securityholders) have been duly authorized and
validly issued and are fully paid and nonassessable.
The Company's Firm Securities and Option Securities
have been duly authorized and at the Firm Closing
Date or the Option Closing Date, as the case may be,
after payment therefor in accordance herewith,
will be validly issued, fully paid and
nonassessable. No holders of outstanding shares of
4
<PAGE> 5
capital stock of the Company are entitled as such to
any preemptive or other rights to subscribe for any
of the Securities, and no holder of securities
of the Company has any right which has not been fully
exercised or waived to require the Company to
register the offer or sale of any securities owned by
such holder under the Act in the public offering
contemplated by this Agreement.
(viii) The capital stock of the
Company conforms in all material respects to the
description thereof contained in the Prospectus or,
if the Prospectus is not in existence, the most
recent Preliminary Prospectus.
(ix) The financial statements and
schedules of the Company and its subsidiaries
included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus)
fairly present, on the basis stated therein, the
financial position of the Company and its
subsidiaries and the results of operations and cash
flows as of the respective dates and for the
respective periods therein specified. Such financial
statements and schedules have been prepared in
accordance with generally accepted accounting
principles consistently applied throughout the
periods involved (except as otherwise noted therein).
The unaudited pro forma financial data presented in
the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent
Preliminary Prospectus) and the summaries of those
unaudited pro forma financial statements contained in
the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus)
together with the related notes thereto, included in
the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent
Preliminary Prospectus) include all adjustments
necessary to present fairly the pro forma financial
information at the dates and for the periods
indicated, and all assumptions used in preparing such
pro forma financial data are reasonable. The selected
financial data set forth under the caption "Selected
Financial Data" in the Prospectus (or, if the
Prospectus is not in existence, the most recent
Preliminary Prospectus) fairly present, on the basis
stated in the Prospectus (or such Preliminary
Prospectus), the information included therein.
(x) Ernst & Young, LLP who has
audited certain financial statements of the Company
and delivered their report with respect to the
Company's audited financial statements and schedules
included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus),
are, to the knowledge of the Company, independent
public accountants as required by the Act and the
applicable rules and regulations thereunder.
(xi) The execution and delivery
of this Agreement have been duly authorized by the
Company, and this Agreement has been duly executed
and delivered by the Company and is the valid and
binding agreement of the Company, enforceable against
the Company in accordance with its terms.
5
<PAGE> 6
(xii) No legal or governmental
proceedings are pending to which the Company, any of
its subsidiaries or, to the Company's knowledge, any
of the Eye Care Entities is a party or to which
the property of the Company, any of its subsidiaries
or, to the Company's knowledge, any of the Eye Care
Entities is subject that are required to be described
in the Registration Statement or the Prospectus and
are not described therein (or, if the Prospectus is
not in existence, the most recent Preliminary
Prospectus) and, to the knowledge of the Company, no
such proceedings have been threatened against the
Company, any of its subsidiaries or, to the Company's
knowledge, any of the Eye Care Entities or with
respect to any of their respective properties; no
contract or other document is required to be
described in the Registration Statement or the
Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein
(or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or filed as required;
after due inquiry, management of the Company does not
know of any legal or governmental proceedings pending
against any optometrist or ophthalmologist practicing
in any Eye Care Entity (an "Affiliated Provider"),
which could reasonably be expected to result in a
material adverse change in the condition (financial
or otherwise), business prospects, net worth or
results of operations of the Company.
(xiii) The issuance, offering and
sale of the Securities to the Underwriters by the
Company pursuant to this Agreement, the compliance by
the Company with the other provisions of this
Agreement and the consummation of the other
transactions herein contemplated do not (A) require
the consent, approval, authorization, registration or
qualification of or with any governmental authority,
except such as have been obtained, such as may be
required under state securities or blue sky laws and,
if the registration statement filed with respect to
the Securities (as amended) is not effective under
the Act as of the time of the execution hereof, such
as may be required (and shall be obtained as provided
in this Agreement) under the Act, or (B) conflict
with or result in a breach or violation of any
material terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument to
which the Company or any of its subsidiaries is a
party or by which the Company or any of its
subsidiaries or any of its properties are bound, or
the charter documents or bylaws of the Company, or
any statute or any judgment, decree, order, rule or
regulation of any court or other governmental
authority or any arbitrator applicable to the Company
or any of its subsidiaries.
(xiv) Subsequent to the respective
dates as of which information is given in the
Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent
Preliminary Prospectus), (A) neither the Company, its
subsidiaries nor, to the Company's knowledge, any of
the Eye Care Entities has sustained any material loss
or interference with their respective businesses or
properties from fire, flood, hurricane, accident or
other calamity, whether or not covered by insurance,
or from any labor dispute or any legal or
governmental proceeding and there has not been any
material adverse change, or, to the knowledge of the
Company, any development involving a prospective
material adverse change, in the condition (financial
or otherwise), management, business prospects,
net worth,
6
<PAGE> 7
or results of operations of the Company or
any of its subsidiaries; (B) neither the Company nor
its subsidiaries has incurred any material liability
or obligation, direct or contingent, nor entered into
any material transaction not in the ordinary course
of business; (C) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any
kind on its capital stock; and (D) there has not been
any material change in the capital stock, short-term
debt or long-term debt of the Company, except in
each case as described in or contemplated by the
Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xv) The Company has not,
directly or indirectly, (A) taken any action designed
to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any
security of the Company to facilitate the sale or
resale of the Securities or (B) since the filing of
the Registration Statement (I) sold, bid for,
purchased, or paid anyone any compensation for
soliciting purchases of, the Securities or (II) paid
or agreed to pay to any person any compensation for
soliciting another to purchase any other securities
of the Company except for the sale of Securities by
the Selling Securityholders under this Agreement.
(xvi) The Company and each of its
subsidiaries have good and marketable title to all
tangible personal property owned by each of them, in
each case free and clear of any security interests,
liens, encumbrances, equities, claims and other
defects, except which do not materially and adversely
affect the value of such property and do not
interfere with the use made or proposed to be made of
such property by the Company or any of its
subsidiaries, and any real property and buildings
held under lease by the Company and each of its
subsidiaries are held under valid, subsisting and
enforceable leases, with such exceptions as are not
material and do not interfere with the use made or
proposed to be made of such property and buildings by
the Company or any of its subsidiaries, in each case
except as described in or contemplated by the
Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xvii) No labor dispute with the
employees of the Company, or any of its subsidiaries
or, to the Company's knowledge, any Eye Care Entity
exists or is threatened or imminent that could result
in a material adverse change in the condition
(financial or otherwise), business prospects, net
worth or results of operations of the Company or any
of its subsidiaries, except as described in or
contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary
Prospectus).
(xviii) The Company, each of its
subsidiaries and, to the Company's knowledge, the Eye
Care Entities own or possess, or can acquire on
reasonable terms, all material patents, patent
applications, trademarks, service marks, trade names,
licenses, copyrights and proprietary or other
confidential information currently employed by them
in connection with their respective businesses, and
neither the Company, any of its subsidiaries nor, to
the Company's knowledge, any Eye Care Entity has
received any notice of, or has any reasonable
7
<PAGE> 8
belief that its use constitutes, a material
infringement of or conflict with asserted rights of
any third party with respect to any of the
foregoing which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in
the condition (financial or otherwise), business
prospects, net worth or results of operations of the
Company or any of its subsidiaries, except as
described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(xix) The Company, each of its
subsidiaries and, to the Company's knowledge, each
Eye Care Entity is insured by insurers of recognized
financial responsibility against such losses and
risks and in such amounts as are ordinary and
customary in the business in which it is engaged;
neither the Company, any of its subsidiaries nor, to
the Company's knowledge, any Eye Care Entity has been
refused any insurance coverage sought or applied for;
and neither the Company, any of its subsidiaries nor,
to the Company's knowledge, any Eye Care Entity has
any reason to believe that it will not be able to
renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage
from similar insurers as may be necessary to continue
its business at a cost that would not materially and
adversely affect the condition (financial or
otherwise), business prospects, net worth, or results
of operations of the Company, except as described in
or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xx) The Company and each of its
subsidiaries, and, to the Company's knowledge, the
Affiliated Providers and the Eye Care Entities
possess all certificates, authorizations and permits
issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct
their respective businesses, and neither the Company,
any of it subsidiaries nor, to the Company's
knowledge, any Eye Care Entity has received any
notice of proceedings relating to the revocation or
modification of any such certificate, authorization
or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in
the condition (financial or otherwise), business
prospects, net worth or results of operations of the
Company or any of its subsidiaries, except as
described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most
recent Preliminary Prospectus).
(xxi) The Company and each of its
subsidiaries will conduct their operations in a
manner that will not subject it to registration as an
investment company under the Investment Company Act
of 1940, as amended, and this transaction will not
cause the Company or any of its subsidiaries to
become an investment company subject to registration
under such Act.
(xxii) The Company and each of its
subsidiaries has filed all foreign, federal, state
and local tax returns that are required to be filed
or has requested extensions thereof (except in any
case in which the failure so to file would not have a
material adverse effect on the Company or any of its
subsidiaries) and has paid all taxes required to be
paid by it and any other assessment, fine or penalty
levied against it, to the extent that any of the
foregoing is due and payable, except for any
such assessment, fine or penalty that is currently
being
8
<PAGE> 9
contested in good faith or as described in or
contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary
Prospectus).
(xxiii) Neither the Company, any of
its subsidiaries nor, to the Company's knowledge, any
of the Eye Care Entities is in violation of any
federal or state law or regulation relating to (i)
the environment or hazardous or toxic substances or
wastes, pollutants or contaminants or to the storage,
handling or transportation of hazardous or toxic
material ("Environmental Laws") or (ii) occupational
safety and health and the Company, each of its
subsidiaries and, to the Company's knowledge, the Eye
Care Entities have received all permits, licenses or
other approvals required of them under applicable
federal and state occupational safety and health and
Environmental Laws and regulations to conduct their
respective businesses, and the Company, each of its
subsidiaries and, to the Company's knowledge, each
Eye Care Entity is in compliance with all terms and
conditions of any such permit, license or approval,
except any such violation of law or regulation,
failure to receive required permits, licenses or
other approvals or failure to comply with the terms
and conditions of such permits, licenses or approvals
which would not, singly or in the aggregate, result
in a material adverse change in the condition
(financial or otherwise), business prospects, net
worth or results of operations of the Company, any of
its subsidiaries or, to the Company's knowledge, any
of the Eye Care Entities, except as described in or
contemplated by the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary
Prospectus). Neither the Company, any of its
subsidiaries nor, to the Company's knowledge, any of
the Eye Care Entities have any pending or threatened
Environmental Law or occupational safety and health
claims against it nor are there circumstances with
respect to any property or operations of the Company,
any of its subsidiaries or, to the Company's
knowledge, any of the Eye Care Entities that could
reasonably be anticipated to form the basis of an
Environmental Law or occupational safety and health
claim against the Company, any of its subsidiaries or
any Eye Care Entity which, singly or in the
aggregate, result in a material adverse change in the
condition (financial or otherwise), business
prospects, net worth or results of operations of the
Company, any of its subsidiaries or any of the Eye
Care Entities, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xxiv) In the ordinary course of
its business, the Company conducts a periodic review
of the effect of Environmental Laws on the business,
operations and properties of the Company, in the
course of which it identifies and evaluates
associated costs and liabilities (including, without
limitation, any capital or operating expenditures
required for clean-up, closure of properties or
compliance with Environmental Laws or any permit,
license or approval, any related constraints on
operating activities and any potential liabilities to
third parties). On the basis of such review, the
Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the
Company.
(xxv) Each certificate signed by
any officer of the Company and delivered to the
Representatives or counsel for the Underwriters
pursuant to this Agreement shall be deemed
9
<PAGE> 10
to be a representation and warranty by the Company to
each Underwriter as to the matters covered thereby.
(xxvi) Neither the Company nor any
of its subsidiaries owns any shares of stock or any
other equity securities of any corporation or have
any equity interest in any firm, partnership,
association or other entity, except as described in
or contemplated by the Prospectus (or, if the
Prospectus is not in existence, the most recent
Preliminary Prospectus).
(xxvii) The Company maintains a
system of internal accounting controls sufficient to
provide reasonable assurance that (A) transactions
are executed in accordance with management's general
or specific authorizations; (B) transactions are
recorded as necessary to permit preparation of
financial statements in conformity with generally
accepted accounting principles and to maintain asset
accountability; (C) access to assets is permitted
only in accordance with management's general or
specific authorization; and (D) the recorded
accountability for assets is compared with the
existing assets at reasonable intervals and
appropriate action is taken with respect to any
differences.
(xxviii) No default exists on the
part of the Company, any of its subsidiaries
or, to the Company's knowledge, any Eye Care Entity,
and no event has occurred which, with notice or lapse
of time or both, would constitute a default on the
part of the Company, any of its subsidiaries or, to
the Company's knowledge, any Eye Care Entity in the
due performance and observance of any material term,
covenant or condition of any indenture, mortgage,
deed of trust, lease, services and support agreement
or other agreement or instrument to which the
Company, any of its subsidiaries or any Eye Care
Entity is a party or by which the Company, any of its
subsidiaries or any Eye Care Entity or any of their
respective properties are bound or may be affected in
any material adverse respect with regard to the
property, business or operations of the Company or
any of its subsidiaries.
(xxix) Subject to the
qualifications relating to the uncertainty of the
interpretation of governmental regulations relating
to the corporate practice of optometry and
ophthalmology described in the Prospectus (or, if the
Prospectus is not in existence, the most recent
Preliminary Prospectus), the Company, each of its
subsidiaries and, to the Company's knowledge, each
Eye Care Entity and their respective operations
comply in all material respects with all applicable
laws and regulations, including, without limitation,
those relating to the practice of eye care (including
the management or operation of eye care centers), the
splitting of professional fees with optometrists and
ophthalmologists, the ownership or control of the
assets of an eye care practice, the employment of
optometrists and ophthalmologists or other personnel,
the content of advertising, the making of payments in
consideration for referrals of patients, limitations
on tasks that may be delegated by an Affiliated
Provider to other staff members, the business of
insurance and reimbursement by governmental agencies.
The Company has not been made aware of, or been put
on notice that, any Affiliated Provider, since the
date of his affiliation with the Company, is not
practicing in material compliance with all such laws
and regulations.
10
<PAGE> 11
(xxx) All offers and sales of the
Company's capital stock prior to the date hereof,
were at all relevant times exempt from the
registration requirements of the Act and were the
subject of an available exemption from the
registration requirements of all applicable state
securities or blue sky laws.
(xxxi) Each of the agreements
providing for a transaction that is part of the 1996
Acquisitions, the Pinellas Acquisition and the Recent
Acquisitions (as defined in the Registration
Statement) has been duly authorized, executed and
delivered by the Company and, to the knowledge of the
Company, constitutes the valid and legally binding
obligation of each of the other parties thereto, and
is enforceable in accordance with its terms, subject
to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as
to enforceability, to general principles of equity
(regardless of whether enforcement is sought in a
proceeding in equity or at law); there are no
statutory or contractual rights of dissent or
appraisal with respect to the transfer of any of the
properties in the 1996 Acquisitions, the Pinellas
Acquisition and the Recent Acquisitions; and the 1996
Acquisitions, the Pinellas Acquisition and the Recent
Acquisitions conformed, in all material respects, to
the description thereof contained in the Registration
Statement.
