<PAGE> 1
===============================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ________________________
Commission file number: 0-22977
VISION TWENTY-ONE, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-3384581
------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7360 BRYAN DAIRY ROAD
LARGO, FLORIDA 33777
---------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (727) 545-4300
--------------
NOT APPLICABLE
-------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The registrant had 15,574,220 Shares outstanding as of October 31,
1999.
===============================================================================
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------------------------
1998 1999 1998 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Clinic and surgery centers, net....................... $ 15,968,978 $ 23,250,516 $ 43,157,666 $ 68,071,274
Managed care.......................................... 14,379,291 14,488,818 41,199,585 42,739,276
Buying group.......................................... 16,301,282 -- 45,630,108 19,154,456
------------ ------------- ------------- -------------
........................................................ 46,649,551 37,739,334 129,987,359 129,965,006
------------ ------------- ------------- -------------
Operating expenses:
Clinic and surgery center operating expenses.......... 14,495,780 21,065,755 35,704,838 60,242,854
Medical claims........................................ 10,342,666 11,016,439 29,933,959 31,736,008
Cost of buying group sales............................ 15,515,651 -- 42,955,721 18,257,963
General and administrative............................ 4,167,624 5,096,932 12,100,166 17,235,159
Depreciation and amortization......................... 1,656,626 1,945,582 4,240,748 5,867,041
Restructuring & other charges......................... -- 900,555 -- 900,555
Merger costs.......................................... -- -- 508,443 --
Start-up and software development costs............... 379,807 572,872 547,316 1,252,451
------------ ------------- ------------- -------------
........................................................ 46,558,154 40,598,135 125,991,191 135,492,031
------------ ------------- ------------- -------------
Income (loss) from operations........................... 91,397 (2,858,801) 3,996,168 (5,527,025)
Interest expense........................................ 1,418,682 1,538,688 2,874,209 4,528,826
Gain on sale of Block Buying Group...................... -- -- -- (511,063)
------------ ------------- ------------- -------------
Income (loss) from continuing operations before income
Taxes................................................ (1,327,285) (4,397,489) 1,121,959 (9,544,788)
Income taxes............................................ (358,367) -- 302,929 --
------------ ------------- ------------- -------------
Income (loss) from continuing operations................ (968,918) (4,397,489) 819,030 (9,544,788)
Discontinued operations - (income) loss from operations. (1,165,924) 582,311 (1,668,873) (289,944)
Discontinued operations - loss on sale of Vision World
And The Eye DRx....................................... 8,621,571 8,621,571
------------ ------------- ------------- -------------
Income (loss) before extraordinary items................ 197,006 (13,601,371) 2,487,903 (17,876,415)
Extraordinary item - gain on sale of Stein Optical...... -- (5,796,771) -- (5,796,771)
Extraordinary item - early extinguishment of debt....... 1,250,322 -- 1,647,512 --
------------ ------------- ------------- -------------
Net income (loss)....................................... $ (1,053,316) $ (7,804,600) $ 840,391 $ (12,079,644)
============ ============= ============= =============
</TABLE>
1
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C>
Earnings (loss) per common share:
Income (loss from continuing operations $ (0.07) $ (0.29) $ 0.06 $ (0.63)
Discontinued operations - income (loss) from operations 0.08 (0.04) 0.12 0.02
Discontinued operations - loss on sale of Vision World
and The Eye DRx -- (0.56) -- (0.57)
-------- -------- -------- --------
Income (loss) before extraordinary items 0.01 (0.89) 0.18 (1.18)
Extraordinary item - gain on sale of Stein Optical -- 0.38 -- 0.38
Extraordinary item - early extinguishment of debt (0.08) -- (0.12) --
-------- -------- -------- --------
Net earnings (loss) per common share $ (0.07) $ (0.51) $ 0.06 $ (0.80)
======== ======== ======== ========
Earnings (loss) per common share - assuming dilution:
Income (loss from continuing operations $ (0.07) $ (0.29) $ 0.06 $ (0.63)
Discontinued operations - income (loss) from operations 0.08 (0.04) 0.11 0.02
Discontinued operations - loss on sale of Vision World
and The Eye DRx -- (0.56) -- (0.57)
-------- -------- -------- --------
Income (loss) before extraordinary items 0.01 (0.89) 0.17 (1.18)
Extraordinary item - gain on sale of Stein Optical -- 0.35 -- 0.38
Extraordinary item - early extinguishment of debt (0.08) -- (0.11) --
-------- -------- -------- --------
Net earnings (loss) per common share - assuming dilution $ (0.07) $ (0.51) $ 0.06 $ (0.80)
======== ======== ======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements
2
<PAGE> 4
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
(AUDITED) (UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .................................................................. $ 6,052,423 $ 3,079,459
Accounts receivable due from:
Patients and buying group members, net .................................................. 17,143,261 11,293,815
Managed Professional Associations ....................................................... 3,028,117 4,057,928
Managed health benefits payors .......................................................... 1,573,799 681,077
Inventories ................................................................................ 3,308,813 1,377,133
Prepaid expenses and other current assets .................................................. 3,166,836 2,442,047
------------- -------------
Total current assets ................................................................ 34,273,249 22,931,459
Fixed assets, net ............................................................................ 15,222,586 11,525,893
Intangible assets, net ....................................................................... 132,232,027 102,738,839
Deferred income taxes ........................................................................ 6,300,000 6,300,000
Other assets ................................................................................. 2,561,717 1,358,606
------------- -------------
Total assets ........................................................................ $ 190,589,579 $ 144,854,797
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................... $ 6,951,099 $ 2,104,025
Accrued expenses ........................................................................... 6,279,213 7,394,187
Medical claims payable ..................................................................... 4,713,995 5,045,596
Accrued compensation ....................................................................... 3,716,787 4,623,116
Accrued restructuring charge ............................................................... 2,796,000 2,268,700
Current portion of long-term debt .......................................................... 2,143,149 49,836,547
Current portion of obligations under capital leases ........................................ 538,820 356,688
------------- -------------
Total current liabilities ........................................................... 27,139,063 71,628,859
Deferred rent payable ........................................................................ 253,258 201,540
Obligations under capital leases ............................................................. 474,891 232,329
Long-term debt, less current portion ......................................................... 81,217,396 600,000
Deferred leasehold incentive ................................................................. 271,358 --
Deferred income taxes ........................................................................ 7,512,000 7,512,000
Minority interest ............................................................................ -- 346,424
Stockholders' equity:
Preferred stock, $.001 par value; 10,000,000 shares authorized: no shares issued ......... -- --
Common stock, $.001 par value; 50,000,000 shares authorized; 15,067,025 (December 31, 1998)
And 15,574,220 (September 30, 1999) shares issued and outstanding ...................... 15,067 15,574
Additional paid in capital ................................................................. 89,196,292 92,859,901
Common stock to be issued; 105,164 shares (December 31, 1998) .............................. 1,053,664 --
Deferred compensation ...................................................................... (300,435) (219,211)
Notes receivable from officer .............................................................. (172,984) (172,984)
Accumulated deficit ........................................................................ (16,069,991) (28,149,635)
------------- -------------
Total stockholders' equity .......................................................... 73,721,613 64,333,645
------------- -------------
Total liabilities and stockholders' equity ......................................... $ 190,589,579 $ 144,854,797
============= =============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
3
<PAGE> 5
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------ ------------
1998 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................................................................. $ 840,391 $(12,079,644)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Extraordinary charge - early extinguishment of debt ....................................... 1,885,512 --
Depreciation and amortization ............................................................. 4,857,607 6,538,595
Amortization of deferred leasehold incentive .............................................. (12,666) (29,240)
Amortization of loan fees ................................................................. 133,978 916,132
Non-cash compensation expense ............................................................. 120,249 487,240
Amortization of deferred compensation ..................................................... -- 81,224
Gain on sale of Block Buying Group ........................................................ -- (511,063)
Loss on sale of Retail Optical Chains ..................................................... -- 2,824,800
Changes in operating assets and liabilities, net of effects from business
combinations:
Accounts receivable, net ................................................................ (8,750,513) 5,155,058
Inventories ............................................................................. (1,842,832) (1,477,247)
Prepaid expenses and other current assets ............................................... (1,036,151) 521,317
Other assets ............................................................................ (841,957) 853,793
Accounts payable ........................................................................ 3,473,978 (3,037,833)
Accrued expenses ........................................................................ 4,343,993 (3,623,754)
Accrued compensation .................................................................... 1,498,207 2,879,320
Accrued restructuring charge ............................................................ -- (527,300)
Deferred rent payable ................................................................... -- (51,718)
Medical claims payable .................................................................. 260,332 331,601
Due to/from Managed Professional Associations ........................................... 1,324,459 (1,086,567)
------------ ------------
Net cash provided by (used in) operating activities ................................ 6,254,587 (1,835,286)
INVESTING ACTIVITIES
Payments for fixed assets, net ............................................................... (7,369,320) (4,775,748)