(xxxii) Except as disclosed in the
Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus),
there are no outstanding (A) securities or
obligations of the Company or any of its subsidiaries
convertible into or exchangeable for any capital
stock of the Company or any of its subsidiaries, (B)
warrants, rights or options to subscribe for or
purchase from the Company or any of its subsidiaries
any such capital stock or any such convertible or
exchangeable securities or obligations, or (C)
obligations of the Company or any of its subsidiaries
to issue any shares of capital stock, any such
convertible or exchangeable securities or
obligations, or any such warrants, rights or options.
(xxxiii) The Company has not
distributed and, prior to the later of (A) the Firm
Closing Date and (B) the completion of the
distribution of the Securities, will not distribute
any offering material in connection with the offering
and sale of the Securities other than the
Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any
supplement or amendment thereto, or any materials, if
any permitted by the Act.
(b) Each Selling Securityholder severally represents and warrants
to, and agrees with, each of the several Underwriters that:
(i) Such Selling Securityholder has full
power (partnership, trust and other) to enter into
this Agreement and to sell, assign, transfer and
deliver to the Underwriters the Securities to be
sold by such Selling Securityholder hereunder in
accordance with the terms of this Agreement; the
execution and delivery of this Agreement have been
duly authorized by all necessary actions of such
Selling Securityholder (partnership, trust or other,
as
11
<PAGE> 12
applicable); and this Agreement has been duly
executed and delivered by such Selling
Securityholder.
(ii) Such Selling Securityholder has duly
executed and delivered a power of attorney and
custody agreement (with respect to such Selling
Securityholder, the "Power of Attorney" and the
"Custody Agreement," respectively), each in the form
heretofore delivered to the Representatives,
appointing Theodore Gillette as such Selling
Securityholder's attorney-in-fact (the
"Attorney-in-Fact") with authority to execute,
deliver and perform this Agreement on behalf of such
Selling Securityholder and appointing Shumaker, Loop
& Kendrick LLP, as custodian thereunder (the
"Custodian"). Certificates in negotiable form,
endorsed in blank or accompanied by blank stock
powers duly executed, with signatures appropriately
guaranteed, representing the Securities to be sold by
such Selling Securityholder hereunder have been
deposited with the Custodian pursuant to the Custody
Agreement for the purpose of delivery pursuant to
this Agreement. Such Selling Securityholder has full
power (partnership, trust or other, as applicable) to
enter into the Custody Agreement and the Power of
Attorney and to perform his obligations under the
Custody Agreement. The Custody Agreement and the
Power of Attorney have been duly executed and
delivered by such Selling Securityholder and,
assuming due authorization, execution and delivery by
the Custodian, are the legal, valid, binding and
enforceable instruments of such Selling
Securityholder. Such Selling Securityholder agrees
that each of the Securities represented by the
certificates on deposit with the Custodian is subject
to the interests of the Underwriters hereunder, that
the arrangements made for such custody, the
appointment of the Attorney-in-Fact and the right,
power and authority of the Attorney-in-Fact to
execute and deliver this Agreement, to agree on the
price at which the Securities (including such Selling
Securityholder's Securities) are to be sold to the
Underwriters, and to carry out the terms of this
Agreement, are to that extent irrevocable and that
the obligations of such Selling Securityholder
hereunder shall not be terminated, except as provided
in this Agreement or the Custody Agreement, by any
act of such Selling Securityholder, by operation of
law or otherwise, whether in the case of any
individual Selling Securityholder by the death or
incapacity of such Selling Securityholder, in the
case of a trust or estate by the death of the trustee
or trustees or the executor or executors or the
termination of such trust or estate, or in the case
of a partnership Selling Securityholder by its
liquidation or dissolution or by the occurrence of
any other event. If any individual Selling
Securityholder, trustee or executor should die or
become incapacitated or any such trust should be
terminated, or if any corporate or partnership
Selling Securityholder shall liquidate or dissolve,
or if any other event should occur, before the
delivery of such Securities hereunder, the
certificates for such Securities deposited with the
Custodian shall be delivered by the Custodian in
accordance with the respective terms and conditions
of this Agreement as if such death, incapacity,
termination, liquidation or dissolution or other
event had not occurred, regardless of whether or not
the Custodian or the Attorney-in-Fact shall have
received notice thereof.
(iii) Such Selling Securityholder is the
lawful owner of the Securities to be sold by
such Selling Securityholder hereunder and upon sale
and delivery of, and payment for, such
12
<PAGE> 13
Securities, as provided herein, such Selling
Securityholder will convey good and marketable
title to such Securities, free and clear of any
security interests, liens, encumbrances, equities,
claims or other defects.
(iv) Such Selling Securityholder has not,
directly or indirectly, (A) taken any action designed
to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any
security of the Company to facilitate the sale
or resale of the Securities or (B) since the filing
of the Registration Statement (I) sold, bid for,
purchased, or paid anyone any compensation for
soliciting purchases of, the Securities or (II) paid
or agreed to pay to any person any compensation for
soliciting another to purchase any other securities
of the Company (except for the sale of Securities by
the Selling Securityholders under this Agreement).
(v) In the case of the Selling
Securityholders identified in Schedule 1 hereto
as Group 1 Selling Securityholders (collectively, the
"Group 1 Selling Securityholders"), such Selling
Securityholder has reviewed the Registration
Statement and the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary
Prospectus), and, to the knowledge of such Selling
Securityholder, the information included therein did
not include any untrue statement of a material fact
or omit to state any material fact necessary in order
to make the statements therein, in the light of the
circumstances under which they were made, not
misleading. With respect to information regarding
such Selling Securityholder as set forth under the
caption "Principal and Selling Stockholders," such
information is complete and accurate. In the case of
the Selling Securityholders identified in Schedule 1
hereto as Group 2 Selling Securityholders (the "Group
2 Selling Securityholders"), such Selling
Securityholder has reviewed the Registration
Statement and the Prospectus (or, if the Prospectus
and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus),
and the information regarding such Selling
Securityholder set forth under the caption "Principal
and Selling Securityholders" is complete and
accurate.
(vi) The Selling Securityholders have not
distributed and, prior to the later of (A) the
Firm Closing Date and (B) the completion of the
distribution of the Securities, will not distribute
any offering material in connection with the offering
and sale of the Securities other than the
Registration Statement or any amendment thereto, any
Preliminary Prospectus, the Prospectus or any
supplement or amendment thereto, or any materials, if
any, permitted by the Act.
(vii) In order to document the
Underwriters' compliance with the reporting and
withholding provisions of the Internal Revenue Code
of 1986, as amended, with respect to the
transactions herein contemplated, such Selling
Securityholder agrees to deliver to the
Representatives prior to or on the Firm Closing Date
a properly completed and executed United States
Treasury Department Form W-8 or W-9 (or other
applicable form or statement specified by the
Treasury Department regulations in lieu thereof).
13
<PAGE> 14
(viii) The sale by such Selling
Securityholder of Securities pursuant hereto is not
prompted by any adverse information concerning the
Company that is not set forth in the Registration
Statement or the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary
Prospectus).
(ix) The sale of the Securities to the
Underwriters by such Selling Securityholder pursuant
to this Agreement, the compliance by such Selling
Securityholder with the other provisions of this
Agreement and the Custody Agreement and the
consummation of the other transactions herein
contemplated do not (A) require the consent,
approval, authorization, registration or
qualification of or with any governmental authority,
except such as has been obtained, such as the
registration under state securities or blue sky laws
and, if the registration statement filed with respect
to the Securities (as amended) is not effective under
the Act as of the time of execution hereof, such as
may be required (and shall be obtained as provided in
this Agreement) under the Act and the Securities
Exchange Act of 1934 (the "Exchange Act"), or (B)
conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a
default under any indenture, mortgage, deed of trust,
lease or other material agreement or instrument to
which such Selling Securityholder is a party or by
which such Selling Securityholder or any of such
Selling Securityholder's properties are bound, or any
statute or any judgment, decree, order, rule or
regulation of any court or other governmental
authority or any arbitrator applicable to such
Selling Securityholder.
3. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to each of
the Underwriters, and each of the Underwriters, severally and not jointly,
agrees to purchase from the Company at a purchase price of $_______ per share,
the number of Firm Securities set forth opposite the name of such Underwriter
in Schedule 1 hereto. The Firm Securities shall consist of 2,100,000 shares of
Common Stock. The number of Firm Securities to be purchased by each
Underwriter from the Company shall be as nearly as practicable in the same
proportion to the total number of Firm Securities being sold by the Company as
the total number of Firm Securities to be purchased by such Underwriter bears
to the total number of Firm Securities to be purchased by the Underwriters
hereunder. One or more certificates in definitive form for the Firm Securities
that the several Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Representatives request upon notice to the Company at least 48 hours prior to
the Firm Closing Date, shall be delivered by or on behalf of the Company to the
Representatives for the respective accounts of the Underwriters, against
payment by or on behalf of the Underwriters of the purchase price therefor by
wire transfer in same-day funds (the "Purchase Funds") to the order of the
Company and the Selling Securityholders, as their interests may appear. Such
delivery of and payment for the Firm Securities shall be made at the offices of
King & Spalding, 191 Peachtree Street, Atlanta, Georgia, 30303 at 9:30 A.M.,
New York City time, on ____________, 1997; or at such other place, time or date
as the Representatives and the Company may agree upon or as the Representatives
may determine pursuant to Section 9 hereof, such time and
14
<PAGE> 15
date of delivery against payment being herein referred to as the "Firm Closing
Date." The Company and the Selling Securityholders will make such certificate
or certificates for the Firm Securities and the Option Securities, as the case
may be, available for checking and packaging by the Representatives at the
offices in New York, New York of the Company's transfer agent or registrar or
of Prudential Securities Incorporated at least 24 hours prior to the Firm
Closing Date or the Option Closing Date, as the case may be.
(b) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company and the Selling Securityholders
hereby grant to the several Underwriters an option to purchase, severally and
not jointly, the Option Securities. The purchase price to be paid for any
Option Securities shall be the same price per share as the price per share for
the Firm Securities set forth above in paragraph (a) of this Section 3. The
option granted hereby may be exercised as to all or any part of the Option
Securities from time to time within thirty days after the date of the
Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the New York Stock Exchange is open for
trading). The Underwriters shall not be under any obligation to purchase any
of the Option Securities prior to the exercise of such option. The
Representatives may from time to time exercise the option granted hereby by
giving notice in writing or by telephone (confirmed in writing) to the Company
setting forth the aggregate number of Option Securities as to which the several
Underwriters are then exercising the option and the date and time for delivery
of and payment for such Option Securities. Any such date of delivery shall be
determined by the Representatives but shall not be earlier than two business
days or later than five business days after such exercise of the option and,
in any event, shall not be earlier than the Firm Closing Date. The time and
date set forth in such notice, or such other time on such other date as the
Representatives and the Company may agree upon or as the Representatives may
determine pursuant to Section 10 hereof, is herein called the "Option Closing
Date" with respect to such Option Securities. Upon exercise of the option as
provided herein, the Company and the Selling Securityholders shall become
obligated to sell to each of the several Underwriters, and, subject to the
terms and conditions herein set forth, each of the Underwriters (severally and
not jointly) shall become obligated to purchase from the Selling
Securityholders, the same percentage of the total number of the Option
Securities as to which the several Underwriters are then exercising the option
as such Underwriter is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares. If the option is exercised as to all or
any portion of the Option Securities, one or more certificates in definitive
form for such Option Securities, and payment therefor, shall be delivered on
the related Option Closing Date in the manner, and upon the terms and
conditions, set forth in paragraph (a) of this Section 3 with respect to the
sale of the Firm Securities, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) The Company and each of the Selling Securityholders
hereby acknowledge that the wire transfer by or on behalf of the Underwriters
of the purchase price for any Securities does not constitute closing of a
purchase and sales of the Securities. Only execution and delivery of a receipt
15
<PAGE> 16
for Securities by the Underwriters indicates completion of the closing of a
purchase of the Securities from the Company and the Selling Securityholders.
Furthermore, in the event that the Underwriters wire funds to the Company and
the Selling Securityholders prior to the completion of the closing of a
purchase of the Securities, the Company and the Selling Securityholders hereby
acknowledge that until the Underwriters execute and deliver a receipt for the
Securities, by facsimile or otherwise, the Company and the Selling
Securityholders will not be entitled to the Purchase Funds and shall return the
Purchase Funds to the Underwriters as soon as practicable (by wire transfer of
same-day funds) upon demand. In the event that the closing of a purchase of
the Securities is not completed and the Purchase Funds are not returned by the
Company and the Selling Securityholders to the Underwriters on the same day the
Purchase Funds were received by the Company and the Selling Securityholders,
the Company and each of the Selling Securityholders agree to reimburse the
Underwriters for each day the Purchase Funds are not returned, in same-day
funds, interest on the amount of Purchase Funds in an amount equal to each
day's interest, based on an annual interest rate, simple interest, representing
the Underwriters' cost of financing as reasonably determined by Prudential
Securities Incorporated. Upon satisfactory receipt of the Securities by the
Underwriters in accordance with all the terms of this Agreement and the
compliance by the Company and the Selling Securityholders with all the terms of
this Agreement to be performed on or before the Closing Date, the Underwriters
shall execute the receipt described above for the Securities.
(d) It is understood that either of you, individually and
not as one of the Representatives, may (but shall not be obligated to) make
payment on behalf of any Underwriter or Underwriters for any of the Securities
to be purchased by such Underwriter or Underwriters. No such payment shall
relieve such Underwriter or Underwriters from any of its or their obligations
hereunder.
4. Independent Underwriter. (a) The Company hereby confirms its
engagement, without compensation, of the services of Wheat, First Securities,
Inc. as, and Wheat, First Securities, Inc. hereby confirms its agreement with
the Company to render services as, a "qualified independent underwriter" (in
such capacity, the "Independent Underwriter") within the meaning of Rule 2720
of the Conduct Rules ("Rule 2720") of the National Association of Securities
Dealers, Inc. with respect to the offering and sale of the Securities.
(b) The Independent Underwriter hereby represents and warrants to,
and agrees with, the Company, Prudential Securities Incorporated, and the other
Underwriters that with respect to the offering and sale of Securities as
described in the Prospectus:
(i) the Independent Underwriter is a "qualified
independent underwriter" within the meaning of Rule 2720;
(ii) the Independent Underwriter has participated
in the preparation of the Registration Statement and the
Prospectus and has exercised the usual standards of "due diligence"
with respect thereto;
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<PAGE> 17
(iii) the Independent Underwriter has undertaken the legal
responsibilities and liabilities of an underwriter under the Act,
including those contained in Section 11 thereof, subject to the
limitations on such liabilities set forth herein (including without
limitation, the nature of Wheat, First Securities Inc.'s underwriting
commitment as several and not joint). It is specifically understood,
however, that Wheat, First Securities, Inc. will bear such legal
responsibilities and liabilities only to the extent, if any, that a
court of competent jurisdiction rules in a judgment which has become
final, and not subject to further appeal, that Wheat, First
Securities, Inc., as Independent Underwriter, bears the legal
responsibilities and liabilities of an "underwriter";
(iv) based upon, among other factors, the information set
forth in the Preliminary Prospectus and its review of such other
documents and the taking of such other actions as the Independent
Underwriter, in its sole discretion, has deemed necessary or
appropriate for the purposes of delivering its recommendation
hereunder, the Independent Underwriter recommends, as of the date of
the execution and delivery of this Agreement, that the public offering
price for the Securities not exceed the amount of $_____________ per
share, which price should in no way be considered or relied upon
except as set forth therein and in the letter referred to in clause
(v) below; and
(v) the Independent Underwriter will furnish to the other
Underwriters on the date hereof a letter, dated the date hereof,
substantially to the effect set forth in Schedule 3 hereto.