Loans made.................................................................................... (209,882) --
Payments for acquisitions, net of cash acquired............................................... (38,587,381) (843,763)
Payments for capitalized acquisition costs ................................................... (3,203,097) (138,221)
Net proceeds from sale of Block Buying Group ................................................. -- 4,286,060
Net proceeds from sale of Retail Optical Chains .............................................. -- 32,564,338
------------ ------------
Net cash provided by (used in) investing activities ................................ (49,369,680) 31,092,666
------------ ------------
FINANCING ACTIVITIES
Proceeds from long-term debt ................................................................. 81,231,457 --
Payments on long- term debt .................................................................. (27,176,397) --
Proceeds from credit facility ................................................................ -- 9,325,314
Payments on credit facility .................................................................. -- (42,132,012)
Payments for financing fees .................................................................. (2,649,248) (632,019)
Payments on capital lease obligations and other debt ......................................... -- (535,572)
Payments to acquire treasury stock ........................................................... (1,548,084) --
Proceeds from sale of stock to directors ..................................................... -- 1,062,848
Sale of detachable stock purchase warrants and exercise of stock options ..................... 124,040 224,928
Proceeds from sale of stock issued under employee stock purchase plan ........................ -- 109,745
Proceeds from sale of stock to minority interest ............................................. -- 346,424
Decrease in notes receivable, officers and shareholders ...................................... 2,500 --
Capital distribution ......................................................................... (245,548) --
------------ ------------
Net cash provided by (used in) financing activities ................................ 49,738,720 (32,230,344)
------------ ------------
Increase (decrease) in cash and cash equivalents ............................................. 6,623,627 (2,972,964)
Cash and cash equivalents at beginning of period ............................................. 4,048,358 6,052,423
------------ ------------
Cash and cash equivalents at end of period ................................................... $ 10,671,985 $ 3,079,459
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
4
<PAGE> 6
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the information set forth therein have been included. The accompanying
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
Operating results for the nine months ended September 30, 1999 are not
necessarily an indication of the results that may be expected for the year
ending December 31, 1999.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share for income (loss) from continuing operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ---------------------------
1998 1999 1998 1999
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings
(loss) per share-income (loss) available to
common stockholders ....................... $ (968,918) $ (4,397,489) $ 819,030 $ (9,544,788)
Denominator:
Denominator for basic earnings (loss) per
share-weighted average shares ............. 14,592,694 15,366,981 14,218,838 15,169,180
------------ --------------- ----------- ------------
Effect of dilutive securities:
Stock options ............................. -- -- 150,132 --
Warrants .................................. -- -- 125,403 --
Nonvested stock ........................... -- -- 80,399 --
Contingent shares ......................... -- -- -- --
------------ --------------- ----------- ------------
Dilutive potential common shares ............. -- -- 355,934 --
------------ --------------- ----------- ------------
Denominator for diluted earnings (loss) per
share-adjusted weighted average shares and
assumed conversions ....................... 14,592,694 15,366,981 14,574,772 15,169,180
============ =============== =========== ============
Basic earnings (loss) per common share ....... $ (0.07) $ (0.29) $ 0.06 $ (0.63)
============ =============== =========== ============
Diluted earnings (loss) per common share ..... $ (0.07) $ (0.29) $ 0.06 $ (0.63)
============ =============== =========== ============
</TABLE>
5
<PAGE> 7
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
3. SALE OF BLOCK BUYING GROUP
On June 4, 1999, the Company completed the sale of the Block Buying
Group. Net proceeds of $4.3 million received by the Company were primarily used
to repay outstanding borrowings under the Company's credit facility.
4. DISCONTINUED OPERATIONS - SALE OF RETAIL OPTICAL CHAINS
Effective August 31, 1999, the Company completed the sale of Vision
World, Stein Optical and The Eye DRx, (the "Retail Optical Chains") to Eye Care
Centers of America, Inc. ("ECCA"). ECCA is based in San Antonio, Texas and
operates a national chain of full-service retail optical stores. In connection
with this transaction, the Company received approximately $37.3 million in cash
with the final price subject to post closing adjustments. Of the proceeds the
Company received at closing, $30.8 million was applied as a permanent pay down
of its term debt credit facility, $2.8 million was paid down under its ongoing
$7.5 million revolving credit facility, $2.4 million was used for costs and
other obligations related to the transaction, and $1.3 million was utilized to
fund an escrow agreement between the parties relative to terms under the
agreement. The Company recorded a combined loss of approximately $2.8 million,
subject to post closing adjustments. The post closing audit has been
substantially completed and the Company is currently in discussions with ECCA
regarding the post closing adjustments. Based upon its initial analysis, the
Company has accrued $3.6 million, in excess of the amount held in escrow, with
respect to such post closing adjustments. While the sale of the Retail Optical
Chains will reduce the Company's revenues, the repayment of outstanding
borrowings has reduced the Company's debt and is expected to reduce the related
interest expense and impact the Company's future capital resources.
The operating results of the Retail Optical Chains have been reported
separately as discontinued operations in the Condensed Consolidated Statements
of Operations for 1998 and 1999. The Company has allocated a portion of its
interest expense to discontinued operations based on the net assets attributed
to those operations. Interest expense of approximately $0.4 million and $0.2
million was allocated to discontinued operations for the three months ended
September 30, 1998 and 1999, respectively. Interest expense of approximately
$0.6 million and $1.0 million was allocated to discontinued operations for the
nine months ended September 30, 1998 and 1999, respectively. Additionally, in
conjunction with the permanent paydown of term debt of the Company's credit
facility, approximately $0.7 million of capitalized loan costs were expensed
and allocated to discontinued operations.
6
<PAGE> 8
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
5. RESTRUCTURING PLAN
For the year ended December 31, 1998, management of the Company
committed to and commenced the implementation of a restructuring plan (the
"Restructuring Plan"), that was designed to facilitate the transformation of
the Company into an integrated eye care company. The Restructuring Plan
initiatives, which are comprised of a number of specific projects, are designed
to position the Company to take full operational and economic advantage of
recent acquisitions. The Restructuring Plan will enable the Company to complete
the consolidation and deployment of necessary infrastructure for the future,
optimize and integrate certain assets and exit certain markets. The initiatives
to be undertaken as part of the Restructuring Plan include the integration of
managed care service centers and business lines, the consolidation of retail
back office functions and the consolidation of certain corporate functions. The
Restructuring Plan resulted in a restructuring charge of approximately $2.8
million for the year ended December 31, 1998 and was comprised of severance
costs of approximately $1.9 million and facility and lease termination costs of
approximately $0.9 million. For the nine months ended September 30, 1999, the
Company utilized approximately $0.7 million of this charge, related to
severance payments.
The Company has retained its 1998 accrual for severance related to the
costs originally estimated and has recorded an additional accrual of
approximately $0.5 million for severance. A further accrual of approximately
$0.4 million for severance has been recorded as a result of the termination of
one of the Company's executive officers in August 1999. The 1998 accrual for
lease termination costs was primarily based on the consolidation of retail back
office functions. The sale of the Company's Retail Optical Chains resulted in a
change in estimate of the restructuring accrual, requiring the reversal of
approximately $0.9 million. During 1999, the Company determined that there were
additional facilities that would be vacated as a result of the consolidation of
managed care service centers and other office locations, which resulted in an
accrual of approximately $0.2 million.
As a result of the above, the Company recorded a restructuring charge
of $0.2 million in the third quarter. The reserve for the Restructuring Plan was
approximately $2.3 million at September 30, 1999, consisting of approximately
$2.1 million for severance and approximately $0.2 million for lease termination
costs.
Other charges included in Restructuring and other charges in the
condensed consolidated statements of operations for the three months and the
nine months ended September 30, 1999 include approximately $0.2 million of
professional fees associated with the Restructuring Plan, $0.4 million for
losses expected to be incurred under one of the Company's managed care plans
and other charges of $0.1 million.
7
<PAGE> 9
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
6. LITIGATION
In January and February 1999, four purported class action lawsuits
were filed against the Company and certain of its directors and officers. The
lawsuits were filed in United States District Court for the Middle District of
Florida, Tampa Division. The four plaintiffs generally sought to certify their
complaints as class actions on behalf of all purchasers of the Company's common
stock in the period between December 5, 1997 and November 5, 1998, and seek an
award of an unspecified amount of monetary damages to all of the members of the
purported class.
On April 21, 1999, the cases were consolidated and one plaintiffs
group was appointed lead plaintiff by judicial order on May 6, 1999. This
uncertified consolidated class action seeks to hold the Company and two of its
officers who are also directors as well as a former officer liable for alleged
federal securities law violations based upon alleged misstatements and
omissions in analyst reports, trade journal articles, press releases and
filings with the Securities and Exchange Commission.
Pursuant to judicial orders, the lead plaintiffs filed an amended
consolidated complaint on August 14, 1999. The Defendants filed a motion to
dismiss the amended consolidated complaint on October 15, 1999. The Company
believes that it has substantial defenses to this matter and intends to assert
them vigorously. Management of the Company is unable to determine the impact,
if any, that the resolution of the aforementioned uncertified consolidated
class action lawsuit will have on the financial position or results of
operations of the Company. While it is impossible to predict the outcome or
impact of such litigation, management believes this litigation is without merit
and intends to vigorously defend the lawsuit.
8
<PAGE> 10
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(CONTINUED)
7. SEGMENT REPORTING
The Company identifies reportable segments based on management
responsibility for the strategic business units that offer different products
and services. The segments are managed separately based on the fundamental
differences in their operations. The Company's operations have been classified
into four segments: clinical and surgery centers, retail optical, managed care
and buying group. The clinical and surgery centers segment includes all
activity related to managing optometry and ophthalmology practices, refractive
surgery centers and ambulatory surgical centers. The retail optical segment
includes the operations of the Company's Retail Optical Chains which were sold
effective August 31, 1999. The managed care segment includes the operations
consisting primarily of Block Vision, Maryland Eye Care and Vision 21 Managed
EyeCare of Tampa Bay, Inc. The buying group segment includes the operations of
Block Buying Group which was sold effective April 30, 1999. The corporate
segment includes general and administrative expenses associated with the
operations of the Company's corporate and regional offices and expenses not
allocated to reportable segments.
The accounting policies of the reportable segments are the same as
those described in Note 2 of the Company's Annual Report on Form 10-K for the
year ended December 31, 1998. The Company evaluates the performance of its
operating segments based on income before taxes, depreciation and amortization,
accounting changes, unusual items and interest expense. Summarized financial
information concerning the Company's reportable segments is shown in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1998 1999
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Clinical and surgery centers $ 15,968,978 $ 23,250,516 $ 43,157,666 $ 68,071,274
Retail optical chains ...... 15,220,404 11,111,607 29,881,768 41,492,171
Managed care ............... 14,379,291 14,488,818 41,199,585 42,739,276
Buying group ............... 16,301,282 -- 45,630,108 19,154,456
------------ ------------ ------------- -------------
Total segments .......... 61,869,955 48,850,941 159,869,127 171,457,177
Corporate .................. -- -- -- --
------------ ------------ ------------- -------------
Total revenues .................. $ 61,869,955 $ 48,850,941 $ 159,869,127 $ 171,457,177
============ ============ ============= =============
Segment Profit (Loss):
Clinical and surgery centers $ 1,659,768 $ 2,184,760 $ 8,036,700 $ 7,828,420
Retail optical chains ...... 2,254,174 559,268 3,519,953 4,262,629
Managed care (a) ........... 1,274,998 1,269,403 3,503,677 4,700,977
Buying group (b) .......... 1,181,338 -- 2,674,387 896,493
------------ ------------ ------------- -------------
Total segments .......... 6,370,278 4,013,431 17,734,717 17,688,519
Corporate .................. (1,988,274) (2,893,955) (4,922,089) (9,712,441)
------------ ------------ ------------- -------------
Total segment profit (loss) ..... $ 4,382,004 $ 1,119,476 $ 12,812,628 $ 7,976,078
============ ============ ============= =============
</TABLE>
(a) Managed Care segment profit includes general and administrative expenses
related to the Buying Group which the Company is unable to separately
identify from the general and administrative expenses of Block Vision.
(b) Buying Group profit represents the gross profit from the sale of optical
products excluding the expenses referenced in (a) above.
9
<PAGE> 11
VISION TWENTY-ONE, INC. AND SUBSIDIARIES NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 30, 1999
----------------- ------------------
<S> <C> <C>
Total assets:
Clinical and surgery centers $ 23,634,324 $ 28,376,472
Retail optical chains ...... 11,871,486 --
Managed care ............... 6,141,893 4,843,851
Buying group ............... 6,288,923 --
------------ ------------
Total segments .......... 47,936,626 33,220,323
Corporate .................. 142,652,953 111,634,474
------------ ------------
Total assets (c) ................ $190,589,579 $144,854,797
============ ============
</TABLE>
(c) Total assets have decreased from December 31, 1998 to September 30, 1999
due to the Company's sale of its Retail Optical Chains and the Block
Buying Group.
8. SUBSEQUENT EVENTS
The Company's Board of Directors voted to explore a number of
strategic alternatives intended to maximize shareholder value. There has been a
great deal of interest generated since the announcement by the Company of the
proposed convertible preferred stock transaction with MedEquity Investors and
Chase Capital Partners. These inquiries from other third parties range from a
possible sale of the entire Company to the possible sale of certain business
units. The Company's Board is focusing on these strategic alternatives at this
time, and while the specific stock transaction with MedEquity Investors and
Chase Capital Partners is not likely to be pursued, the parties continue to
analyze various ways to jointly pursue the strategic options available to
Vision Twenty-One. The Company has engaged PaineWebber Incorporated as
financial advisor in conjunction with assessing its current strategic
alternatives.
Exit from Physician Practice Management Business - On October 25,
1999, the Company announced the development of a plan to substantially exit the
business of managing optometry and ophthalmology practices. This represents a
crucial step in the Company's strategy of redirecting its corporate resources
towards the development of refractive eye laser and surgery initiatives in
these same markets. The Company expects the majority of the affected physicians
to continue to be part of the Vision Twenty-One national eye care delivery
network and/or participate in its eye laser and surgery center initiatives. The
exit of the physician practice management ("PPM") business is expected to be
accomplished through the sale of the practice assets back to the physicians or
affiliates, the restructuring of the individual operating models to focus
substantially on refractive surgery, and the discontinuation of select managed
care contracts that are not consistent with the Company's business plan. The
Company expects to record a restructuring charge of up to $35 million in the
fourth quarter, related to the sale of practice assets. If successful, the
Company could receive back and retire up to three million shares of its Common
Stock in connection with the transactions.
10
<PAGE> 12
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL OVERVIEW
Vision Twenty-One, Inc. (the "Company") has historically developed and
managed local area eye care delivery systems ("LADSsm") in 40 markets. LADS
involve contractual affiliations with local optometrists and ophthalmologists
(the "Affiliated Providers") to provide primarily vision care and refractive
surgery at independent or company-owned clinics and surgery centers.
Additionally, the Company has developed retail distribution channels for its
LADS through owning or affiliating with retail optical chains, and developed
managed care distribution channels for its LADS through contracting with local
health plans and other third party payors.
The Company began operations in 1984, providing services to seven
optometrists practicing at eight clinic locations. The Company currently
provides its services to 40 local area eye care delivery systems ("LADSsm")
through which approximately 5,800 Affiliated Providers deliver eye care
services. Of these Affiliated Providers, 218 are Managed Providers, consisting
of 170 optometrists and 48 ophthalmologists practicing at 175 clinic locations,
12 ambulatory surgical centers ("ASCs") and nine refractive surgery centers
("RSCs"). In addition, the Company has over 7,000 eye care professionals
available for potential managed care business in future markets. The Company's
Affiliated Providers, in conjunction with select national retail optical
chains, deliver eye care services under the Company's 103 managed care
contracts and 12 discount fee-for-service plans covering over 5.0 million
exclusively contracted patient lives.
Through the third quarter of 1998, the Company's primary focus had
been on aggressively developing LADS and expanding LADS to new markets through
acquisitions in order to provide for a complete continuum of easily accessible,
high quality and affordable eye care services. This strategy of growth through
acquisitions positioned the Company in its principal markets. The Company
believes that there are significant internal growth and development
opportunities available within existing LADS and as a result, in the last
quarter of 1998 and thus far in 1999, the Company has slowed down its
acquisition pace. Among other things, the Company has planned to focus on
vision care including opening new de novo clinics and surgery centers and
expanding managed care initiatives with a primary focus on expanding its
refractive surgery programs to take advantage of the significantly increased
demand for refractive surgery. Furthermore, the Company has focused on
completing the integration of systems, processes and management with the goal
of achieving significant cost savings in the future.
The Company's refractive surgery initiatives add additional
complimentary business to its LADs. Refractive surgery procedures for the third
quarter of 1999 increased to 4,719 from 2,051 for the third quarter of 1998.
During 1999, the Company announced the opening of four new refractive surgery
facilities located in Arizona, New Jersey and Minnesota. By the end of the
year, the Company expects to be operating twelve refractive surgery centers and
in the year 2000 the Company plans on adding 18 refractive surgery centers. In
most refractive surgery centers, the Company expects to own approximately a
majority ownership interest.
The Company's Board of Directors voted to explore a number of
strategic alternatives intended to maximize shareholder value. There has been a
great deal of interest generated since the announcement by the Company of the
proposed convertible preferred stock transaction with MedEquity Investors and
Chase Capital Partners. These inquiries from other third parties range from a
possible sale of the entire Company to the possible sale of certain business
units. The Company's Board is focusing on these strategic alternatives at this
time, and while the specific stock transaction with MedEquity Investors and
Chase Capital Partners is not likely to be pursued, the parties continue to
analyze various ways to jointly pursue the strategic options available to
Vision Twenty-One. The Company has engaged PaineWebber Incorporated as
financial advisor in conjunction with assessing its current strategic
alternatives.
The Company has concentrated on developing its LADs since late 1997.