(c) The Company, the Independent Underwriter and the other
Underwriters agree to comply in all material respects with all of the
requirements of Rule 2720 applicable to them in connection with the offering
and sale of the Securities. The Company agrees to cooperate with Underwriters
to enable the Underwriters to comply with Rule 2720 and the Independent
Underwriter to perform the services contemplated by this Agreement.
(d) The Independent Underwriter hereby consents to the references
to it as set forth under the caption "Underwriting" in the Prospectus.
5. Offering by the Underwriters. Upon your authorization of the
release of the Firm Securities, the several Underwriters propose to offer the
Firm Securities for sale to the public upon the terms set forth in the
Prospectus.
6. Covenants of the Company and the Selling Securityholders.
(a) The Company covenants and agrees with each of the
Underwriters that:
(i) The Company will use its
best efforts to cause the Registration Statement, if
not effective at the time of execution of this
Agreement, and any amendments thereto to become
effective as promptly as possible. If required, the
Company will file the Prospectus or any Term Sheet
that constitutes a part thereof and any amendment or
supplement thereto
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<PAGE> 18
with the Commission in the manner and within the time
period required by Rules 434 and 424(b) under the
Act. During any time when a prospectus relating to
the Securities is required to be delivered under the
Act, the Company (A) will comply with all
requirements imposed upon it by the Act and the rules
and regulations of the Commission thereunder to the
extent necessary to permit the continuance of sales
of or dealings in the Securities in accordance with
the provisions hereof and of the Prospectus, as then
amended or supplemented, and (B) will not file with
the Commission the Prospectus, Term Sheet or the
amendment referred to in the second sentence of
Section 2(a)(i) hereof, any amendment or supplement
to such Prospectus, Term Sheet or any amendment to
the Registration Statement or any Rule 462(b)
Registration Statement of which the Representatives
shall not previously have been advised and furnished
with a copy for a reasonable period of time prior to
the proposed filing and as to which filing the
Representatives shall not have given their consent,
such consent not to be unreasonably withheld. The
Company will prepare and file with the Commission, in
accordance with the rules and regulations of the
Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any
amendments to the Registration Statement or any Rule
462(b) Registration Statement or amendments or
supplements to the Prospectus that may be necessary
or advisable in connection with the distribution of
the Securities by the several Underwriters, and will
use its best efforts to cause any such amendment to
the Registration Statement to be declared effective
by the Commission as promptly as possible. The
Company will advise the Representatives, promptly
after receiving notice thereof, of the time when the
Registration Statement or any amendment thereto has
been filed or declared effective or the Prospectus or
any amendment or supplement thereto has been filed
and will provide evidence satisfactory to the
Representatives of each such filing or effectiveness.
(ii) The Company will advise the
Representatives, promptly after receiving notice or
obtaining knowledge thereof, of (A) the issuance by
the Commission of any stop order suspending the
effectiveness of the Original Registration Statement
or any Rule 462(b) Registration Statement or any
amendment thereto or any order preventing or
suspending the use of any Preliminary Prospectus or
the Prospectus or any amendment or supplement
thereto, (B) the suspension of the qualification of
the Securities for offering or sale in any
jurisdiction, (C) the institution, threatening or
contemplation of any proceeding for any such purpose
or (D) any request made by the Commission for
amending the Original Registration Statement or any
Rule 462(b) Registration Statement, for amending or
supplementing the Prospectus or for additional
information. The Company will use its best efforts
to prevent the issuance of any such stop order
and, if any such stop order is issued, to obtain the
withdrawal thereof as promptly as possible.
(iii) The Company will arrange for
the qualification of the Securities for offering and
sale under the securities or blue sky laws of such
jurisdictions as the Representatives may designate
and will continue such qualifications in effect for
as long as may be necessary to complete the
distribution of the Securities, provided, however,
that in connection therewith
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<PAGE> 19
the Company shall not be required to qualify as a
foreign corporation or to execute a general
consent to service of process in any jurisdiction.
(iv) If, at any time prior to the
later of (A) the final date when a prospectus
relating to the Securities is required to be
delivered under the Act or (B) the Option Closing
Date, any event occurs as a result of which the
Prospectus, as then amended or supplemented, would
include any untrue statement of a material fact or
omit to state a material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading, or if for any other reason it is
necessary at any time to amend or supplement the
Prospectus to comply with the Act or the rules or
regulations of the Commission thereunder, the Company
will promptly notify the Representatives thereof and,
subject to Section 5(a) hereof, will prepare and file
with the Commission, at the Company's expense, an
amendment to the Registration Statement or an
amendment or supplement to the Prospectus that
corrects such statement or omission or effects such
compliance.
(v) The Company will, without
charge, provide (A) to the Representatives and to
counsel for the Underwriters as many signed copies of
the registration statement originally filed with
respect to the Securities and each amendment thereto
and any Rule 462(b) Registration Statement (in each
case including exhibits thereto) as the
Representatives and counsel to the Underwriters may
reasonably request, (B) to each other Underwriter, a
conformed copy of such Registration Statement and any
Rule 462(b) Registration Statement and each amendment
thereto (in each case without exhibits thereto) and
(C) so long as a prospectus relating to the
Securities is required to be delivered under the Act,
as many copies of each Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto as
the Representatives may reasonably request; without
limiting the application of clause (C) of this
sentence, the Company, not later than (1) 6:00 PM,
New York City time, on the date of determination of
the public offering price, if such determination
occurred at or prior to 10:00 AM, New York City time,
on such date or (2) 2:00 PM, New York City time, on
the business day following the date of determination
of the public offering price, if such determination
occurred after 10:00 AM, New York City time, on such
date, will deliver to the Underwriters, without
charge, as many copies of the Prospectus and any
amendment or supplement thereto as the
Representatives may reasonably request for purposes
of confirming orders that are expected to settle on
the Firm Closing Date.
(vi) The Company, as soon
as practicable, will make generally available to its
securityholders and to the Representatives an
earnings statement of the Company that satisfies the
provisions of Section 11(a) of the Act and Rule 158
thereunder.
(vii) The Company will apply the
net proceeds from the sale of the Securities as set
forth under "Use of Proceeds" in the Prospectus.
(viii) The Company will not,
directly or indirectly, without the prior written
consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to
sell,
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<PAGE> 20
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
securities convertible into, or exchangeable or
exercisable for, Common Stock or other 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 hereof, except (A)
as otherwise pursuant to this Agreement, (B) for
issuances pursuant to the exercise of employee and
affiliated professional stock options outstanding on
the date hereof, issuances pursuant to the exercise
of stock options granted hereafter pursuant to the
Company's 1996 Incentive Plan and Affiliated
Professionals Stock Plan so long as such options are
not exercised within 180 days after the date hereof,
and except that the Company may file registration
statements at any time after the date hereof related
to the resale of such shares of the Company's Common
Stock issued pursuant to the Company's 1996 Incentive
Plan and the Affiliated Professionals Stock Plan, (C)
issuances pursuant to the exercise of warrants
outstanding on the date hereof, or (D) in connection
with acquisitions by the Company, provided that any
Common Stock so issued shall not be transferable by
the recipient thereof for a period of 180 days after
the date hereof.
(ix) The Company will not,
directly or indirectly, (A) take any action designed
to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any
security of the Company to facilitate the sale or
resale of the Securities or (B) (I) sell, bid for,
purchase, or pay anyone any compensation for
soliciting purchases of, the Securities or (II) pay
or agree to pay to any person any compensation for
soliciting another to purchase any other securities
of the Company except for the sale of Securities by
the Selling Securityholders under this Agreement.
(x) The Company, during the
period when the Prospectus is required to be
delivered under the Act or the Exchange Act, will
file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the
Exchange Act within the time periods required by the
Exchange Act and the rules and regulations
thereunder.
(xi) The Company will cause the
Securities to be duly included for quotation on The
Nasdaq Stock Market's National Market (the "Nasdaq
Stock Market") prior to the Firm Closing Date. The
Company will use it best efforts to ensure that the
Securities remain included for quotation on the
Nasdaq Stock Market following the Firm Closing Date.
(xii) During a period of five
years from the effective date of the Registration
Statement, the Company will furnish to you and, upon
request, to each of the other Underwriters, without
charge, (A) copies of all reports or other
communications (financial or other) furnished to
securityholders, (B) as soon as they are available,
copies of any reports and financial statements
furnished to or filed with the Commission or any
national securities
20
<PAGE> 21
exchange, and (C) such additional publicly available
information concerning the business and financial
condition of the Company, if any, as you may
reasonably request.
(xiii) If at any time during the
25-day period after the Registration Statement
becomes effective or the period prior to the Option
Closing Date, any rumor, publication or event
relating to or affecting the Company shall occur as a
result of which in your opinion the market price of
the Common Stock has been or is likely to be
materially affected (regardless of whether such
rumor, publication or event necessitates a supplement
to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to
the effect set forth above, to the extent consistent
with the Act and the rules and regulations
thereunder, prepare, consult with you concerning the
substance of, and disseminate a press release or
other public statement (unless counsel for the
Company provides a written opinion that such press
release or public statement is inconsistent with the
Act) reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(xiv) If the Company elects to
rely on Rule 462(b), the Company shall both file a
Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the
applicable fees in accordance with Rule 111
promulgated under the Act by the earlier of (i) 10:00
P.M. New York City time on the date of this Agreement
and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(xv) The Company will obtain the
agreements described in Section 8(h) hereof prior to
the Firm Closing Date.
(b) Each Selling Securityholder
covenants and agrees with each of the Underwriters that:
(i) Such Selling Securityholder
will not, directly or indirectly, (A) take any action
designed to cause or to result in, or that has
constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the
price of any security of the Company to facilitate
the sale or resale of the Securities or (B) (I) sell,
bid for, purchase, or pay anyone any compensation for
soliciting purchases of, the Securities or (II) pay
or agree to pay to any person any compensation for
soliciting another to purchase any other securities
of the Company (except for the sale of Securities by
the Selling Securityholder under this Agreement).
(ii) Such Selling Securityholder
will not, directly or indirectly, without the prior
written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, offer,
sell, offer to sell, contract to sell, grant any
option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of
sale, grant of any option to purchase or other sale
or disposition) of any shares of Common Stock or any
securities convertible into, or exchangeable or
exercisable for, Common Stock or other 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 hereof, except
pursuant to this Agreement; provided,
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<PAGE> 22
however, that the such Selling Securityholders may
make bona fide gifts to donees who agree to be
bound by the restrictions described in this paragraph
6(b)(ii).
7. Expenses. The Company will pay all costs and expenses
incident to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, whether or not the transactions
contemplated herein are consummated or this Agreement is terminated pursuant to
Section 13 hereof, including all costs and expenses incident to (a) the
printing or other production of documents with respect to the transactions,
including any costs of printing the registration statement originally filed
with respect to the Securities and any amendment thereto, any Rule 462(b)
Registration Statement, any Preliminary Prospectus and the Prospectus and any
amendment or supplement thereto, this Agreement and any blue sky memoranda, (b)
all arrangements relating to the delivery to the Underwriters of copies of the
foregoing documents, (c) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by the Company, (d)
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees and
the Custodian's fees, (e) the qualification of the Securities under state
securities and blue sky laws, including filing fees and fees and disbursements
of counsel for the Underwriters relating thereto, (f) the filing fees of the
Commission and the National Association of Securities Dealers, Inc. relating to
the Securities, (g) any quotation of the Securities on the Nasdaq Stock Market
and (h) the expenses of the Company in connection with any meetings with
prospective investors in the Securities. To the extent, if at all, that any of
the Selling Securityholders engage special legal counsel to represent them in
connection with this offering, other than counsel to the Company, the fees and
expenses of such counsel shall be borne by such Selling Securityholders. Any
transfer taxes imposed on the sale of the Securities to the several
Underwriters will be paid by the Company and the Selling Securityholders pro
rata. If the sale of the Securities provided for herein is not consummated
because any condition to the obligations of the Underwriters set forth in
Section 8 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 13(a)(i) and (a)(ii) hereof or because of any failure,
refusal or inability on the part of the Company or any Selling Securityholder
to perform all obligations and satisfy all conditions on its part to be
performed or satisfied hereunder other than by reason of a default by any of
the Underwriters, the Company will reimburse the Underwriters severally upon
demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Securities. The Company shall not in any
event be liable to any of the Underwriters for the loss of anticipated profits
from the transactions covered by this Agreement.
8. Conditions of the Underwriters' Obligations. The obligations
of the several Underwriters to purchase and pay for the Firm Securities shall
be subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the Selling Securityholders
contained herein as of the date hereof and as of the Firm Closing Date, as if
made on and as of the Firm Closing Date, to the accuracy of the statements of
the Company's officers and the Selling Securityholders made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Securityholders of their respective covenants and agreements hereunder and to
the following additional conditions:
22
<PAGE> 23
(a) If the Original Registration Statement or any
amendment thereto filed prior to the Firm Closing Date has not been declared
effective as of the time of execution hereof, the Original Registration
Statement or such amendment and, if the Company has elected to rely upon Rule
462(b), the Rule 462(b) Registration Statement shall have been declared
effective not later than the earlier of (i) 11:00 A.M., New York City time, on
the date on which the amendment to the registration statement originally filed
with respect to the Securities or to the Registration Statement, as the case
may be, containing information regarding the initial public offering price of
the Securities has been filed with the Commission and (ii) the time
confirmations are sent or given as specified by Rule 462(b)(2) or, with respect
to the Original Registration Statement, such later time and date as shall have
been consented to by the Representatives; if required, the Prospectus or any
Term Sheet that constitutes a part thereof and any amendment or supplement
thereto shall have been filed with the Commission in the manner and within the
time period required by Rules 434 and 424(b) under the Act; no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto shall have been issued, and no proceedings for that purpose shall have
been instituted or threatened or, to the knowledge of the Company or the
Representatives, shall be contemplated by the Commission; and the Company shall
have complied with any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise).