Over the past several quarters, the Company has been analyzing certain business
units within such LADs and assessing the long-term strategic value of each
existing component. Effective August 31, 1999, the Company completed the sale
of Vision World, Stein Optical and The Eye DRx (the "Retail Optical Chains"),
to Eye Care Centers of America, Inc. ("ECCA"). ECCA is based in San Antonio,
Texas and operates a
11
<PAGE> 13
national chain of full-service retail optical stores. In connection with this
transaction, the Company received approximately $37.3 million in cash with the
final price subject to post closing adjustments. Of the proceeds the Company
received at closing, $30.8 million was applied as a permanent pay down of its
term debt credit facility, $2.8 million was paid down under its ongoing $7.5
million revolving credit facility, $2.4 million was used for costs and other
obligations related to the transaction, and $1.3 million was utilized to fund
an escrow agreement between the parties relative to terms under the agreement.
The Company recorded a combined loss of approximately $2.8 million, subject to
post closing adjustments. The post closing audit has been substantially
completed and the Company is currently in discussions with ECCA regarding the
post closing adjustments. Based upon its initial analysis, the Company has
accrued an additional $3.6 million, in excess of the amount held in escrow,
with respect to such post closing adjustments. While the sale of the Retail
Optical Chains has reduced the Company's revenues, the repayment of outstanding
borrowings has have reduced the Company's debt and have reduced the related
interest expense.
In additional furtherance of the Company's increased focus on vision
care initiatives, on June 4, 1999, the Company completed the sale of its Block
Buying Group division. Net proceeds of $4.3 million received by the Company
were primarily used to repay outstanding borrowings under the Company's credit
facility. The sale of the Block Buying Group will reduce the Company's
revenues, but will be beneficial to the Company's overall operating margins.
On October 25, 1999, the Company announced the development of a plan
to substantially exit the business of managing optometry and ophthalmology
practices. This represents a crucial step in the Company's strategy of
redirecting its corporate resources towards the development of refractive eye
laser and surgery initiatives in these same markets. The Company expects the
majority of the affected physicians to continue to be part of the Vision
Twenty-One national eye care delivery network and/or participate in its eye
laser and surgery center initiatives. The exit of the physician practice
management ("PPM") business is expected to be accomplished through the sale of
the practice assets back to the physicians or affiliates, the restructuring of
the individual operating models to focus substantially on refractive surgery,
and the discontinuation of select managed care contracts that are not consistent
with the Company's business plan. The Company expects to record a restructuring
charge of up to $35 million in the fourth quarter, related to the sale of
practice assets. If successful, the Company could receive back and retire up to
three million shares of its Common Stock in connection with the transactions.
Completion of this exit plan is contingent upon approval of the banks under its
credit facility.
As a result of the changes occurring in the Company's business,
including but not limited to the divestiture of large business units, the shift
in operating focus, changes in the Company's managed care business, the
Company's planned exit of the PPM business, issues related to the Company's
accessability to future working capital and as a result of the evaluation by
the Board of strategic alternatives, the overall results should not necessarily
be relied upon as being indicative of future operating performance.
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<PAGE> 14
ADDITIONAL OVERVIEW
The Company historically entered into long-term management agreements
("Management Agreements") with the professional associations or corporations
("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, equipment, accounting services,
purchasing, assistance in managed care, contract negotiations, management and
clinical personnel information systems, training and billing and collection
services. Under substantially all of the Company's management Agreements,
management fees utilized in management relationships (i) with ophthalmology
practices range from 20% 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,
and (ii) with optometrists range from 50% to 87% of gross revenues of a
practice and the Company is required to pay generally all of the expenses at
the clinic with the exception of professional salaries and benefits. The
practice management fees earned by the Company pursuant to these Management
Agreements fluctuate depending on variances in clinic revenues and expenses of
the Managed Professional Association. The Managed Professional Association
derive their revenues from fees received for the use of ASCs and sales of
optical goods. The Managed Professional Associations currently receive revenues
from a combination of sources, including capitation payments from managed care
companies and government funded reimbursements (Medicare and Medicaid).
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 care
contracts. Pursuant to its capitated managed care contracts, the Company
receives a fixed payment per member 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 over a one-year term.
1998 ACQUISITIONS
In addition to the acquisitions described below, the Company completed
the acquisition of the business assets of 54 optometry clinics, nine
ophthalmology clinics, one ambulatory surgical center, two refractive centers
and 21 optical dispensaries located in Texas, Arizona, New Jersey, Florida,
Nevada, Minnesota and Wisconsin. 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 these
acquisitions, the Company entered into long-term management agreements
13
<PAGE> 15
("Management Agreements") with the related professional associations employing
65 optometrists and five ophthalmologists. These acquisitions were accounted
for by recording assets and liabilities at fair value and allocating the
remaining costs to the related Management Agreements. Additionally, the Company
closed the acquisitions of all of the outstanding stock of The Complete Optical
Laboratory, Ltd., Corp., located in New Jersey which services the New Jersey
optometry clinics acquired by the Company, and the Company closed the
acquisition of substantially all of the business assets of a managed care
company located in Florida servicing more than 82,700 patient lives. These
acquisitions were accounted for under the purchase method of accounting. Such
acquisitions are collectively referred to herein as the "1998 Acquisitions." In
connection with these acquisitions, the Company provided aggregate
consideration of approximately $20.1 million, consisting of approximately 1.0
million shares of Common Stock and approximately $13.5 million in cash and
promissory notes in the aggregate principal amount of $1.3 million, subject to
closing adjustments. In addition, the Company is required to provide additional
contingent consideration consisting of 282,185 shares of Common Stock and up to
$2.1 million in cash, to be paid to certain sellers if certain post-acquisition
performance targets are met.
The Company completed the acquisition of American SurgiSite Centers,
Inc., ("American SurgiSite") an ambulatory surgery center developer, management
and consulting company located in New Jersey, effective September 1, 1998.
American SurgiSite manages eight ambulatory surgery facilities. In connection
with this transaction, the Company paid $1.5 million in cash and issued 235,366
shares of Common Stock. In addition, the Company is required to provide
additional contingent consideration of up to $3.1 million if certain post
acquisition performance targets are met.
The Company completed the acquisition of Vision World, Inc. ("Vision
World"), a retail optical chain located in Minneapolis, Minnesota, effective
June 30, 1998. Vision World consists of 38 retail clinics and 30 optometrists.
In connection with this transaction, the Company paid $16.1 million in cash,
net of cash acquired. Vision World was sold effective August 31, 1999.
In March 1998, the Company completed a transaction with EyeCare One
Corp. ("EyeCare One") and Vision Insurance Plan of America, Inc. ("VIPA").
EyeCare One was the parent company of Stein Optical which operates 16
optometric retail locations in Milwaukee, Wisconsin. VIPA holds a single
service insurance license and delivers vision care benefits to approximately
19,000 patient lives in Wisconsin. These transactions were accounted for by the
Company as a pooling of interests. The costs of approximately $718,000 incurred
in connection with these transactions were charged to expense. In connection
with these transactions, the Company issued 1,109,806 shares of Common Stock,
valued at approximately $10.5 million. Stein Optical was sold effective August
31, 1999.
In January 1998, the Company completed the acquisition of The Eye DRx,
a retail optical chain of 19 retail clinics located in Bloomfield, New Jersey.
In connection with this transaction, the Company paid $7.2 million in cash and
issued 522,600 shares of Common Stock. In conjunction with this acquisition,
the Company entered into Management Agreements with the Managed Professional
Associations' stockholders. The Eye DRx was sold effective August 31,1999.
14
<PAGE> 16
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 1998 Acquisitions, the sale of the Company's
Retail Optical Chains, the Company's planned exit of the PPM business, expenses
in connection with the finalization of the accounting reconciliation completed
in the second quarter of fiscal 1999, and restructuring and other charges
recorded in the third fiscal quarter of 1999, the Company does not believe that
the historical percentage relationships for the three months and the nine
months ended September 30, 1998 and 1999 reflect the Company's expected future
operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------
1998 1999 1998 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues:
Clinic and surgery centers, net ................. 34.2% 61.6% 33.2% 52.4%
Managed care .................................... 30.8 38.4 31.7 32.9
Buying group .................................... 35.0 -- 35.1 14.7
----- ----- ----- -----
Total revenues ........................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
Clinic and surgery center operating
Expenses ...................................... 31.1 55.8 27.5 46.4
Medical claims .................................. 22.2 29.2 23.0 24.4
Cost of buying group sales ...................... 33.2 -- 33.0 14.0
General and administrative ...................... 8.9 13.5 9.3 13.3
Depreciation and amortization ................... 3.6 5.2 3.3 4.5
Restructuring & other charges ................... -- 2.4 -- 0.7
Merger costs .................................... -- -- 0.4 --
Start-up and software development costs ......... 0.8 1.5 0.4 1.0
----- ----- ----- -----
Total operating expenses ................. 99.8 107.6 96.9 104.3
----- ----- ----- -----
Income (loss) from operations ..................... 0.2 (7.3) 3.1 (4.3)
Interest expense .................................. 3.0 4.1 2.2 3.5
Gain on sale of Block Buying Group ................ -- -- -- (0.4)
----- ----- ----- -----
Income (loss) from continuing operations .......... (2.8) (11.7) 0.9 (7.4)
Before income taxes
Income taxes ...................................... (0.8) -- 0.2 --
----- ----- ----- -----
Income (loss) from continuing operations .......... (2.0) (11.7) 0.7 (7.4)
Discontinued operations - (income) loss ........... (2.5) 1.5 (1.3) 0.2
Discontinued operations - loss on sale ............ -- 22.8 -- 6.6
----- ----- ----- -----
Income (loss) before extraordinary items .......... 0.5 (36.0) 2.0 (13.8)
Extraordinary item - gain on sale ................. -- (15.4) -- (4.5)
Extraordinary item - early extinguishment ......... 2.7 -- 1.3 --
----- ----- ----- -----
Net income (loss) ........................ (2.2)% (20.6)% 0.7% (9.3)%
===== ===== ===== =====
Medical claims ratio .............................. 71.9% 76.0% 72.7% 74.3%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues decreased 19% from $46.7 million for the three
months ended September 30, 1998 to $37.7 million for the three months ended
September 30, 1999. This decrease was primarily due to the Company's sale of
the Block Buying Group, offset by an increase in clinic and surgery center net
revenues attributable to the 1998 Acquisitions and to internal growth. Managed
care revenues on a
15
<PAGE> 17
comparable basis increased 7% over 1998. The sale of the Company's Retail
Optical Chains and Block Buying Group discussed above is expected to reduce the
Company's revenue in the short-term. The Company plans to focus on vision care
including opening new de novo clinics and surgery centers and expanding managed
care initiatives with a primary focus on expanding its refractive surgery
programs to take advantage of the significantly increased demand for refractive
surgery. Additionally, the Company's strategic alliance with ECCA discussed
above is expected to expand the number of markets in which the Company is able
to provide refractive surgery.
Clinic and Surgery Center Operating Expenses. Clinic and surgery
center operating expenses increased 45% from $14.5 million for the three months
ended September 30, 1998 to $21.1 million for the three months ended September
30, 1999. Clinic and surgery center operating 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. This
increase was primarily caused by the 1998 Acquisitions.
Medical Claims. Medical claims expense increased 7% from $10.3 million
for the three months ended September 30, 1998 to $11.0 million for the three
months ended September 30, 1999. The Company's medical claims ratio increased
from 71.9% for the three months ended September 30, 1998 to 76.0% for the three
months ended September 30, 1999. The increase was caused by poor performance of
one of the Company's managed care contracts. The Company has given notice to
terminate the contract effective December 31, 1999. As noted above, the Company
recorded a charge of approximately $0.4 million for losses expected to be
incurred under this managed care contract. This charge is included in
Restructuring & other charges. Medical claims expense consists of payments by
the Company to its Affiliated Providers for vision care wellness services,
medical and surgical eye care services and facility services. These payments
are based on fixed payments received (as determined by the number of eye care
procedures performed relative to other Affiliated Providers) or negotiated
fee-for-service schedules.
Cost of Buying Group Sales. Cost of buying group sales were incurred
by the Company as a result of its acquisition of Block Vision in 1998. The cost
of buying group sales in 1998 consists of the costs of various optical products
which are shipped directly to the providers of eye care services. As noted
above, the Company completed the sale of the Block Buying Group during the
second quarter.
General and Administrative. General and administrative increased 22%
from $4.2 million for the three months ended September 30, 1998 to $5.1 million
for the three months ended September 30, 1999. General and administrative
expenses primarily consist of salaries, wages and benefits related to
management and administrative staff located at the Company's corporate
headquarters and its managed care service centers. As a percentage of revenues,
general and administrative expenses increased from 8.9% for the three months
ended September 30, 1998 to 13.5% for the three months ended September 30,
1999. This increase was primarily due to the effects of the Company's
Restructuring Plan not yet realized in the third quarter.
Depreciation and Amortization. Depreciation and amortization expense
increased from $1.7 million for the three months ended September 30, 1998 to
$1.9 million for the three months ended September 30, 1999. As a percentage of
revenues, depreciation and amortization expense increased from 3.6% for the
three months ended September 30, 1998 to 5.2% for the three months ended
September 30, 1999.
Restructuring & Other Charges. Restructuring and other charges consist
of a net restructuring charge of $0.2 million, professional fees of $0.2
million associated with the Company's Restructuring
16
<PAGE> 18
Plan discussed above, approximately $0.4 million for losses expected to be
incurred under one of the Company's managed care plans and other charges of
$0.1 million.
Start-up and software development costs. For the three months ended
September 30, 1998 and 1999, start-up costs relate to start-up activities
associated primarily with refractive surgery centers and initiatives. Start-up
costs are expected to increase throughout 1999. For the three months ended
September 30, 1998, software development costs are associated with the
Company's implementation of the Great Plains accounting software system.
Interest Expense. Interest expense increased 8% from $1.4 million for
the three months ended September 30, 1998 to $1.5 million for the three months
ended September 30, 1999. As stated above, the Company's repaid approximately
$30.8 million of the outstanding term debt under its credit facility as a
result of the sale of its Retail Optical Chains on August 31, 1999. Interest
expense is expected to be significantly reduced through the remainder of 1999.
Discontinued Operations. Discontinued operations represents the
income/loss from the Company's Retail Optical Chains discussed above. Income
from discontinued operations for the three months ended September 30, 1998
represents the results of operations of the Company's Retail Optical Chains for
three months. Loss from discontinued operations for the three months ended
September 30, 1999 represents the results of operations of the Company's Retail
Optical Chains for two months, as the Retail Optical Chains were sold effective
August 31, 1999. Additionally, as noted above, the Company has allocated a
portion of its interest expense to discontinued operations based on the net
assets attributed to those operations.
The Company recorded a net loss on the sale of Vision World and The
Eye DRx of $8.6 million subject to post closing adjustments. The gain on the
sale of Stein Optical of $5.8 million has been classified as an extraordinary
item, as the acquisition was accounted for as a pooling of interests.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues. Revenues remained relatively constant at $130.0 million for
the nine months ended September 30, 1998 and 1999. Clinic and surgery center
net revenues increased due to the 1998 Acquisitions and to internal growth.
Buying group revenue decreased due to the sale of the Block Buying Group in
June 1999. Managed care revenues on a comparable basis increased 4% over 1998.
The sale of the Company's Retail Optical Chains and Block Buying Group
discussed above is expected to reduce the Company's revenue in the short-term.
The Company plans to focus on vision care including opening new de novo clinics
and surgery centers and expanding managed care initiatives with a primary focus
on expanding its refractive surgery programs to take advantage of the
significantly increased demand for refractive surgery. Additionally, the
Company's strategic alliance with ECCA discussed above is expected to expand
the number of markets in which the Company is able to provide refractive
surgery.
Clinic and Surgery Center Operating Expenses. Clinic and surgery
center operating expenses increased 69% from $35.7 million for the nine months
ended September 30, 1998 to $60.2 million for the nine months ended September
30, 1999. Clinic and surgery center operating 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. This
increase was primarily caused by the 1998 Acquisitions.
17
<PAGE> 19
Medical Claims. Medical claims expense increased 6% from $29.9 million
for the nine months ended September 30, 1998 to $31.7 million for the nine
months ended September 30, 1999. The Company's medical claims ratio increased
from 72.7% for the nine months ended September 30, 1998 to 74.3% for the nine
months ended September 30, 1999. The increase was caused by poor performance of
one of the Company's managed care contracts. As noted above, the Company
recorded a charge of approximately $0.4 million for losses expected to be
incurred under this managed care contract. This charge is included in
Restructuring & other charges. Medical claims expense consists of payments by
the Company to its Affiliated Providers for vision care wellness services,
medical and surgical eye care services and facility services. These payments
are based on fixed payments received (as determined by the number of eye care
procedures performed relative to other Affiliated Providers) or negotiated
fee-for-service schedules.
Cost of Buying Group Sales. Cost of buying group sales were incurred
by the Company as a result of its acquisition of Block Vision in 1998. The cost
of buying group sales consists of the costs of various optical products which
are shipped directly to the providers of eye care services. As noted above, the
Company completed the sale of the Block Buying Group during the second quarter.
General and Administrative. General and administrative increased 42%
from $17.2 million for the nine months ended September 30,1998 to $17.2 million
for the nine months ended September 30,1999. General and administrative
expenses primarily consist of salaries, wages and benefits related to
management and administrative staff located at the Company's corporate
headquarters and its managed care service centers. As a percentage of revenues,
general and administrative expenses increased from 9.3% for the nine months
ended September 30, 1998 to 13.3% for the nine months ended September 30, 1999.
This increase was primarily due to $0.9 million of professional fees in
connection with the finalization of the Company's previously announced
accounting reconciliation and to the effects of the Company's Restructuring
Plan not yet realized in the third quarter.