(b) The Representatives shall have received an opinion,
dated the Firm Closing Date, of Shumaker, Loop & Kendrick, counsel for the
Company, to the effect that:
(i) the Company, each of its
subsidiaries and, to such counsel's knowledge, each
Eye Care Entity have been duly organized and are
validly existing as corporations in good standing
under the laws of their respective jurisdictions of
incorporation and are duly qualified to transact
business as foreign corporations and are in good
standing under the laws of all other jurisdictions
where the ownership or leasing of their respective
properties or the conduct of their respective
businesses requires such qualification, except where
the failure to be so qualified does not amount to a
material liability or disability to the Company or
any of its subsidiaries;
(ii) the Company, each of its
subsidiaries and, to such counsel's knowledge, each
Eye Care Entity have corporate power to own or lease
their respective properties and conduct their
respective businesses as described in the
Registration Statement and the Prospectus, and
the Company has corporate power to enter into this
Agreement and to carry out all the terms and
provisions hereof to be carried out by it;
(iii) the issued shares of capital
stock of each of the Company's subsidiaries have been
duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially by the
Company free and clear of any security interests,
liens, encumbrances, equities or claims;
23
<PAGE> 24
(iv) the Company has an
authorized, issued and outstanding capitalization as
set forth in the Prospectus; all of the issued shares
of capital stock of the Company have been duly
authorized and validly issued and are fully paid and
nonassessable and were not issued in violation of or
subject to any preemptive rights or, to the best
knowledge of such counsel, other rights to subscribe
for or purchase securities; the Firm Securities have
been duly authorized by all necessary corporate
action of the Company and, when issued and delivered
to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and
nonassessable; the Firm Securities have been duly
included for quotation on the Nasdaq National Market;
no holders of outstanding shares of capital stock of
the Company are entitled as such to any preemptive
or, to the best knowledge of such counsel, to other
rights to subscribe for any of the Securities; and,
to the best knowledge of such counsel, except as
described in the Registration Statement and the
Prospectus, no holders of securities of the Company
are entitled to have such securities registered under
the Registration Statement;
(v) the statements set forth
under the heading "Description of Capital Stock" in
the Prospectus, insofar as such statements purport to
summarize the material provisions of the capital
stock of the Company, provide a summary of such
material provisions to the extent required by the
Act, and the statements set forth under the headings
"Business - Management Agreements," "Business -
Governmental Regulations" and "Certain Transactions"
in the Prospectus, insofar as such statements
constitute a summary of the agreements and matters
referred to therein, provide a summary of such
agreements and matters to the extent required by the
Act;
(vi) the execution and delivery
of this Agreement have been duly authorized by all
necessary corporate action of the Company and this
Agreement has been duly executed and delivered by the
Company;
(vii) (A) to the best knowledge of
such counsel, no legal or governmental proceedings
are pending to which the Company, any of its
subsidiaries or any of the Eye Care Entities is a
party or to which the property of the Company, any of
its subsidiaries or any of the Eye Care Entities is
subject that are required to be described in the
Registration Statement or the Prospectus and are not
described therein, and, to the best knowledge of such
counsel, no such proceedings have been threatened
against the Company, any of its subsidiaries or any
of the Eye Care Entities or with respect to any of
their respective properties and (B) such counsel does
not know of any contract or other document of a
character that is required to be described in the
Registration Statement or the Prospectus or to be
filed as an exhibit to the Registration Statement
that is not described therein or filed as required;
(viii) the issuance, offering and
sale of the Securities to the Underwriters by the
Company pursuant to this Agreement, the compliance by
the Company with the other provisions of this
Agreement and the consummation of the other
transactions herein contemplated do not (A) require
the consent, approval, authorization, registration or
24
<PAGE> 25
qualification of or with any governmental authority,
except such as have been obtained and such as may be
required under state securities or blue sky laws, or
(B) conflict with or result in a breach or violation
of any of the terms and provisions of, or constitute
a default under, any indenture, mortgage, deed of
trust, lease or other agreement or instrument known
to such counsel to which the Company is a party or by
which the Company or any of its properties are bound,
or the charter documents or by-laws of the Company,
or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental
authority or any arbitrator known to such counsel and
applicable to the Company, subject to applicable
bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject, as to
enforceability, to general principles of equity
(regardless of whether enforcement is sought in a
proceeding in equity or at law);
(ix) the Registration Statement
is effective under the Act; any required filing of
the Prospectus or any Term Sheet that constitutes a
part thereof pursuant to Rules 434 and 424(b) has
been made in the manner and within the time period
required by Rules 434 and 424(b); and, to the best
knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement or
any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or
threatened or are contemplated by the Commission;
(x) The Original Registration
Statement filed with respect to the Securities and
each subsequent amendment thereto and the Prospectus
(in each case, other than the financial statements
and other financial information and schedules
contained therein, as to which such counsel need
express no opinion) comply as to form in all material
respects with the applicable requirements of the Act
and the rules and regulations of the Commission
thereunder;
(xi) to the best knowledge of
such counsel, the Company, each of its subsidiaries,
the Affiliated Providers and the Eye Care Entities
possess all certificates, authorizations and permits
issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their
respective businesses, and, to the best knowledge of
such counsel, the Company has not received any notice
of proceedings relating to the revocation or
modification of any such certificate, authorization
or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or
finding, would result in a material adverse change in
the condition (financial or otherwise), business
prospects, net worth or results of operations of
the Company, except as described in or contemplated
by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus);
(xii) the Company is not an
"investment company" under the Investment Company Act
of 1940, as amended, and consummation of the
transactions herein contemplated will not cause the
Company to become an investment company subject to
registration under such Act;
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<PAGE> 26
(xiii) to the best knowledge of
such counsel, the Company does not own any shares of
stock or any other equity securities of any
corporation or have any equity interest in any firm,
partnership, association or other entity, except as
described in or contemplated by the Prospectus (or,
if the Prospectus is not in existence, the most
recent Preliminary Prospectus);
(xiv) to the best knowledge of
such counsel, all offers and sales of the Company's
capital stock prior to the date hereof, including
without limitation all offers and sales in connection
with the 1996 Acquisitions, the Pinellas Acquisition
and the Recent Acquisitions, were at all relevant
times exempt from the registration requirements of
the Act, and were the subject of an available
exemption from the registration requirements of all
applicable state securities or blue sky laws;
(xv) each of the agreements
providing for a transaction that is part of the 1996
Acquisitions, the Pinellas Acquisition and the Recent
Acquisitions has been duly authorized, executed and
delivered by the Company and, to the best knowledge
of such counsel, constitutes the valid and legally
binding obligation of each of the other parties
thereto; to such counsel's knowledge, are no
statutory or contractual rights of dissent or
appraisal with respect to the transfer of any of the
properties in the 1996 Acquisitions, the Pinellas
Acquisition and the Recent Acquisitions; and the 1996
Acquisitions, the Pinellas Acquisition and the Recent
Acquisitions conformed in all material respects to
the extent required by the Act to the description
thereof contained in the Registration Statement; and
(xvi) to the best knowledge of
such counsel, except as disclosed in the Prospectus
(or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus), there are no
outstanding (A) securities or obligations of the
Company convertible into or exchangeable for any
capital stock of the Company, (B) warrants, rights or
options to subscribe for or purchase from the Company
any such capital stock or any such convertible or
exchangeable securities or obligations, or (C)
obligations of the Company to issue any shares of
capital stock, any such convertible or exchangeable
securities or obligations, or any such warrants,
rights or options.
Such counsel shall also state that (other than as to the
financial statements and information and related schedules therein, as
to which such counsel shall express no opinion) they have no reason to
believe (A) that the Registration Statement, as of its effective date,
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading and (B) that the Prospectus, as
of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. Such counsel shall also state that no facts have come to
their attention that cause them to believe that the Company and the
Eye Care Entities are not conducting their respective business in
material compliance with the laws, rules and regulations applicable
thereto, including, without limitation, those relating to the practice
of optometry and
26
<PAGE> 27
ophthalmology (including the management or operation of eye care
centers), the splitting of professional fees with non-optometrists or
non-ophthalmologists, the ownership or control of the assets of an eye
care practice, the employment of optometrists or ophthalmologists or
other personnel, the content of advertising, limitations on tasks that
may be delegated by any optometrist or ophthalmologist to other staff
members, the business of insurance and reimbursement by governmental
agencies; and nothing has come to their attention that causes them to
believe that the provisions of the service, consulting and management
agreements and other business arrangements entered into by the Company
described in the Prospectus, or the operations of the Company in
accordance with the terms thereof, are not in material compliance with
applicable laws and governmental regulations.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and public
officials.
References to the Registration Statement and the Prospectus in
this paragraph (b) shall include any amendment or supplement thereto
at the date of such opinion.
(c) The Representatives shall have received an opinion,
dated the Option Closing Date of counsel for the Selling Securityholders, to
the effect that:
(i) each Selling Securityholder
has full power (partnership, trust or other) to enter
into this Agreement, the Custody Agreement and the
Power of Attorney and to sell, assign, transfer and
deliver to the Underwriters the Securities to be sold
by such Selling Securityholder hereunder in
accordance with the terms of this Agreement, and to
perform his or its obligations under the Custody
Agreement; the execution and delivery of this
Agreement, the Custody Agreement and the Power of
Attorney have been duly authorized by all necessary
action (partnership, trust or other) of each Selling
Securityholder; this Agreement, the Custody Agreement
and the Power of Attorney have been executed and
delivered by such Selling Securityholder; this
Agreement and, assuming due authorization, execution
and delivery by the Custodian, the Custody Agreement
and the Power of Attorney, are the legal, valid,
binding and enforceable instruments of such Selling
Securityholder, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors'
rights generally and subject, as to enforceability,
to general principles of equity (regardless of
whether enforcement is sought in a proceeding in
equity or at law);
(ii) the delivery by such Selling
Securityholder to the Underwriters of certificates
for the Securities being sold hereunder by such
Selling Securityholder against payment therefor as
provided herein, will convey good and marketable
title to such Securities to the several Underwriters,
free and clear of any security interests, liens,
encumbrances, equities, claims or other defects; and
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<PAGE> 28
(iii) The sale of the Securities
to the Underwriters by such Selling Securityholder
pursuant to this Agreement, the compliance by such
Selling Securityholder with the other provisions of
this Agreement and the Custody Agreement and the
consummation of the other transactions herein
contemplated do not (A) require the consent,
approval, authorization, registration or
qualification of or with any governmental authority,
except such as has been obtained, and except such as
may be required for registration under state
securities or blue sky laws and, if the registration
statement filed with respect to the Securities (as
amended) is not effective under the Act as of the
time of execution hereof, such as may be required
(and shall be obtained as provided in this Agreement)
under the Act and the Exchange Act, or (B) conflict
with or result in a breach or violation of any of the
terms and provisions of, or constitute a default
under any indenture, mortgage, deed of trust, lease
or other agreement or instrument known to such
counsel to which such Selling Securityholder is a
party or by which such Selling Securityholder or any
of such Selling Securityholder's properties are
bound, or any statute or any judgment, decree, order,
rule or regulation known to such counsel of any court
or other governmental authority or any arbitrator
applicable to such Selling Securityholder.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on
certificates of the Selling Securityholders, responsible officers of
the Company and public officials.
References to the Registration Statement and the Prospectus in
this paragraph (c) shall include any amendment or supplement thereto
at the date of such opinion.
(d) The Representatives shall have received an opinion,
dated the Firm Closing Date, of King & Spalding, counsel for the Underwriters,
with respect to the issuance and sale of the Firm Securities, the Registration
Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(e) The Representatives shall have received from Ernst &
Young LLP a letter or letters dated, respectively, the date hereof and the Firm
Closing Date, in form and substance satisfactory to the Representatives, to
the effect that:
(i) they are independent
accountants with respect to the Company within the
meaning of the Act and the applicable rules and
regulations thereunder;
(ii) in their opinion, the
audited financial statements and schedules of the
Company included in the Registration Statement and
the Prospectus comply in form in all material
respects with the applicable accounting
requirements of the Act and the related published
rules and regulations;
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<PAGE> 29
(iii) on the basis of their
limited review in accordance with standards
established by the American Institute of Certified
Public Accountants of any interim unaudited
financial statements of the Company included in
the Registration Statement and the Prospectus,
carrying out certain specified procedures (which
do not constitute an examination made in
accordance with generally accepted auditing
standards) that would not necessarily reveal
matters of significance with respect to the
comments set forth in this paragraph (iii), a
reading of the minute books of the stockholders,
the board of directors and any committees thereof
of the Company, officials of the Company, and
inquiries of certain officials of the Company who
have responsibility for financial and accounting
matters, nothing came to their attention that
caused them to believe that:
(A) the unaudited
financial statements of the Company
included in the Registration
Statement and the Prospectus do not
comply in form in all material
respects with the applicable
accounting requirements of the Act
and the related published rules and
regulations thereunder or are not in
conformity with generally accepted
accounting principles applied on a
basis substantially consistent with
that of the audited financial
statements included in the
Registration Statement and the
Prospectus;
(B) at a specific date not
more than five business days prior
to the date of such letter, there
was any change in long-term debt of
the Company or any decreases in net
current assets or stockholders'
equity of the Company, in each case
compared with amounts shown on the
___________ unaudited consolidated
balance sheet included in the
Registration Statement and the
Prospectus, or for the period from
___________ to such specified date
there were any decreases, as
compared with the prior comparable
period, in net revenues, income
before income taxes or net income of
the Company, except in all instances
for changes, decreases or increases
set forth in such letter;
(iv) they have carried out
certain specified procedures (as requested by the
Representatives), not constituting an audit, with
respect to certain amounts, percentages and
financial information that are derived from the
general accounting records of the Company and are
included in the Registration Statement and the
Prospectus, and have compared such amounts,
percentages and financial information with such
records of the Company or with information
derived from such records and agreement, excluding
any questions of legal interpretation; and
(v) on the basis of a reading of
the unaudited pro forma financial data included in
the Registration Statement and the Prospectus,
carrying out certain specified procedures that
would not necessarily reveal matters of
significance with respect to the comments set
forth in this paragraph (v), inquiries of certain
officials of the Company who have responsibility
for financial and accounting matters and proving
the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in
the unaudited pro forma
29
<PAGE> 30
financial data, nothing came to their attention that
caused them to believe that the unaudited pro
forma financial data do not comply in form in all
material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X or that
the pro forma adjustments have not been properly
applied to the historical amounts in the compilation
of such data.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition
to the obligations of the Underwriters that (A) such letters shall be
accompanied by a written explanation from the Company as to the
significance thereof, unless the Representatives deem such explanation
unnecessary, and (B) such changes, decreases or increases do not, in
the sole judgment of the Representatives, make it impractical or
inadvisable to proceed with the purchase and delivery of the
Securities as contemplated by the Registration Statement, as amended
as of the date hereof.
References to the Registration Statement and the Prospectus in
this paragraph (f) with respect to either letter referred to above
shall include any amendment or supplement thereto at the date of such
letter.
(f) The Representatives shall have received a
certificate, dated the Firm Closing Date, of the principal executive officer
and the principal financial or accounting officer of the Company to the effect
that:
(i) the representations and
warranties of the Company in this Agreement are true
and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of
the Firm Closing Date, does not include any untrue
statement of a material fact or omit to state any
material fact necessary to make the statements
therein not misleading, and the Prospectus, as
amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material
fact or omit to state any material fact necessary in
order to make the statements therein, in the light of
the circumstances under which they were made, not
misleading; and the Company has performed all
covenants and agreements and satisfied all conditions
on its part to be performed or satisfied at or prior
to the Firm Closing Date;
(ii) no stop order suspending the
effectiveness of the Registration Statement or any
amendment thereto has been issued, and no proceedings
for that purpose have been instituted or
threatened or, to the best of the Company's
knowledge, are contemplated by the Commission; and
(iii) subsequent to the respective
dates as of which information is given in the
Registration Statement and the Prospectus, the
Company has not sustained any material loss or
interference with its businesses or properties from
fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any
labor dispute or any legal or governmental
proceeding, and there has not been any material
adverse change, or any development involving a
prospective material adverse change, in the condition
(financial or otherwise), management, business
prospects, net worth or results of operations of the
30
<PAGE> 31
Company, except as described in or contemplated by
the Prospectus (exclusive of any amendment or
supplement thereto).
(g) The Representatives shall have received a certificate
from each Selling Securityholder, dated the Option Closing Date, to the effect
that:
(i) the representations and
warranties of such Selling Securityholder in this
Agreement are true and correct as if made on and as
of the Firm Closing Date;
(ii) such Selling Securityholder
has performed all covenants and agreements on his or
its part to be performed or satisfied at or prior to
the Firm Closing Date.
(h) The Representatives shall have received from (i) each
person who is a director or officer of the Company and (ii) each Selling
Securityholder an agreement to the effect that such person or entity will not,
directly or indirectly, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, pledge, offer of sale, contract of
sale, grant of an option to purchase or other sale or disposition) of any
shares of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares 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 Agreement, 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.
(i) On or before the Firm Closing Date, the
Representatives and counsel for the Underwriters shall have received such
further certificates, documents or other information as they may have
reasonably requested from the Company.