Depreciation and Amortization. Depreciation and amortization expense
increased from $4.2 million for the nine months ended September 30, 1998 to
$5.9 million for the nine months ended September 30, 1999. As a percentage of
revenues, depreciation and amortization expense increased from 3.3% for the
three months ended September 30, 1998 to 4.5% for the nine months ended
September 30, 1999.
Restructuring & Other Charges. Restructuring and other charges consist
of a net restructuring charge of $0.2 million, professional fees of $0.2
million associated with the Company's Restructuring Plan discussed above,
approximately $0.4 million for losses expected to be incurred under one of the
Company's managed care plans and other charges of $0.1 million.
Merger costs. Merger costs were incurred as a result of the 1998
EyeCare One pooling of interests and consisted primarily of professional fees.
Start-up and software development costs. For the nine months ended
September 30, 1998 and 1999, start-up costs relate to start-up activities
associated primarily with refractive surgery centers and initiatives. These
costs are expected to increase throughout 1999. For the nine months ended
September 30, 1998, software development costs are associated with the
Company's implementation of the Great Plains accounting software system.
Interest Expense. Interest expense increased 58% from $2.9 million for
the nine months ended September 30, 1998 to $4.5 million for the nine months
ended September 30, 1999. The increase was
18
<PAGE> 20
caused by an increase in interest rates and an increase in the average debt
outstanding for the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1999. As stated above, the Company's repaid
approximately $30.8 million of the outstanding term debt under its credit
facility as a result of the sale of its Retail Optical Chains on August 31,
1999. Interest expense is expected to be significantly reduced through the
remainder of 1999.
Gain on Sale of Block Buying Group. In connection with the sale of the
Block Buying Group, the Company realized a gain of $0.5 million.
Discontinued Operations. Discontinued operations represents the income
from the Company's Retail Optical Chains discussed above. Income from
discontinued operations for the nine months ended September 30, 1998 represents
the results of operations for the Company's Retail Optical Chains for nine
months. Loss from discontinued operations for the nine months ended September
30, 1999 represents the results of operations for the Company's Retail Optical
Chains for eight months, as the Retail Optical Chains were sold effective
August 31, 1999. Additionally, as noted above, the Company has allocated a
portion of its interest expense to discontinued operations based on the net
assets attributed to those operations.
The Company recorded a net loss on the sale of Vision World and The
Eye DRx of $8.6 million subject to post closing adjustments. The gain on the
sale of Stein Optical of $5.8 million has been classified as an extraordinary
item, as the acquisition was accounted for as a pooling of interests.
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 (used in) operating activities
for the nine months ended September 30, 1998 and 1999 was $6.3 million and $1.7
million, respectively. The Company experiences increases in certain balance
sheet accounts which result primarily from normal working capital needs.
Net cash used in investing activities for the nine months ended
September 30, 1998 was $49.4 million, and primarily resulted from the payments
for acquisitions, including capitalized acquisition costs. Net cash provided by
investing activities for the nine months ended September 30, 1999, was
$31.1 million, and primarily resulted from the sale of the Company's Retail
Optical Chains, and sale of its Block Buying Group. This was offset by
purchases of medical equipment and office furniture related to the Company's
new laser surgery centers as well as purchases in the normal course of
business.
Net cash provided by financing activities for the nine months ended
September 30, 1998 was $49.7 million and was attributable to debt and equity
financings and higher levels of institutional borrowings to support the
Company's internal expansion and acquisition activities. Net cash used in
financing activities for the nine months ended September 30, 1999 was $32.2
million and was primarily attributable to payments on the Company's credit
facility, as a result of the sale of the Block Buying Group and the Company's
Retail Optical Chains.
On January 30, 1998, the Company entered into a five-year, $50.0
million bank credit agreement (the "Credit Agreement") with the Bank of
Montreal as agent (the "Agent") for a consortium of banks. The Credit
Agreement, which matures in January 2003, provided the Company with a revolving
credit facility component in an aggregate amount of up to $10.0 million and a
term loan component in an aggregate amount of up to $40.0 million. The Credit
Agreement is secured by a pledge of the stock of
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substantially all of the Company's subsidiaries and the assets of the Company
and certain of its subsidiaries and is guaranteed by certain of the Company's
subsidiaries. The Credit Agreement contains negative and affirmative covenants
and agreements which place restrictions on the Company regarding disposition of
assets, capital expenditures, additional indebtedness, permitted liens and
payment of dividends, as well as requiring the maintenance of certain financial
ratios. The interest rate on the Credit Agreement is, at the option of the
Company, either (i) the London InterBank Offered Rate plus an applicable margin
rate, (ii) the greater of (a) the Agent's prime commercial rate or (b) the
"federal funds" rate plus 0.5% , or (iii) a fixed rate loan as determined by the
Agent at each time of borrowing. At the closing of the Credit Agreement the
Company used approximately $26.9 million of its available borrowing to repay the
outstanding balance under the Company's Bridge Credit Facility with Prudential
Credit and related accrued interest and transaction costs.
On July 1, 1998, the Company entered into a restated $100.0 million
bank credit agreement with the Bank of Montreal as agent for a consortium of
banks (the "Restated Credit Agreement"). The Restated Credit Agreement was used
in part to early extinguish the Company's outstanding balance of approximately
$48.3 million under its prior Credit Agreement. The remaining balance under the
Restated Credit Agreement has been accessed in the past for working capital and
general corporate purposes, and for acquisitions. The Restated Credit Agreement
included a seven-year term loan of $70.0 million and a $30.0 million five-year
revolving and acquisition facility. Other terms and conditions were
substantially the same as the prior Credit Agreement with a slightly higher
margin spread on the seven-year term portion.
On February 23, 1999, the Company entered into an amendment to the
Restated Credit Agreement (the "First Amendment"). The First Amendment provided
a $50.0 million term loan maturing in June 2005 with quarterly principal
payments of one percent beginning in June 1999, a $20.0 million term loan
maturing in June 2003 with quarterly principal payments of approximately $1.3
million beginning in September 2000, a $12.5 million term loan which was to be
utilized for acquisitions and capital expenditures maturing in June 2003, and a
$7.5 million revolving facility maturing in June 2003. The First Amendment also
revised certain of the covenants and included a slightly higher margin spread on
the seven-year term portion. Other terms and conditions were substantially the
same as the Restated Credit Agreement. On June 11, 1999, the Company entered
into a second amendment to the Restated Credit Agreement (the "Second Amendment"
and together with the Restated Credit Agreement and the First Amendment, the
"Amended Credit Agreement"). The Second Amendment principally revised certain
financial covenants in connection with the credit facility which the Company was
previously unable to meet and resulted in the early termination of the Company's
unused portion of its borrowing capacity relative to the acquisition component
of the credit facility, which was scheduled to expire June 30, 1999. The Company
has used substantially all of its available borrowings under the $50.0 million
Credit Agreement.
On August 30, 1999, the Company entered into a third amendment to the
Amended Credit Agreement. The Third Amendment provided for the consent to the
ECCA transaction by the Banks and Agent as parties to the Amended Credit
Agreement, revised certain covenants and financial ratios and waived the
Company's non-compliance with certain obligations under Amended Credit Agreement
through the date hereof.
On November 12, 1999 the Company entered into a fourth amendment to
the Amended Credit Agreement. Pursuant to the Fourth Amendment the credit
facility will provide working capital of $3.0 million through November 26, 1999
when the $3.0 million of working capital must be repaid. The Company plans to
continue negotiations with the banks over the next several weeks in conjunction
with pursuing the strategic alternatives, in order to achieve necessary further
modifications to the credit facility including those pertaining to current
financial covenants and changes to the Company's long-term capital structure.
The Company will need to negotiate modifications to the current credit facility
during this time period to obtain compliance with certain covenants of the
credit facility. While there can be no assurances, the Company has been able to
obtain waivers with respect to certain of its covenants from the banks in the
past.
In connection with the Company's sale of its Retail Optical Chains,
$30.8 million was applied as a permanent pay down of its term debt credit
facility, and $2.8 million was paid down under its ongoing
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$7.5 million revolving credit facility. As of September 30, 1999, debt
outstanding under the term loans was $41.6 million and $7.1 million under the
revolving credit facility. At this time the Company's post closing audit has
been substantially completed and the Company is currently in discussions with
ECCA regarding post closing adjustments. Based upon its initial analysis, the
Company has accrued an additional $3.6 million, in excess of the amount held
in escrow, with respect to such post closing adjustments.
The Company's Board of Directors voted to explore a number of
strategic alternatives intended to maximize shareholder value. There has been a
great deal of interest generated since the announcement by the Company of the
proposed convertible preferred stock transaction with MedEquity Investors and
Chase Capital Partners. These inquiries from other third parties range from a
possible sale of the entire Company to the possible sale of certain business
units. The Company's Board is focusing on these strategic alternatives at this
time, and while the specific stock transaction with MedEquity Investors and
Chase Capital Partners is not likely to be pursued, the parties continue to
analyze various ways to jointly pursue the strategic options available to
Vision Twenty-One. The Company has engaged PaineWebber Incorporated as
financial advisor in conjunction with assessing its current strategic
alternatives.
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 Common Stock. These shares were valued at $2.77
per share or $300,000. Of these shares, 40% vested immediately and the Company
recorded a business development charge of $120,000. The remaining 60% of the
shares were recorded as an offset in stockholders' equity as deferred
compensation for $180,000. In June 1999, the Company expanded its relationship
with the individual to strengthen its refractive care initiative and provide
such individual with options to acquire 100,000 shares at $3.69 per share with
100% vesting. The Company recorded start-up cost of $0.2 million in the second
quarter in connection with such grant. In October 1996, the Company entered
into a five-year advisory agreement with an industry consultant and issued
125,627 shares of restricted Common Stock, which vest over the life of the
advisory agreement. These shares were valued at $2.77 per share or $349,000.
The Company recorded the issuance of these shares as an offset in stockholders'
equity as deferred compensation. This deferred compensation is being amortized
as the shares vest on a pro rata basis. In June 1999, the Company expanded its
relationship with the individual to strengthen its refractive care initiatives
and provided such individual with options to acquire 100,000 shares at $3.44
per share, with 100% vesting. The Company recorded start-up cost of $0.1
million in the second quarter in connection with such grant.
Intangible assets consist of the excess of the purchase price over the
fair values of the net assets acquired from the business acquisitions, which is
being amortized on a straight-line method over 25 or 30 years, and 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 25 years. Intangible assets represented approximately
70% of the Company's total assets at September 30, 1999. 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 carrying value of intangible assets is evaluated
for recoverability whenever adverse effects or changes in circumstances
indicate that the carrying amount may not be recoverable. Among other factors,
the Company considers in making the valuation are changes in the Managed
Professional Associations market position, reputation, profitability, and
geographic penetration.
The Company's liquidity is likely to be impacted by the planned exit
from the PPM sector. Collection of PPM revenues during negotiations could be
impacted. As the Company finalizes an exit from the PPM business, additional
resources are expected to be available to the Company through the sale of the
practice assets back to the physicians or affiliates although such exit is
dependent upon negotiation of a modification of its current credit facility.
The Company believes the effects of inflation have not had a material
adverse impact on its operations or financial condition to date. Substantial
increases in prices in the future, however, could have a material adverse
effect on the Company's results of operations.
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In connection with the Company's Restructuring Plan described above,
the Company expects to spend approximately $2.3 million for severance and other
employee termination benefits and lease termination costs through fiscal 1999
and 2000. Additionally, depending upon the availability of capital, the Company
currently expects to spend approximately $1.0 million for capital expenditures
and will require approximately $1.0 million for new operating leases of
equipment in the fourth quarter which includes costs to open new refractive
surgery centers.
In 1999, thus far, the Company has operated and grown principally
through the use of positive operating capital cash flows and limited sums from
the credit facility revolver when available, and with a total sale of $1.1
million in Company stock in two private transactions. Such positive cash flows
have not been available since earlier in the year. As a result of the Fourth
Amendment, short-term borrowings of $3.0 million are now available to the
Company but such amount is not sufficient to fund its growth strategy or
satisfy all of the current obligations of its operations. The Company is
currently exploring various alternative sources of capital to obtain necessary
working capital for continued operations and performing its growth plan. The
Company believes mezzanine financing would be available and is moving forward
in conjunction with obtaining the same as expeditiously as possible.
YEAR 2000 READINESS DISCLOSURE
Currently many computer systems in use today were designed and
developed using two digits, rather than four, to specify the calendar year and
as a result, such systems are unable to recognize the year "2000". The
inability of a computer system to recognize the year "2000" could cause many
computer applications to fail or create erroneous results unless corrective
measures are taken. The Company utilizes software and related computer
technologies essential to its operations that could be affected by the year
"2000" computer problem.
The Company has implemented a plan of action which it believes will
make its computer systems year "2000 compliant." The Company is addressing
operational concerns regarding the year "2000" and is reviewing its systems to
identify those that may be affected by the year "2000."
The Company divides its information technology software into the
following three general categories: (i) Financial (general ledger, financial
and management reporting, accounts payable, payroll and fixed assets), (ii)
Practice Management (including billing, collection, accounts receivables and
third party billing) and (iii) Managed Care. The Company is in various stages
of readiness with respect to its information technology within each category.
The Company's Financial Category has been certified Year 2000 compliant by the
third party software vendor providing the software to the Company.
Historically, the Company's philosophy with respect to the Practice Management
category of software is to utilize the third party software legacy systems in
place as long as they capably served a practices needs. Currently, the Company
has been advised that the third party software suppliers it utilizes for the
Practice Management category have either installed or have scheduled to install
by the end of the year, Year 2000 upgrades. In addition, a custom software
system has been implemented within numerous
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practices as well. As a result of the Company's announcement related to the
planned exit of the practice management business, the Company's activity with
respect to hardware and software revisions for its practice management business
have been suspended. Accordingly, there can be no assurances that all of the
Company's practice management computer systems will be Year 2000 compliant or
that any adverse effects will not occur as a result.
The Managed Care category generally has custom software that has been
upgraded for Year 2000 compliance and final testing is scheduled to be
completed by the end of the year.
The Company is in communications with significant suppliers, customers
and other third parties with which the Company does business, to minimize
disruptions to the Company's operations resulting from the year "2000" problem
and to ensure that any significant year "2000" problem will not have an adverse
effect on the Company's operations. The Company expects to work with such
parties to resolve or minimize year "2000" problems. The Company does not
expect the cost associated with its year "2000" compliance efforts to have a
material effect on the Company's future financial condition and results of
operation. The Company believes it currently has no material exposure to
contingencies related to the year "2000" issue and accordingly has not
developed a contingency plan. However, there can be no assurances that events
outside the control of the Company will not occur as a result of the year
"2000" problem and that such events would not have a material adverse effect on
the Company.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
The Company is exposed to changes in interest rates primarily as a
result of borrowing activities, under its Amended Credit Agreement, which is
used to maintain liquidity and fund the Company's business operations. The
nature and amount of the Company's debt may vary as a result of future business
requirements, market conditions and other factors. The extent of the Company's
interest rate risk is not quantifiable or predictable because of the
variability of future interest rates and business financing requirements, but
the Company does not believe such risk is material. The Company did not use
derivative instruments to adjust the Company's interest rate risk profile
during the nine months ended September 30, 1999.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q and certain information provided periodically in
writing and orally by the Company's designated officers and agents including
the annual report contain certain statements which constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. The terms "Vision
Twenty-One," "company," "we," "our" and "us" refer to Vision Twenty-One, Inc.
The words "expect," "believe," "goal," "plan," "intend," "estimate," and
similar expressions and variations thereof are intended to specifically
identify forward-looking statements. Those statements appear in this Form 10-Q,
particularly "Management's Discussion and Analysis of Financial Condition and
Results of Operations," 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) our financial prospects;
(ii) our ability to efficiently and effectively manage and
ultimately restructure our managed clinic relationships;
(iii) our financing plans including our ability to obtain in the
very near future satisfactory working capital through
additional offerings of debt or equity;
(iv) our ability to obtain compliance with our current Credit
Facility;
(v) our obligation to make additional payments to ECCA as a result
of the post closing adjustments;
(vi) trends affecting our financial condition or results of
operations including our stock price and its potential impact
on the number of shares utilized in acquisitions and on
future earnings per share;
(vii) our growth strategy and operating strategy including the
shift in focus to internal growth and opening new de novo
clinics and surgery centers, expanding managed care
initiatives, vision care and refractive surgery programs;
(viii) the impact on us of current and future governmental
regulations;
(ix) our current and future managed care contracts and the impact
such contracts have on gross profit;
(x) our ability to continue to recruit Affiliated Providers, to
convert certain of the Affiliated Providers to Managed
Providers, and to maintain our relationships with Affiliated
Providers;
(xi) our proposed strategic alliance with ECCA to further expand
vision correction and managed vision care markets and our
ability to continue the strategic relationships with
affiliated retail optical companies;
(xii) our strategic initiatives in vision care and refractive
surgery, including the timing, design and number of initial
markets and potential future expansion of our contemplated
strategic alliance with ECCA in vision correction services
and an ECCA affiliate jointly marketing integrated vision
care programs;
(xiii) our ability to operate the managed care business efficiently,
profitably and effectively;
(xiv) our integration of systems and implementation of cost savings
and reduction plans;
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(xv) the future clinic and surgery center overall operating
margins;
(xvi) our year 2000 readiness and the readiness of third parties;
(xvii) our expected savings from the restructuring programs;
(xviii) our current and expected future revenue and the impact of any
acquisition and the consolidation of infrastructure may have
on our future performance;
(xvix) our current run rate for laser vision correction procedures
and the expected growth of such procedures and return on
invested capital;
(xx) our late filing of the 10-Q and 10-K;
(xxi) the purported class action complaints filed against the
company; and
(xxii) the successful integration of both completed and any future
acquisitions.