(j) Prior to the commencement of the offering of the
Securities, the Securities shall have been included for trading on the Nasdaq
Stock Market.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company shall furnish to the Representatives
such conformed copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the Underwriters shall
reasonably request.
The respective obligations of the several Underwriters to purchase and
pay for any Option Securities shall be subject, in their discretion, to each of
the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
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<PAGE> 32
9. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon:
(i) any untrue statement or
alleged untrue statement made by the Company in
Section 2 of this Agreement,
(ii) any untrue statement or
alleged untrue statement of any material fact
contained in (A) the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or
(B) any application or other document, or any
amendment or supplement thereto, executed by the
Company or based upon written information furnished
by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under
the securities or blue sky laws thereof or filed with
the Commission or any securities association or
securities exchange (each an "Application"),
(iii) the omission or alleged
omission to state in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement
thereto, or any Application a material fact required
to be stated therein or necessary to make the
statements therein not misleading, or
(iv) any untrue statement or
alleged untrue statement of any material fact
contained in any audio or visual materials derived
solely from information supplied by the Company to be
used in connection with the marketing of the
Securities, including without limitations, slides,
videos, films and tape recordings,
and will reimburse, as incurred, each Underwriter and
each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or
such controlling person in connection with
investigating, defending against or appearing as a
third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case
to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or
alleged omission made in such registration statement
or any amendment thereto, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto
or any Application in reliance upon and in conformity
with written information furnished to the Company by
such Underwriter through the Representatives
specifically for use therein; and provided, further,
that the Company will not be liable to any Underwriter
or any person controlling such Underwriter with
respect to any such untrue statement or omission made
in any Preliminary Prospectus that is corrected in the
Prospectus (or any amendment or
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<PAGE> 33
supplement thereto) if the person asserting any such
loss, claim, damage or liability purchased
Securities from such Underwriter but was not sent or
given a copy of the Prospectus (as amended or
supplemented) at or prior to the written confirmation
of the sale of such Securities to such person in any
case where such delivery of the Prospectus (as
amended or supplemented) is required by the Act,
unless such failure to deliver the Prospectus (as
amended or supplemented) was a result of
noncompliance by the Company with Section 6(a)(iv) of
this Agreement. This indemnity agreement will be in
addition to any liability which the Company and such
Selling Securityholders may otherwise have. The
Company will not, without the prior written consent
of the Underwriter or Underwriters purchasing, in the
aggregate, more than fifty percent of the Securities,
settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action,
suit or proceeding in respect of which
indemnification may be sought hereunder (whether or
not any such Underwriter or any person who controls
any such Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding),
unless such settlement, compromise or consent
includes an unconditional release of all of the
Underwriters and such controlling persons from all
liability arising out of such claim, action, suit or
proceeding.
(b) Subject to subsection (g) of this Section, each Selling
Securityholder agrees to indemnify and hold harmless each Underwriter and each
person who controls any Underwriter within the meaning of Section 15 of the
Act against any such losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue
statement made by such Selling Securityholder in
Section 2 of this Agreement;
(ii) any untrue statement or alleged untrue
statement of any material fact contained in the
Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus
or any amendment or supplement thereto; or
(iii) the omission or the alleged omission
to state therein a material fact required to be
stated in the Registration Statement or any
amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or
any Application or necessary to make the statements
therein not misleading;
provided, however, that the Selling Securityholders
will not be liable in any such case to the extent
that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged
omission made in such registration statement or any
amendment thereto, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto or
any Application in reliance upon and in conformity
with written information furnished to the Company by
such Underwriter through
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<PAGE> 34
the Representatives specifically for use therein; and
provided, further, that the Selling Securityholders
will not be liable to any Underwriter or any person
controlling such Underwriter with respect to any
such untrue statement or omission made in any
Preliminary Prospectus that is corrected in the
Prospectus (or any amendment or supplement thereto)
if the person asserting any such loss, claim, damage
or liability purchased Securities from such
Underwriter but was not sent or given a copy of the
Prospectus (as amended or supplemented) at or prior
to the written confirmation of the sale of such
Securities to such person in any case where such
delivery of the Prospectus (as amended or
supplemented) is required by the Act, unless such
failure to deliver the Prospectus (as amended or
supplemented) was a result of noncompliance by the
Company with Section 6(a)(iv) of this Agreement ;
provided, further, however, that in the case of (i),
(ii) and (iii) above for the Group 2 Selling
Securityholders, to the extent and only to the extent
that such untrue statement or alleged untrue
statement or omission or alleged omission was made in
reliance upon and in conformity with written
information furnished to the Company by such Group 2
Selling Securityholder. This indemnity agreement
will be in addition to any liability which the
Selling Securityholders may otherwise have. The
Selling Securityholders will not, without the prior
written consent of the Underwriters purchasing
greater than fifty percent of the Securities, settle
or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be
sought hereunder (whether or not such Underwriter or
any person who controls such Underwriter within the
meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit
or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the
Underwriters and each such controlling person from
all liability arising out of such claim, action, suit
or proceeding.
(c) The Company also agrees to indemnify and hold harmless Wheat,
First Securities, Inc. and each person, if any, who controls Wheat, First
Securities, Inc. within the meaning of either Section 15 of the Act or Section
20 of the Exchange Act, from and against any and all losses, claims,
damages, liabilities and judgments incurred as a result of Wheat, First
Securities, Inc.'s participation as a "qualified independent underwriter"
within the meaning of Rule 2720 in connection with the offering of the
Securities, except for any losses, claims, damages, liabilities and judgments
resulting from Wheat, First Securities, Inc.'s, or such controlling person's,
willful misconduct or gross negligence.
(d) Each Underwriter, severally and not jointly, will indemnify
and hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement, each Selling Securityholder and each person,
if any, who controls the Company or any Selling Securityholder within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act against any
losses, claims, damages or liabilities to which the Company, any such director
or officer of the Company, such Selling Securityholder or any such controlling
person of the Company or such Selling Securityholder may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or
34
<PAGE> 35
any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any Application
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein; and,
subject to the limitation set forth immediately preceding this clause, will
reimburse, as incurred, any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person or such Selling
Securityholder in connection with investigating or defending any such loss,
claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 9. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnifying party shall not have the right to direct the defense of such
action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that in
connection with such action the indemnifying party shall not be liable for the
expenses of more than one separate counsel (in addition to local counsel) in
any one action or separate but substantially similar actions in the same
jurisdiction arising out of the same general allegations or circumstances,
designated by the Representatives in the case of paragraph (a) of this Section
9, representing the indemnified parties under such paragraph (a) who are
parties to such action or actions) or (ii) the indemnifying party does not
promptly retain counsel satisfactory to the indemnified party or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying
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<PAGE> 36
party to such indemnified party, the indemnifying party will not be liable for
the costs and expenses of any settlement of such action effected by such
indemnified party without the consent of the indemnifying party.
(f) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable or insufficient,
for any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Securityholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Securityholders bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company, the
Selling Securityholders or the Underwriters, the parties' relative intents,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in
the circumstances. The Company, the Selling Securityholders and the
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take into account the equitable
considerations referred to above in this paragraph (f). Notwithstanding any
other provision of this paragraph (f), no Underwriter shall be obligated to
make contributions hereunder that in the aggregate exceed the total public
offering price of the Securities purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages that such Underwriter has
otherwise been required to pay in respect of the same or any substantially
similar claim, and no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute hereunder are several in proportion to
their respective underwriting obligations and not joint, and contributions
among Underwriters shall be governed by the provisions of the Prudential
Securities Incorporated Master Agreement Among Underwriters. For purposes of
this paragraph (f), each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement and
each person, if any, who controls the Company or any
36
<PAGE> 37
Selling Securityholder within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, shall have the same rights to contribution as the
Company or such Selling Securityholder, as the case may be.
(g) The liability of each Selling Securityholder under the
representations and warranties contained in Sections 2 and 3 hereof and under
the indemnity and contribution agreements contained in the provisions of this
Section 9 shall be limited to an amount equal to the public offering price of
the Securities to be sold by such Selling Securityholder to the Underwriters
minus the amount of the underwriting discount paid thereon to the Underwriters
by such Selling Securityholder; provided however, that no Selling
Securityholder shall be required to provide payment under the indemnity
agreements contained in the provisions of this Section 9 until the Underwriter
or controlling person seeking indemnification shall have first made a demand
for payment on the Company with respect to any such loss, claim, damage,
liability or expense and the Company shall have failed to make such requested
payment within 30 days after receipt thereof. The Company and such Selling
Securityholder may agree, as among themselves and without limiting the rights
of the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
10. Default of Underwriters. If one or more Underwriters default
in their obligations to purchase Firm Securities or Option Securities hereunder
and the aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be purchased by all
of the Underwriters at such time hereunder, the other Underwriters may make
arrangements satisfactory to the Representatives for the purchase of such
Securities by other persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such arrangements are
made by the Firm Closing Date or the related Option Closing Date, as the case
may be, the other Underwriters shall be obligated severally in proportion to
their respective commitments hereunder to purchase the Firm Securities or
Option Securities that such defaulting Underwriter or Underwriters agreed but
failed to purchase. If one or more Underwriters so default with respect to an
aggregate number of Securities that is more than ten percent of the aggregate
number of Firm Securities or Option Securities, as the case may be, to be
purchased by all of the Underwriters at such time hereunder, and if
arrangements satisfactory to the Representatives are not made within 36 hours
after such default for the purchase by other persons (who may include one or
more of the non-defaulting Underwriters, including the Representatives) of the
Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or
the Company other than as provided in Section 11 hereof if the default is with
respect to the Firm Closing Date and without liability for the Option Shares if
such default is with respect to the Option Closing Date. In the event of any
default by one or more Underwriters as described in this Section 10, the
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
hereof for not more than seven business days in order that any necessary
changes may be made in the arrangements or documents for the purchase and
delivery of the Firm Securities or Option Securities, as the case may be. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter
37
<PAGE> 38
under this Section 10. Nothing herein shall relieve any defaulting Underwriter
from liability for its default.
11. Default by Selling Securityholders. If on the Option Closing
Date any Selling Securityholder fails to sell the Option Securities, which such
Selling Securityholder has agreed to sell on such date as set forth herein, the
Company agrees that it will sell that number of shares of Common Stock to the
Underwriters which represents the Option Securities which such Selling
Securityholder has failed to so sell, or such lesser number as may be requested
by you.
12. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company and its
officers, the Selling Securityholders and the several Underwriters set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, any of its officers or
directors, any Selling Securityholders, any Underwriter or any controlling
person referred to in Section 9 hereof and (ii) delivery of and payment for the
Securities. The respective agreements, covenants, indemnities and other
statements set forth in Sections 7 and 9 hereof shall remain in full force and
effect, regardless of any termination or cancellation of this Agreement.
13. Termination.
(a) This Agreement may be terminated with respect to the
Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company or the Selling Securityholders given
prior to the Firm Closing Date or the related Option Closing Date,
respectively, in the event that the Company or the Selling Securityholder shall
have failed, refused or been unable to perform all obligations and satisfy all
conditions on its part to be performed or satisfied hereunder at or prior
thereto or, if at or prior to the Firm Closing Date or such Option Closing
Date, respectively,
(i) the Company shall have, in
the sole judgment of the Representatives, sustained
any material loss or interference with its business
or properties from fire, flood, hurricane, accident
or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or
governmental proceeding or there shall have been any
material adverse change, or any development involving
a prospective material adverse change (including
without limitation a change in management or control
of the Company), in the condition (financial or
otherwise), business prospects, net worth or results
of operations of the Company, except as described in
or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(ii) trading in the Common Stock
shall have been suspended by the Commission or the
Nasdaq Stock Market;
38
<PAGE> 39
(iii) trading in securities
generally on the New York Stock Exchange or the
Nasdaq Stock Market shall have been suspended or
minimum or maximum prices shall have been established
on any such exchange or market system;
(iv) a banking moratorium shall
have been declared by New York or United States
authorities; or
(v) there shall have been (A) an
outbreak or escalation of hostilities between the
United States and any foreign power, (B) an outbreak
or escalation of any other insurrection or armed
conflict involving the United States or (C) any other
calamity or crisis or material adverse change in
general economic, political or financial conditions
having an effect on the United States financial
markets that, in the sole judgment of the
Representatives, makes it impractical or inadvisable
to proceed with the public offering or the delivery
of the Securities as contemplated by the Registration
Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this
Section 13 shall be without liability of any party to any other party except as
provided in Section 12 hereof.
14. Information Supplied by Underwriters. The statements set
forth in the last paragraph on the front cover page and in the first and third
paragraphs under the heading "Underwriting" in any Preliminary Prospectus or
the Prospectus (to the extent such statements relate to the Underwriters)
constitute the only information furnished by any Underwriter through the
Representatives to the Company for the purposes of Sections 2(a)(ii) and 9
hereof. The Underwriters confirm that such statements (to such extent) are
correct.
15. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to Prudential
Securities Incorporated, One New York Plaza, New York, New York 10292,
Attention: Equity Transactions Group; if sent to the Company, shall be
delivered or sent by mail, telex or facsimile transmission and confirmed in
writing to the Company at 7209 Bryan Dairy Road, Largo, Florida 34647,
Attention: Theodore N. Gillette, with a copy to Shumaker, Loop & Kendrick, 101
E. Kennedy Boulevard, Barnett Plaza, Suite 2800, Tampa, Florida 33602,
Attention: Darrell C. Smith, Esq.; if sent to the Selling Securityholders
shall be delivered or sent by mail, telex or facsimile transmission and
confirmed in writing to Theodore Gillette, as Attorney-in-Fact c/o the Company
at 7209 Bryan Dairy Road, Largo, Florida 34647, with a copy to Shumaker, Loop &
Kendrick, 101 E. Kennedy Boulevard, Barnett Plaza, Suite 2800, Tampa, Florida
33602, Attention: Darrell C. Smith, Esq..
16. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the several Underwriters, the Company, the Selling
Securityholders and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and
39
<PAGE> 40
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company and the Selling Securityholders contained in
Section 9 of this Agreement shall also be for the benefit of any person or
persons who control any Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act and (ii) the indemnities of the Underwriters
contained in Section 9 of this Agreement shall also be for the benefit of the
directors of the Company, the officers of the Company who have signed the
Registration Statement and any person or persons who control the Company or the
Selling Securityholders within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Securities from any Underwriter shall
be deemed a successor because of such purchase.
17. Applicable Law. The validity and interpretation of this
Agreement, and the terms and conditions set forth herein, shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to any provisions relating to conflicts of laws.
18. Counterparts. This Agreement may be executed 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.
40
<PAGE> 41
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, each
Selling Securityholder and each of the several Underwriters.
Very truly yours,
VISION TWENTY-ONE, INC.
By:_____________________________________
Theodore N. Gillette
Chief Executive Officer
SELLING SECURITYHOLDERS
By:_____________________________________
______________, as
attorney-in-fact for the
Selling Securityholders
listed in Schedule 2
attached hereto
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
PRUDENTIAL SECURITIES INCORPORATED
WHEAT, FIRST SECURITIES, INC.
By: PRUDENTIAL SECURITIES INCORPORATED
By: ____________________________________
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
WHEAT, FIRST SECURITIES, INC.,
as Independent Underwriter
By: ____________________________________
Name:_______________________________
Title:______________________________
41
<PAGE> 42
SCHEDULE 1
UNDERWRITERS
<TABLE>
<CAPTION>
Number of
Firm
Securities to
Underwriter be Purchased
- ------------ -------------------
<S> <C>
Prudential Securities Incorporated . . . . . . . . . . . . . . . . . . . . . .
Wheat, First Securities, Inc. . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,100,000
---------
</TABLE>
<PAGE> 43
SCHEDULE 2
SELLING SECURITYHOLDERS
<TABLE>
<CAPTION>
Number of
Option
Securities to
Selling Securityholders be Purchased
- ----------------------- ------------
<S> <C>
Group 1 Selling Securityholders
Theodore N. Gillette . . . . . . . . . . . . . . . . . . . . . 12,000
Sanchez Family Limited Partnership . . . . . . . . . . . . . . 12,000
Richard L. Lindstrom . . . . . . . . . . . . . . . . . . . . . 23,169
Bruce S. Maller . . . . . . . . . . . . . . . . . . . . . . . 13,523
-------
Total Group 1 . . . . . . . . . . . . . . . . . . . . . . 60,692
=======
Group 2 Selling Securityholders
Robert Kennedy . . . . . . . . . . . . . . . . . . . . . . . 3,875
Thomas Samuelson . . . . . . . . . . . . . . . . . . . . . . . 4,119
David R. Hardten . . . . . . . . . . . . . . . . . . . . . . . 8,237
Jerald Turner . . . . . . . . . . . . . . . . . . . . . . . . 6,470
William J. Fishkind . . . . . . . . . . . . . . . . . . . . . 8,586
Brock K. Bakewell . . . . . . . . . . . . . . . . . . . . . . 15,599
Paul R. Smith . . . . . . . . . . . . . . . . . . . . . . . . 3,635
Mark Salta . . . . . . . . . . . . . . . . . . . . . . . . . . 2,397
Daniel Palmisano . . . . . . . . . . . . . . . . . . . . . . . 1,053
Richard L. Short . . . . . . . . . . . . . . . . . . . . . . . 12,854
Barry Kusman . . . . . . . . . . . . . . . . . . . . . . . . . 26,383
John W. Lahr . . . . . . . . . . . . . . . . . . . . . . . . . 7,755
Al Lappano . . . . . . . . . . . . . . . . . . . . . . . . . . 2,105
Mona Henri . . . . . . . . . . . . . . . . . . . . . . . . . . 1,525
Jennifer Stanley . . . . . . . . . . . . . . . . . . . . . . . 958
ACFS Limited Partnership . . . . . . . . . . . . . . . . . . . 15,511
------
Total Group 2 . . . . . . . . . . . . . . . . . . . . . . 181,724
=======
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242,416
=======
</TABLE>
<PAGE> 44
SCHEDULE 3
FORM OF PRICING OPINION
[WHEAT FIRST LETTERHEAD]
July __, 1997
Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Vision Twenty-One, Inc.
7209 Bryan Dairy Road
Largo, Florida 34647
Re: Pricing Opinion
Ladies and Gentlemen:
Vision Twenty-One, Inc., a Florida corporation (the "Company"), has
filed with the Securities and Exchange Commission a registration statement on
Form S-1 (Reg. No. _ 333-29213) (the "Registration Statement") and a prospectus
(the "Prospectus") relating to the offering of 2,415,000 shares of common stock
(which includes up to 315,000 shares of common stock subject to the
underwriters' over-allotment option), par value $.001 per share (the "Common
Stock").
Wheat, First Securities, Inc. is acting as one of the several
underwriters of the offering to the public of the Common Stock (the
"Offering"). The Prudential Securities Group, Inc. ("PSG"), an affiliate of
Prudential Securities Incorporated, one of the several underwriters' of the
Offering, holds warrants, constituting an approximately ____% interest in the
Company's Common Stock (assuming conversion of the warrants prior to the
Offering), holds Promissory Notes of the Company constituting more than 10% of
the Company's subordinated debt and will receive more than 10% of the net
proceeds of the Offering through the repayment of a Promissory Note.
Under the Conduct Rules of the National Association of Securities
Dealers, Inc. ("NASD"), due to the PSG's derivative equity ownership and debt
interest in the Company, the Company may be deemed to be an affiliate of
Prudential Securities Incorporated. Additionally, since PSG will receive more
than 10% of the net proceeds of the Offering a conflict of interest is presumed
under the NASD Conduct Rules. Accordingly, the public offering price can be no
higher than that recommended by a "qualified independent underwriter" meeting
certain standards.
<PAGE> 45
We have been retained as a Qualified Independent Underwriter to
recommend to you the maximum offering price of the Common Stock as required
by the NASD Conduct Rules.
We have participated in the preparation of the Registration Statement
and the Prospectus and have exercised the usual standards of "due diligence"
with respect thereto. Assuming that the Offering is commenced on __________,
1997, we recommend that the offering price of the Common Stock be no higher
than $____.00, which price should in no event be considered or relied upon as
an indication of the actual value of the Common Stock.
Our recommendations are based on economic, market, financial and other
conditions as they exist at the date hereof and on other conditions and
circumstances relating to the Registrants as described in the Registration
Statement. Changes in the conditions and circumstances relating to the Company
from those described in the Registration Statement and events occurring after
the date hereof, including changes in the markets in which the Company
operates, could materially affect the conclusions stated in this letter. We
shall not be obligated or required to reaffirm or revise these recommendations
or otherwise to comment on any events occurring after the date hereof or on any
change to the conditions or circumstances relating to the Company from those so
described.
Very truly yours,
WHEAT, FIRST SECURITIES, INC.
By:_____________________________
Name: John H. Baxter
Title: Managing Director
Confirmed and agreed to as of
the first date above written:
Vision Twenty-One, Inc.
By:_____________________________
Name:
Title:
<PAGE> 1
EXHIBIT 5.1
SHUMAKER, LOOP & KENDRICK, LLP
101 East Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
August 13, 1997
Vision Twenty-One, Inc.
7209 Bryan Dairy Road
Largo, Florida 34647
Attn: Mr. Theodore N. Gillette, CEO
Re: Vision Twenty-One, Inc. Securities and Exchange Commission
Registration Statement on Form S-1 (Registration No. 333-29213)
2,415,000 Shares of Common Stock, $.001 Par Value
Our File No.: V78057/84670
Gentlemen:
We are legal counsel to Vision Twenty-One, Inc., a Florida
corporation (the "Company"), and have acted as such in the preparation and
filing of its Registration Statement on Form S-1 (Registration No. 333-29213)
with the Securities and Exchange Commission (the "SEC") pursuant to the
requirements of the Securities Act of 1933, as amended, and the General Rules
and Regulations of the SEC promulgated thereunder for the registration of
2,415,000 shares (the "Shares") of the Common Stock, par value $.001 (the
"Common Stock"), of the Company. Of these Shares, up to 2,100,000 Shares (the
"Company's Shares") are to be issued and sold by the Company and up to an
additional 315,000 shares are to be sold by the Company and certain
Stockholders of the Company (the "Selling Stockholders"), if the underwriters
exercise their option to purchase such shares to cover over allotments. In
connection with the following opinion, we have examined and have relied upon
such documents, records, certificates, statements and instruments as we have
deemed necessary and appropriate to render the opinion herein set forth.
<PAGE> 2
Vision Twenty-One, Inc.
August 13, 1997
Page 2
Based on the foregoing, it is our opinion that (i) the
Company's Shares, when and if issued and sold in the manner set forth in the
Registration Statement, will be legally and validly issued, fully paid and
non-assessable, and (ii) the Selling Stockholders Shares have been legally and
validly issued, and are fully paid and non-assessable.
The undersigned hereby consents to (i) filing this opinion as
Exhibit 5.1 to the Registration Statement, and (ii) using its name in the
Registration Statement under the following caption of the Prospectus: "LEGAL
MATTERS".
Very truly yours,
/s/ Shumaker, Loop & Kendrick, LLP
SHUMAKER, LOOP & KENDRICK, LLP
<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.
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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.
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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.
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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.
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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.
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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.
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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
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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
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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
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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
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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
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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
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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.
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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;
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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.
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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;
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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
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<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"):
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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
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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.
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<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.
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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.
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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
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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.
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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.
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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.
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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
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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.
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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
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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,
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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.
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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,
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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.
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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
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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
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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.
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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.
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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.
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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.
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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
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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
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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
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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.
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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
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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.
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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
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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;
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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;
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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
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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;
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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
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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.
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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
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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.
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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
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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]
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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
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"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
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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
EYE INSTITUTE OF SOUTHERN ARIZONA - Schedule 3.16: Insurance
<TABLE>
<CAPTION>
Insured Jeffrey I. Katz, M.D. John A. Carolan, M.D. Barry Kusman, M.D. Eye Institute of Southern
Arizona, P.C.
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Liability limits: o $3 million/ $5 million $3 million/ $5 million $3 million/ $5 million COMPREHENSIVE GENERAL
(Diagnosis & treatment) (Diagnosis & treatment) (Diagnosis & treatment) LIABILITY
COVERAGE HELD BY
o $100,000/$100,000 o $100,000/$100,000 o $100,000/$100,000 BUILDING OWNER.
(Injuries to patients and third (Injuries to patients and (Injuries to patients and o $3 million/
parties; peer review) third parties; peer review) third parties; peer review) $5 million group policy
o $0/$0 (PHYSICAL HARM BY OPERATION o $0/$0 (PHYSICAL HARM BY o $0/$0 (PHYSICAL HARM BY (PROFESSIONAL LIABILITY
OF PROFESSIONAL PREMISES) OPERATION OF PROFESSIONAL OPERATION OF PROFESSIONAL COVERAGE)
o (Special limits for PREMISES) PREMISES) o ENDORSEMENT INCLUDES
cosmetic/aesthetic) o (Special limits for o (Special limits for VICARIOUS LIABILITY
cosmetic/aesthetic) cosmetic/aesthetic) COVERAGE
FOR THREE
PHYSICIAN MEMBERS.
- ------------------------------------------------------------------------------------------------------------------------------------
Expiration date 9-1-97 9-1-97 9-1-97 9-1-97
- ------------------------------------------------------------------------------------------------------------------------------------
Retroactive date 7-1-84 7-4-94 7-1-84 7-1-84
- -----------------------------------------------------------------------------------------------------------------------------------
Occurrence vs. Claims Claims made plus tail. Claims made plus tail. Claims made plus tail. Claims made plus tail.
Made
- ------------------------------------------------------------------------------------------------------------------------------------
Claims 74 YR. OLD MALE ALLEGED THAT DR. KATZ N/A 54 yr. old female alleged that N/A
FAILED TO SUPERVISE OPTOMETRIST Dr.'s delay in diagnosing
CLIFFORD COURTENAY (INSURANCE FOR fungal keratitis contributed
HIM?), who diagnosed patient and to need for corneal transplant
prescribed meds outside the scope of and decrease in visual acuity.
his license on 3-7-91. Settled for Kusman paid $160,000 cash
$55,250. judgment or settlement 1-20-93.
Patient sued for malpractice: cataract
diagnosis and treatment
(dismissed 7-25-95)
</TABLE>
<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 10.49
AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (this
"Amendment") is made as of July 31, 1997, by and among KusKat Investments,
L.L.C., an Arizona limited liability company ("KusKat"), OcuSite-ASC, Inc., an
Arizona corporation ("OcuSite"), Jeffrey I. Katz, M.D. and Barry Kusman, M.D.
(such individuals are hereinafter together referred to as the "Physicians";
Kuskat, OcuSite and the Physicians are hereinafter collectively referred to as
the "Sellers"), Vital Sight, P.C., an Arizona professional corporation ("Vital
Sight"), Vision Twenty-One, Inc., a Florida corporation (hereinafter referred
to as "Vision 21"), Vision 21 of Southern Arizona, Inc., a Florida corporation
(the "Subsidiary"), and Darrell C. Smith, Esquire, as escrow agent (the "Escrow
Agent").
RECITALS
A. KusKat owns and leases from third parties certain equipment and
owns real estate located at 5632 East 5th Street, Tucson, Arizona, 85711 (the
"Center") which is currently used by Medivision, Inc. ("Medivision") in the
operation of Medivision's ambulatory surgical center business.
B. OcuSite is a party to certain contracts relating to the ambulatory
surgical center business currently conducted by Medivision at the Center.
C. The Physicians are licensed to practice medicine in the State of
Arizona and currently conduct an ophthalmology practice through Vital Sight.
D. The Physicians own a majority of the equity interests of Kuskat
and all of the shares of common stock of OcuSite and Vital Sight.
E. Vision 21 provides management services to medical and optometric
practices, ambulatory surgical centers and retail optical centers throughout
the United States, and through its wholly-owned subsidiary corporation, the
Subsidiary, provides management services to Vital Sight.
F. The Physicians, Vision 21 and the Subsidiary entered into that
certain Agreement and Plan of Reorganization dated December 1, 1996 (the
"Merger Agreement"), wherein it was contemplated that the Physicians would
cause Medivision to terminate its ambulatory surgical center business at the
Center and the Physicians would begin an ambulatory surgical center business at
the Center (the "ASC Business") which would be managed by the Subsidiary.
G. The parties hereto desire to amend the Merger Agreement in order
to commit to the formation of the ASC Business to be operated by Vital Sight at
the Center, to set forth the specific terms concerning such formation, and to
provide for the transfer of certain of the assets to be utilized by such ASC
Business, all as more fully set forth below.
<PAGE> 2
H. The parties hereto desire that the formation of the ASC
Business and the transfer of the assets to be utilized by such ASC Business
shall be effective upon the satisfaction of the terms and conditions set forth
in this Amendment and the release of all documents, instruments, consideration
and agreements from the escrow arrangement created pursuant to this Amendment.
NOW, THEREFORE, for and in consideration of ten dollars ($10.00) paid
by Vision 21 to each of the Sellers, the mutual promises contained herein and
for other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Sale of Equipment. At the Closing (as defined in Section 7.1
hereof) and effective as of the Effective Date (as defined in Section 7.2
hereof), KusKat shall grant, sell, convey, assign, transfer and deliver to the
Subsidiary, upon and subject to the terms and conditions of this Amendment, all
right, title and interest of KusKat in and to all of the equipment (the
"Equipment") to be utilized by the ASC Business, as such equipment is more
specifically identified on Schedule 1 attached hereto and made a part hereof.
2. Acquisition of Inventory and Supplies. At or before the
Effective Date, Vital Sight shall have acquired from Medivision all of the
inventory and supplies necessary for the conduct of the ASC Business, and shall
(effective as of the Effective Date) grant, sell, convey, assign, transfer and
deliver all of Vital Sight's right, title and interest in and to such inventory
and supplies to the Subsidiary; provided, however, that Vital Sight shall
retain ownership of and shall not transfer to the Subsidiary any of the
inventory or supplies described on Schedule 2 attached hereto and made a part
hereof (the inventory to be transferred to the Subsidiary pursuant to this
Amendment is hereinafter referred to as the "Inventory," and the supplies to be
transferred to the Subsidiary pursuant to this Amendment are hereinafter
referred to as the "Supplies").
3. Lease of Center. At the Closing, KusKat and the Subsidiary
shall enter into a lease of the Center effective as of the Effective Date (the
"Lease") in a form agreed to by the parties hereto.
4. Termination of Arrangements with Medivision. At or before the
Effective Date, KusKat and OcuSite shall have terminated all executory
contractual arrangements with Medivision.
5. Ambulatory Surgical Center License. At or before the
Effective Date, Vital Sight shall have obtained (i) a license to operate an
ambulatory surgical center at the Center from the State of Arizona (the
"License"), and (ii) medicare certification for the ASC Business at the Center
(the "Medicare Certification"). The Physicians shall use their best efforts to
obtain such License and Medicare Certification as promptly as possible.