You 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 factors that might cause
such differences include, among others, the following:
(i) in the event the company experiences future operating and net
losses;
(ii) any material inability to successfully integrate and
profitably operate our acquisitions or to successfully open
and integrate and profitably operate de novo clinics,
refractive surgery centers and ASCs;
(iii) any material inability to acquire additional sufficient
capital and financing at a reasonable cost to fund our
long-term growth strategy or to obtain compliance with our
credit facility;
(iv) the inability to expand our managed care business, renew
existing managed care contracts or maintain and expand our
Contract Provider Network;
(v) our inability to successfully and profitably operate our
managed care business or for existing managed care contracts
to positively impact gross profit;
(vi) our ability to maintain our relationships with our managed
clinics and the managed clinics' inability to operate
profitably;
(vii) changes in state and/or federal governmental regulations
which could materially affect our ability to operate or
materially affect our profitability;
(viii) the inability to maintain or obtain required licensure in the
states in which we operate and in the states in which we may
seek to operate in the future;
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(ix) the degree current shortages in refractive surgery equipment
adversely impacts our access at reasonable prices to same;
(x) consolidation of our competitors, poor operating results by
our competitors, or adverse governmental or judicial rulings
against our competitors;
(xi) any failure by us to meet analysts expectations;
(xii) our stock price;
(xiii) any adverse change in our medical claims to managed care
revenue ratio;
(xiv) the effect of any future stock overhang in the market place
(where the available stock for sale would be in excess of
demand) and any negative impact on our stock price as a
result of the overhang;
(xv) our inability to realize any significant benefits, cost
savings or reductions from our restructuring programs;
(xvi) the non-compliance or readiness of the company or third
parties with respect to year "2000" issues;
(xvii) our inability to successfully increase and expand vision care
and refractive surgery programs and other desired initiatives
complimentary to our clinic and surgery center business;
(xviii) unexpected cost increases,
(xvix) our inability to successfully defend against the class action
lawsuits or any additional litigation that may arise;
(xx) any material inability to achieve internal growth in our
business and increase shareholder value;
(xxi) any future operating and net losses we may incur;
(xxii) any future material reduction in demand for refractive
surgeries;
(xxiii) any material inability to successfully manage changes in our
business mix;
(xxiv) any failure of other business divisions of the Company to
perform successfully;
(xxv) any adverse governmental or regulatory changes or actions,
including any healthcare regulations and related enforcement
actions; and
(xxvi) any reduction in coverage of and ratings by analysts
following us and other factors including those identified in
our filings from time-to-time with the SEC.
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The Company undertakes no obligation to publicly update or revise
forward looking statements to reflect events or circumstances after the date of
this Form 10-Q and annual report or to reflect the occurrence of unanticipated
events.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described below, the Company is not a party to any material
litigation:
In January and February 1999, four purported class action lawsuits
were filed against the Company and certain of its directors and officers. The
lawsuits were filed in United States District Court for the Middle District of
Florida, Tampa Division. The four plaintiffs generally sought to certify their
complaints as class actions on behalf of all purchasers of the Company's common
stock in the period between December 5, 1997 and November 5, 1998, and seek an
award of an unspecified amount of monetary damages to all of the members of the
purported class.
On April 21, 1999, the cases were consolidated into one case
captioned: Tad McBride, Plaintiff, v. Vision Twenty-One, Inc., Theodore N.
Gillette, Richard T. Welch and Michael Block (Case No. 99-138-CIV-T-25F), and
one plaintiffs group was appointed lead plaintiff by judicial order on May 6,
1999. This uncertified consolidated class action seeks to hold the Company and
two of its officers who are also directors as well as a former officer liable
for alleged federal securities law violations based upon alleged misstatements
and omissions in analyst reports, trade journal articles, press releases and
filings with the Securities and Exchange Commission.
Pursuant to judicial orders, the lead plaintiffs filed an amended
consolidated complaint on August 14, 1999. The Defendants filed a motion to
dismiss the amended consolidated complaint on October 15, 1999. The Company
believes that it has substantial defenses to this matter and intends to assert
them vigorously. Management of the Company is unable to determine the impact,
if any, that the resolution of the aforementioned uncertified consolidated
class action lawsuit will have on the financial position or results of
operations of the Company. While it is impossible to predict the outcome or
impact of such litigation, management believes this litigation is without merit
and intends to vigorously defend the lawsuit.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Sales of Unregistered Securities. The Company issued equity securities
during the quarter ended September 30, 1999 in the following private
transactions not previously included in a quarterly report which were exempt
from the registration requirements of the Securities Act pursuant to Section
4(2).
In September 1999, the Company issued an aggregate of 54,674 contingent
shares of Common Stock which were previously reserved for issuance in connection
with the acquisition of Swagel Wootton Eye Center to Loren Swagel (21,870),
Wendy Wootton (10,935) and James Wootton (21,869).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company has received waivers in the past from the banks under its
credit facility for certain inabilities to comply with various financial
covenants under the loans. The Company is currently not in compliance with
various financial covenants and will seek to obtain a modification of its
current facility to waive such noncompliance as the Company explores its
current strategic alternatives.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of shareholders of Vision Twenty-One, Inc. was held
on July 8, 1999. At the meeting, the following actions were taken by the
shareholders:
1. Peter J. Fontaine was re-elected to serve as a Director of the Company, in
accordance with the Company's By-laws. The voting on the resolution was as
follows:
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FOR 8,767,355
WITHHELD 324,552
2. The Company's Employee Stock Purchase Plan was approved. The voting on the
resolution was as follows:
FOR 8,764,795
AGAINST 323,962
ABSTAINED 3,150
3. Ernst & Young was appointed as the Company's independent auditors until
the conclusion of the 2000 Annual Meeting. The voting on the resolution
was as follows:
FOR 8,308,938
AGAINST 782,919
ABSTAINED 50
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. See Exhibit Index attached hereto.
(b) During the quarterly period ended September 30, 1999, the Company
filed a report on Form 8-K on July 7, 1999, announcing the sale of
the Company's retail optical chains and filed a report on Form 8-K
on September 14, 1999 announcing the closing of the sale of retail
optical chains and the Company's third amendment to its credit
facility.
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
3.1* Amended and Restated Articles of Incorporation of Vision Twenty-One,
Inc.(1)
3.2* Bylaws of Vision Twenty-One, Inc.(1)
4.13* Credit Agreement dated as of January 30, 1998 among Vision Twenty-One,
Inc. the Banks Party Hereto and Bank of Montreal as Agent.(2)
4.14* Amended and Restated Credit Agreement dated as of July 1, 1998 among
Vision Twenty-One, Inc., and the Bank of Montreal as Agent for a
consortium of banks.(3)
4.15* First Amendment to the Amended and Restated Credit Agreement dated as
of February 23, 1999 among Vision Twenty-One, Inc., the Banks party
hereto and Bank of Montreal as Agent for the Banks.(4)
4.16* Second Amendment to the Amended and Restated Credit Agreement dated as
of June 11, 1999 among Vision Twenty-One, Inc., the Banks party hereto
and Bank of Montreal as Agent for the Banks.(4)
4.17* Third Amendment to the Amended and Restated Credit Agreement dated as
of August 30, 1999 by and among Vision Twenty-One, Inc., the Banks
party hereto and Bank of Montreal as Agent for the Banks.(5)
4.18* Waiver Letter dated October 14, 1999 to Amended and Restated Credit
Agreement dated as of July 1, 1998 by and among Vision Twenty-One,
Inc. the Banks Party thereto and Bank of Montreal as Agent (6)
4.19 Fourth Amendment and Waiver to the Amended and Restated Credit
Agreement dated as of November 12, 1999 by and among Vision Twenty-One,
Inc., the Banks party hereto and Bank of Montreal as Agent for the
Banks.
(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.)
10.59* Credit Agreement dated as of January 30, 1998 among Vision Twenty-One,
Inc., the Banks Party Hereto and Bank of Montreal as Agent filed as
Exhibit 4.13 to this Report and incorporated herein by reference.
10.60* Amended and Restated Credit Agreement dated as of July 1, 1998 among
Vision Twenty-One, Inc. the Banks Party Hereto and Bank of Montreal as
Agent, filed as Exhibit 4.14 to this Report and incorporated herein by
reference.
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10.61* First Amendment to the Amended and Restated Credit Agreement dated as
of February 23, 1999 among Vision Twenty-One, Inc., the Banks party
hereto and Bank of Montreal as Agent for the Banks, filed as Exhibit
4.15 to this Report and incorporated herein by reference.
10.62* Second Amendment to the Amended and Restated Credit Agreement dated as
of June 11, 1999 among Vision Twenty-One, Inc., the Banks party
thereto and Bank of Montreal as Agent for the Banks, filed as Exhibit
4.16 to this Report and incorporated herein by reference.
10.65* Third Amendment to the Amended and Restated Credit Agreement dated as
of August 30, 1999 by and among Vision Twenty-One, Inc., the Banks
party hereto and Bank of Montreal as Agent for the Banks, filed as
Exhibit 4.17 to this Report and incorporated herein by reference.
10.66* Waiver Letter dated October 14, 1999 to Amended and Restated Credit
Agreement dated as of July 1, 1998 by and among Vision Twenty-One,
Inc. the Banks Party thereto and Bank of