6. Assumption of Certain Liabilities and Contracts. Except for
any liabilities accruing after the Effective Date under the contracts,
agreements and leases listed on Schedule 6 attached hereto and made a part
hereof which the Subsidiary agrees to assume, neither the Subsidiary nor
2
<PAGE> 3
Vision 21 shall assume any responsibility or liability of any kind for any of
the debts, obligations, liabilities, expenses, taxes, contracts or commitments
of Sellers, whether accrued or unaccrued, absolute or contingent, mature or
unmature or otherwise. From and after the Effective Date, the Subsidiary
agrees to assume responsibility for the performance of the leases and other
contracts and agreements which are listed in Schedule 6 required to be
performed after the Effective Date; provided, however, that neither Vision 21
nor the Subsidiary shall have responsibility to perform any such activities to
the extent not disclosed in Schedule 6.
7. Closing; Effective Date; Deliveries; Escrow.
7.1. Closing. The closing of the transactions
contemplated in this Amendment (the "Closing") shall be July 31, 1997, at the
offices of Vision 21's counsel, Shumaker, Loop & Kendrick, LLP, 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. Unless otherwise agreed
to by all of the parties hereto in writing executed after the date first above
written, all obligations on the part of Vision 21 and the Subsidiary to
consummate the transactions contemplated in this Amendment will terminate, and
Vision 21 and the Subsidiary shall have no further obligations under this
Amendment or the Merger Agreement to consummate the transactions relating to
the formation of the ASC Business if the Effective Date does not occur on or
before June 31, 1998. Notwithstanding the foregoing, the parties hereto
anticipate that the Effective Date will occur on or before September 30, 1997,
and shall use their best efforts to satisfy all conditions to be met by them
for release of materials from escrow as promptly as practicable.
7.2. Effective Date. The effective date (the "Effective
Date") of the consummation of the transactions contemplated in this Amendment
shall be the date of the release of all documents, instruments, consideration
and agreements from escrow pursuant to Section 7.5 of this Amendment.
7.3. Closing Deliveries. At the Closing and subject to
the terms and conditions herein contained:
a. KusKat shall deliver to the Escrow Agent the
following:
(i) Such bills of sale with warranties
as to title, assignments, endorsements and other good
and sufficient instruments and documents of
conveyance and transfer, in form reasonably
satisfactory to Vision 21 and its counsel, as shall
be necessary and effective to transfer and assign to
and vest in the Subsidiary all of KusKat's right,
title and interest in and to the Equipment, including
without limitation, (A) good and valid title in and
to all of the Equipment owned by KusKat, (B) good and
valid leasehold interests in and to all of the
Equipment leased by KusKat as lessee, and (C) all of
KusKat's rights under all service agreements,
contracts, warranties, commitments, instruments and
other documents directly relating
3
<PAGE> 4
to the Equipment to which Kuskat is a party or by
which it has rights on the Effective Date;
(ii) A duly executed Lease of the Center
between KusKat and the Subsidiary; and
(iii) Such other certificates and
documents as Vision 21 or its counsel may reasonably
request.
b. Vital Sight shall deliver to the Escrow Agent
the following:
(i) A copy of resolutions of the Board
of Directors of Vital Sight authorizing the
execution, delivery and performance of this
Amendment, all related documents and agreements and
the consummation of the transactions contemplated in
this Amendment, certified by the Secretary of Vital
Sight as being true and correct copies of the
originals thereof subject to no modifications or
amendments; and
(ii) Such other certificates and
documents as Vision 21 or its counsel may reasonably
request.
c. OcuSite shall deliver to the Escrow Agent the
following:
(i) A copy of resolutions of the Board
of Directors of OcuSite authorizing the execution,
delivery and performance of this Amendment, all
related documents and agreements and the consummation
of the transactions contemplated in this Amendment,
certified by the Secretary of OcuSite as being true
and correct copies of the originals thereof subject
to no modifications or amendments; and
(ii) Such other certificates and
documents as Vision 21 or its counsel may reasonably
request.
d. The Physicians shall deliver to the Escrow
Agent the following:
(i) Such certificates and documents as
Vision 21 or its counsel may reasonably request.
4
<PAGE> 5
e. Vision 21 and the Subsidiary shall deliver
to the Escrow Agent the following:
(i) The executed Lease of the Center
between KusKat and the Subsidiary;
(ii) A copy of resolutions of the Boards
of Directors of Vision 21 and the Subsidiary
authorizing the execution, delivery and performance
of this Amendment, all related documents and
agreements and the consummation of the transactions
contemplated in this Amendment, certified by the
Secretaries of Vision 21 and the Subsidiary as being
true and correct copies of the originals thereof
subject to no modifications or amendments; and
(iii) Such other certificates and
documents as the Sellers or their counsel may
reasonably request.
7.4. Escrow of Closing Materials. All documents,
instruments and consideration (the "Escrowed Materials") delivered by the
Sellers, Vital Sight, Vision 21 and the Subsidiary to the Escrow Agent pursuant
to this Amendment at the Closing and up to the Effective Date shall be held in
escrow by the Escrow Agent, counsel for Vision 21 and the Subsidiary, until the
following documents, instruments and consideration have been delivered:
a. KusKat shall provide to the Escrow Agent (i) original
instruments of consent or waiver duly executed by third parties with
respect to any Equipment leases and related contracts, agreements or
other rights or obligations being transferred to the Subsidiary
hereunder and requiring a consent or waiver therefore; and (ii) duly
executed UCC-3 termination statements evidencing the release of any
and all liens upon any of the Equipment held by any person or entity;
b. Vital Sight shall provide to the Escrow Agent (i) a
copy of the License; (ii) evidence of its receipt of Medicare
Certification in a form satisfactory to Vision 21 and its counsel;
(iii) copies of executed transaction documents containing terms
satisfactory to Vision 21 and its counsel relating to Vital Sight's
acquisition of ambulatory surgical center inventory and supplies from
Medivision; and (iv) such bills of sale with warranties as to title,
assignments, endorsements and other good and sufficient instruments
and documents of conveyance and transfer, in form reasonably
satisfactory to Vision 21 and its counsel, as shall be necessary and
effective to transfer and assign to and vest in the Subsidiary all of
Vital Sight's right, title and interest in and to the Inventory and
the Supplies, including without limitation, (A) good and valid title
in and to all of the Inventory and Supplies acquired from Medivision,
and (B) all of Vital Sight's rights under all service agreements,
contracts, warranties, commitments, instruments and other documents
directly relating to the Inventory or Supplies to which Vital Sight is
a party or by which it has rights on the Effective Date;
5
<PAGE> 6
c. OcuSite shall provide to the Escrow Agent copies of
executed agreements terminating all executory contractual
relationships between Medivision and any of OcuSite, Vital Sight,
KusKat and Eye Institute of Southern Arizona, P.C., which agreements
are to contain terms satisfactory to Vision 21 and its counsel;
d. The Physicians shall provide to the Escrow Agent a
certificate dated the Effective Date: (i) as to the truth and
correctness of the representations and warranties of KusKat, OcuSite,
Vital Sight and the Physicians contained in this Amendment; (ii) as to
the performance of and compliance in all material respects by KusKat,
OcuSite, Vital Sight and the Physicians with all covenants contained
herein on and as of the Effective Date; and (iii) certifying that all
conditions precedent of KusKat, OcuSite, Vital Sight and the
Physicians to the release of documents from escrow have been
satisfied; and
e. Vision 21 and the Subsidiary shall provide to the
Escrow Agent (i) an assumption of leases by the Subsidiary with
respect to any of the Equipment leased from third parties; and (ii)
the shares of Vision 21 common stock to be delivered pursuant to
Section 8 of this Amendment.
7.5 Release of Documents from Escrow. Upon satisfaction
of the conditions set forth above in Section 7.4 of this Amendment, each of the
parties shall notify the Escrow Agent in writing and, upon receipt of all such
notices, the Escrow Agent shall immediately release the Escrowed Materials to
the appropriate parties. If any of the conditions in Section 7.4 hereof are
not satisfied or waived by the parties, and each of Vision 21 and Vital Sight
informs Escrow Agent in writing that such conditions have not been satisfied,
such parties may together direct the Escrow Agent in writing to immediately
return any consideration by Vision 21 held by it to Vision 21 and destroy all
of the other Escrowed Materials held by it, and the Escrow Agent shall take
such action.
8. Purchase Price. Vision 21 shall pay to Sellers for the
satisfaction of the conditions and consummation of the transactions described
in this Amendment the number of shares of Vision 21 common stock set forth on
Schedule 8 attached hereto and made a part hereof based upon the month in which
the Effective Date occurs.
9. Allocation of Purchase Price. The Purchase Price shall be
allocated among the assets transferred to the Subsidiary as set forth on
Schedule 9 attached hereto and made a part hereof. Each of Sellers, Vital
Sight, Vision 21 and the Subsidiary hereby covenants and agrees that he or it
will not take a position that is in any way inconsistent with the terms of this
Section 9 on any income tax return, before any governmental agency charged with
the collection of any income tax or in any judicial proceeding.
10. Warranties and Representations of Sellers and Vital Sight.
Sellers and Vital Sight jointly and severally hereby warrant, represent, and
agree to and with Vision 21 and the Subsidiary as follows:
6
<PAGE> 7
a. Legal Power and Enforceable Obligations. KusKat is a
limited liability company duly organized, validly existing and in good
standing under the laws of the State of Arizona. Each of OcuSite and
Vital Sight is a corporation duly organized, validly existing and in
good standing under the laws of the State of Arizona. KusKat has the
power, authority and legal right to own, lease and operate the
Equipment and the Center and the power, authority and legal right to
execute, deliver and perform this Amendment. Each of the Sellers and
Vital Sight has the power, authority and legal right to execute,
deliver and perform this Amendment. This Amendment and all the other
documents and instruments required to be delivered by each of the
Sellers and Vital Sight in accordance with the provisions hereof have
been, or upon their execution and delivery will have been, duly
executed and delivered on behalf of the Sellers and Vital Sight and
constitute, or will constitute, legal, valid and binding obligations
of the Sellers and Vital Sight, enforceable against the Sellers and
Vital Sight in accordance with their respective terms.
b. Validity of Contemplated Transactions. The
execution, delivery and performance of this Amendment by Sellers and
Vital Sight do not and will not violate, conflict with or result in
the breach of any term, condition or provision of, or require the
consent of any other person under (i) any existing law, ordinance, or
governmental rule or regulation to which any of the Sellers or Vital
Sight are subject, (ii) any judgment, order, writ, injunction, decree
or award of any court, arbitrator or governmental or regulatory
official, body or authority which is applicable to any of the Sellers
or Vital Sight, (iii) the Articles of Incorporation or By-Laws of
OcuSite or Vital Sight, (iv) the Articles of Organization or Operating
Agreement of KusKat, or (v) any mortgage, indenture, agreement,
contract, commitment, lease, plan or other instrument, document or
understanding, oral or written, to which any of the Sellers or Vital
Sight are parties, by which any of the Sellers or Vital Sight may have
rights or by which any of the Equipment may be bound or affected, or
give any party with rights thereunder the right to terminate, modify,
accelerate or otherwise change the existing rights or obligations of
any of the Sellers or Vital Sight thereunder. No authorization,
approval or consent of, and no filing with, any governmental or
regulatory official, body or authority is required in connection with
the execution, delivery or performance of this Amendment by any of the
Sellers or Vital Sight or the sale to the Subsidiary of the Equipment,
the Inventory or the Supplies.
c. No Third Party Options. There are no existing
agreements with, options or commitments to or rights of any person to,
acquire any of the Equipment, Inventory or Supplies or any interest
therein.
d. Condition of Equipment, Inventory and Supplies. All
of the Equipment is in good operating condition and repair, subject to
normal wear and maintenance, is usable in the regular and ordinary
course of business and conforms to all applicable laws, ordinances,
codes, rules and regulations relating to such Equipment's
construction, use and operation. All items of Inventory are
merchantable and are appropriate to be held for sale in the ordinary
course of an ambulatory surgical center line of business as first
quality goods and none of such items is obsolete or below standard
quality. All items of Supplies
7
<PAGE> 8
are appropriate to be utilized in the ordinary course of an ambulatory
surgical center line of business as first quality supplies and none of
such items are obsolete or below standard quality.
e. Title to Equipment, Inventory and Supplies; Required
Approvals. KusKat has and shall transfer to the Subsidiary at the
Closing effective as of the Effective Date good, valid and marketable
title to all of the Equipment being sold and transferred hereunder,
free and clear of all liens, pledges, security interests, charges,
claims, restrictions and other encumbrances and defects of title of
any nature whatsoever. Vital Sight shall have and shall transfer to
the Subsidiary as of the Effective Date good, valid and marketable
title to all of the Inventory and Supplies being sold and transferred
hereunder, free and clear of all liens, pledges, security interests,
charges, claims, restrictions and other encumbrances and defects of
any nature whatsoever. No consent, approval, waiver or authorization
is required to be obtained by any of the Sellers from any third party
with respect to any contract, agreements, leases or other rights or
obligations of Sellers other than the leases of Equipment and those
the failure of which to obtain would not, individually or in the
aggregate, have a material adverse effect upon the conduct of the ASC
Business. The Sellers shall use their best efforts to obtain all such
consents, approvals, waivers and authorizations.
f. No Adverse Changes. Between December 1, 1996 and the
Effective Date, the Sellers have not and will not (i) transfer, sell,
or otherwise dispose of any of the Equipment material to the operation
of the ASC Business, 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 Medivision's ambulatory
surgical center business and operations at the Center, 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; (ii) create, participate in, or agree to the creation of,
any liens or encumbrances on such Equipment; or (iii) create,
participate in or agree to the creation of, any lien or encumbrances
on any of the Inventory or Supplies.
g. Litigation. There is no litigation pending against
any of the Sellers or Vital Sight with respect to this Amendment or
any of the transactions contemplated in this Amendment, and none of
the Sellers or Vital Sight are aware of any threatened litigation.
11. Continuing Warranties. The warranties, representations, and
agreements set forth herein shall be continuous and shall survive the Closing,
the Effective Date and the consummation of the transactions contemplated in
this Amendment.
12. Indemnity. Without in any way limiting or diminishing the
warranties, representations, or agreements herein contained or the rights or
remedies available to Vision 21 and the Subsidiary for the breach thereof,
Sellers hereby jointly and severally agree to indemnify, defend and hold Vision
21 and the Subsidiary harmless from and against all loss, liability, damage, or
expense arising out of any claims, demands, costs, assessments, penalties,
fines, taxes,
8
<PAGE> 9
or other loss resulting directly or indirectly from the assertion against
Vision 21 or the Subsidiary of claims by any governmental entity, any
corporation, partnership, or any person or persons arising before the Effective
Date and not fully disclosed herein or not expressly excepted by the provisions
hereof.
13. Business Management Agreement. On and after the Effective
Date, all revenues and expenses of the ASC Business conducted at the Center
shall be subject to the terms and conditions of that certain Business
Management Agreement dated December 1, 1996, between Vital Sight and the
Subsidiary (the "Business Management Agreement"), all decision-making
concerning the ASC Business at the Center shall be conducted in accordance with
the Business Management Agreement, and upon termination of the Business
Management Agreement, the ASC Business shall be subject to the buy-back terms
set forth in the Business Management Agreement.
14. Binding Agreement. The provisions of this amendment shall
inure to the benefit of and bind the successors and assigns of Vision 21, the
Subsidiary, Vital Sight, OcuSite and KusKat, and the executors, administrators,
heirs, successors and assigns of the Physicians.
15. 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 Vital Sight
or any of the Sellers shall be addressed to Vital Sight, P.C., 5632 East 5th
Street, Tucson, Arizona 85711; if intended for Vision 21 or the Subsidiary
shall be addressed to Vision Twenty-One, Inc., 7209 Bryan Dairy Road, Largo,
Florida 34647; and if intended for the Escrow Agent shall be addressed to
Darrell C. Smith, Esquire, Shumaker, Loop & Kendrick, LLP, 101 E. Kennedy
Blvd., Suite 2800, Tampa, Florida 33602. Any party may by written notice to
the other parties change the address for notices to be sent to it.
16. Escrow Agent. The following provisions shall govern the
duties and responsibilities and define the liabilities of the Escrow Agent
hereunder:
a. Duties. It is agreed that the duties of the Escrow
Agent are only such as herein specifically provided, being purely ministerial
in nature, and that the Escrow Agent shall incur no liability whatsoever except
for willful misconduct. The Sellers, Vital Sight, Vision 21 and the Subsidiary
release Escrow Agent from any act done or omitted to be done by the Escrow
Agent in good faith in the performance of the Escrow Agent's duties hereunder.
b. Responsibilities. Escrow Agent shall be under no
responsibility with respect to the Escrowed Materials to be held by him
pursuant to this Amendment other than to faithfully follow the instructions
herein contained. Escrow Agent may consult with counsel and shall be fully
protected in any actions taken in good faith, in accordance with such advice.
Escrow Agent shall not be required to defend any legal proceedings which may be
instituted against the Escrow Agent in respect to the subject matter of these
instructions unless requested to do so by the Sellers, Vital Sight, Vision 21
and the Subsidiary and indemnified to the satisfaction of the Escrow Agent
against the cost and expense of such defense. Escrow Agent shall not be
required to institute legal proceedings of any kind. Escrow Agent shall have
no
9
<PAGE> 10
responsibility for the genuineness or validity of any documents or other items
deposited with the Escrow Agent, and shall be fully protected in acting in
accordance with any written instructions given to the Escrow Agent hereunder
and believed by the Escrow Agent to have been signed by the proper parties.
c. Sole Liability. Escrow Agent assumes no liability
under this Amendment except that of a stakeholder. If there is any dispute as
to whether the Escrow Agent is obligated to disburse the Escrowed Materials, or
as to whom the Escrowed Materials are to be delivered, the Escrow Agent will
not be obligated to make any delivery of said Escrowed Materials, but in such
event may hold said Escrowed Materials, until receipt by the Escrow Agent of
any authorization in writing signed by all of the persons having an interest in
such dispute, directing the disposition of the Escrowed Materials, or in the
absence of such authorization, the Escrow Agent may hold the Escrowed Materials
until the final determination of the rights of the parties in an appropriate
proceeding. If such written authorization is not given, or proceedings for
such determination are not begun and diligently continued, the Escrow Agent
may, but is not required to, bring an appropriate action or proceeding for
leave to deposit the Escrowed Materials in any Circuit Court in the State of
Florida. In making delivery of the Escrowed Materials in the manner provided
for in this Amendment, the Escrow Agent shall have no further liability in the
matter, and the Sellers, Vital Sight, Vision 21 and the Subsidiary shall be
jointly and severally liable for all of the Escrow Agent's costs and fees, to
include, without limitation, attorney's fees related to the performance of the
Escrow Agent's duties hereunder.
d. No Conflict. The Sellers and Vital Sight acknowledge
that the Escrow Agent is a member of the law firm of Shumaker, Loop & Kendrick,
LLP ("SLK"), which acts as Vision 21's and the Subsidiary's legal counsel. The
Sellers, Vital Sight, Vision 21 and the Subsidiary stipulate and agree that, in
the event a dispute arises between the parties concerning this Amendment, SLK
may continue to represent Vision 21 and the Subsidiary and the Sellers, Vital
Sight shall not request the disqualification of SLK as counsel for Vision 21
and the Subsidiary, because Escrow Agent is also acting as the Escrow Agent
hereunder.
17. Governing Law. THIS AMENDMENT 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 AMENDMENT IS WAIVED.
18. Arbitration. Any dispute or disagreement arising between the
parties hereto in connection with this Amendment, 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
(3) members selected in accordance with the rules of the AAA). The dispute or
disagreement shall be settled in accordance with the Commercial
10
<PAGE> 11
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.
19. Merger Agreement Unmodified. Except as expressly set forth in
this Amendment to the contrary, all of the terms and conditions set forth in
the Merger Agreement shall remain in full force and effect.
20. Counterparts, Facsimile Signatures. This Amendment may be
executed in one or more counterparts each of which shall be deemed to be an
original, but all of which shall constitute one and the same instrument.
Transmission by facsimile of an executed counterpart signature page hereof by a
party hereto shall constitute due execution and delivery of this Amendment by
such party.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
the day and year first above written.
"KUSKAT"
KUSKAT INVESTMENTS, L.L.C.
By: /s/ Jeffrey I. Katz
---------------------------------------
Jeffrey I. Katz, M.D., Manager
"OCUSITE"
OCUSITE-ASC, INC.
By: /s/ Jeffrey I. Katz
----------------------------------------
Jeffrey I. Katz, M.D., President
"PHYSICIANS"
/s/ Jeffrey I. Katz
-------------------------------------------
Jeffrey I. Katz, M.D.
11
<PAGE> 12
/s/ Barry Kusman
-------------------------------------------
Barry Kusman, M.D.
"VITAL SIGHT"
VITAL SIGHT, P.C.
By: /s/ Jeffrey I. Katz
---------------------------------------
Jeffrey I. Katz, M.D., President
"VISION 21"
VISION TWENTY-ONE, INC.
By: /s/ Theodore N. Gillette
---------------------------------------
Theodore N. Gillette, President
"SUBSIDIARY"
VISION 21 OF SOUTHERN ARIZONA, INC.
By: /s/ Theodore N. Gillette
---------------------------------------
Theodore N. Gillette, President
"ESCROW AGENT"
/s/ Darrell C. Smith
-------------------------------------------
Darrell C. Smith
12
<PAGE> 13
SCHEDULE 1
to Amendment to Agreement and Plan of Reorganization among
KusKat Investments, L.L.C., OcuSite-ASC, Inc., Jeffrey I.
Katz, M.D., Barry Kusman, M.D., Vital Sight, P.C., Vision
Twenty-One, Inc., and Vision 21 of Southern Arizona, Inc.
<TABLE>
<S> <C>
Equipment Quantity
--------- --------
Piping and installation
Outlets, oxygen/nitrous oxide 2
Outlets, vacuum/vacuum 2
Outlets, vacuum/oxygen 4
Guardian monitor 1
Guardian monitor 2
Surgical vacuum wall station 6
Oxygen regulator 3
Nitrous oxide regulator 2
Storage room hose-oxygen 3
Storage room hose-nitrous oxide 2
Cylinder restraints 3
Manifold 2 x 4 1
Vacuum pump 2
Scavanger 3011-H 2
IBM Correcting Selectric III - in Operating Room 1
Oblong tray 6
Castroviego Forceps 0.12 mm 1
Beaver Chuck Handle 2
Jaffe-Bechert Rotator 1
Jaffe-Bechert Rotator 1
Hartman Mosquito Forcep 3
Black Instrument Case 2
Barraguer Wire Speculum 5
Castroviejo Blade Breaker 5
Clayman-Jaffe Lens Hook, Ang 1
Hirschman Iris Hook 1
Kuglen Lens Manip. Str. Round 1
Blaydes Lens Holding Forceps 1
Healon Aspiration Can 22 GA 2
Kelman Cystotome 22 GA Blunt 2
Bishop-Harmon IRR Cannula 2
Sheets Irrigating Vectis 1
</TABLE>
<PAGE> 14
<TABLE>
<S> <C>
Tip Guards Assortment Pk 100 1
Barranquer Wire Speculum LG 1
Knolle-Pearce Irr Vectis 1
Wetfield Coagulator 2
Beam Splitter 1
Stereo Observation Tube 1
Foot Panel Hanger 1
S-UV-430 Filter 1
Sterilizable Sleeves 8
Sterilizable Caps 6
Caps for Knobs 12
Caps for Knobs 4
60-F/C 1
72" F/O Bundle 1
Objective 1
Eyepiece 2
Dual III Carrier 1
Ret. Rings 1
Ext. III 1
Bulbs 2
Objective 1
X-Y Coupling 1
Stereo Ob. Tube 1
Inc. Bin. Tube 2
Eyepiece 2
Rubber Caps 6
Mercury Reducer 1
Panasonic Radio 1
Tape, Sony 2
Electric Dryer 1
Pigtail 1
Vent Hose 1
Automatic Washer 1
Tool Box 1
Tool Cabinet 4
Head & Neck Assembly for TE-410-Z fill light 1
Ultrasonic Cleaning Tank with Generator Model 1
Footrest 2
Surg Chair-Round 2
Can Zonule Irrigation Troutman 1
</TABLE>
<PAGE> 15
<TABLE>
<S> <C>
SCS Stitch Westcott Wide Hol 2
NH Castroviejo curved w/ lock 1
Spoon Lens Knapp 1
Quiet lockers, double tier 4
Design lockers, single tier 8
980 Chair 1
7780 IC Stand 1
Zeiss slit lamp unit model 1
Unit tray and pin 1
DaLaur Lornette 1
Stretcher-Full Taper 4
Stools O.R. 2
Ophthalmic CryoMachine 1
Systems Industries 1
Small Refrigerator 2
Site Unit 1
Model 9000 CAM Lock with accessory 2
Site Vitrectomy I&A Phacoemulsification Unit 1
Linear Control Suction Footswitch 1
Sterilization Tray 1
Amsco Extension Bank. DS00-1000 1
Zeiss 12-Function Footswitch DR00-000-023 1
Zeiss 12-Function Hand Control 1
Amscope I Microscope Support Column 1
Amsco 16x16x26 Vacamatic Steam Sterilizer 1
Rack & Two Shelves for Sterilizer 1
Amsco Single Station Fexmatic Scrub Sink 1
LB40 Steam Generator for Sterilizer 1
Amsco Centra Mounted Polaris Surgical Light 2
Polaris Variable Intensity Control 2
Amsco 8816A Steam Sterilizer BD42-221 1
Amsco Blanket Support Shelf DJ00-000-000-1000 1
Unicell Assembly 422 No. 422-040 4
Caster Sets, 2 Swivel and 2 Swivel w/ Lock 4
Wheelchair 1
Drapery - Recovery Room 8
Air Cleaning System 1
Ladder in O.R. Storage 1
La-Z-Boy Chairs 2
Electric Brass Plates
</TABLE>
<PAGE> 16
<TABLE>
<S> <C>
Wetfield Coagulator 1
Coaptation Forceps 2
Tenzel Forceps 2
Footrest 2
Surgical Chairs - Round 2
Operating Shelves 2
Ladder 1
Stretchers 6
Disc Packs 27
Sink in O.R. 1
Floor Cleaner 1
Lockers 12
YAG Laser 1
</TABLE>
<PAGE> 17
SCHEDULE 2
to Amendment to Agreement and Plan of Reorganization among
KusKat Investments, L.L.C., OcuSite-ASC, Inc., Jeffrey I.
Katz, M.D., Barry Kusman, M.D., Vital Sight, P.C., Vision
Twenty-One, Inc., and Vision 21 of Southern Arizona, Inc.
Inventory and Supplies Excluded From Transfer
Eyeglasses, lenses and other eyewear; and
Pharmaceutical inventory and supplies which legally cannot be
owned by a party that is not physician-owned.
<PAGE> 18
SCHEDULE 6
to Amendment to Agreement and Plan of Reorganization among
KusKat Investments, L.L.C., OcuSite-ASC, Inc., Jeffrey I.
Katz, M.D., Barry Kusman, M.D., Vital Sight, P.C., Vision
Twenty-One, Inc., and Vision 21 of Southern Arizona, Inc.
Assumed Liabilities
1. Lease of ambulatory surgical premises located at 5632 East 5th Street,
Tucson, Arizona, 85711.
2. Leases of any equipment identified on Schedule 1 which are subject to
lease agreements in effect on the date of Closing.
<PAGE> 19
SCHEDULE 8
to Amendment to Agreement and Plan of Reorganization among
KusKat Investments, L.L.C., OcuSite-ASC, Inc., Jeffrey I.
Katz, M.D., Barry Kusman, M.D., Vital Sight, P.C., Vision
Twenty-One, Inc., and Vision 21 of Southern Arizona, Inc.
Consideration
<TABLE>
<CAPTION>
EFFECTIVE DATE ASC SHARES*
-------------- -----------
<S> <C>
August 1997 131,050
September 1997 129,957
October 1997 128,875
November 1997 127,803
December 1997 126,741
January 1998 125,638
February 1998 124,546
March 1998 123,464
April 1998 122,393
May 1998 121,333
June 1998 120,283
July 1998 and thereafter 0
</TABLE>
* Reflects reverse stock split of one (1) share for each one and one-half (1.5)
shares, effective June 4, 1997.
<PAGE> 20
SCHEDULE 9
to Amendment to Agreement and Plan of Reorganization among
KusKat Investments, L.L.C., OcuSite-ASC, Inc., Jeffrey I.
Katz, M.D., Barry Kusman, M.D., Vital Sight, P.C., Vision
Twenty-One, Inc., and Vision 21 of Southern Arizona, Inc.
Allocation of Purchase Price
[TO BE SUBMITTED BY PARTIES AFTER DETERMINATION OF EFFECTIVE DATE]
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year ended Six-month period ended
December 31 June 30
----------------------------------------------------------------------------
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 5,711,449
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 270,832 270,832 270,832 270,832 270,832
----------------------------------------------------------------------------
Total 5,979,543 5,979,543 5,979,543 5,979,543 6,408,627
============================================================================
Net loss $ (152,576) $(1,226,436) $(6,119,637) $(2,209,794) $(1,027,787)
============================================================================
Per share loss $(0.03) $(0.21) $(1.02) $(0.37) $(0.16)
============================================================================
FULLY DILUTED
Average shares outstanding 5,282,365 5,282,365 5,282,365 5,282,365 5,711,449
Assumed issuance of
contingent shares 79,805 79,805 79,805 79,805 177,204
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 270,832 270,832 270,832 270,832 270,832
----------------------------------------------------------------------------
Total 6,059,348 6,059,348 6,059,348 6,059,348 6,585,831
============================================================================
Net loss $ (152,576) $(1,226,436) $(6,119,637) $(2,209,794) $(1,027,787)
============================================================================
$(0.03) $(0.20) $(1.01) $(0.36) $(0.16)
Per share loss ============================================================================
</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 Amendment
No. 3 to the Registration Statement (Form S-1 No. 333-29213) and the related
Prospectus of Vision Twenty-One, Inc. dated August 14, 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 July 29, 1997
Schedule I--Valuation and Qualifying Accounts July 29, 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 /s/ Ernst & Young LLP
August 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 FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,137,793
<SECURITIES> 0
<RECEIVABLES> 4,666,640
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,263,838
<PP&E> 2,911,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 29,713,154
<CURRENT-LIABILITIES> 14,911,829
<BONDS> 6,013,752
0
0
<COMMON> 5,946
<OTHER-SE> 8,419,618
<TOTAL-LIABILITY-AND-EQUITY> 29,713,154
<SALES> 0
<TOTAL-REVENUES> 17,379,588
<CGS> 0
<TOTAL-COSTS> 17,875,975
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 531,400
<INCOME-PRETAX> (1,027,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (496,387)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,027,787)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
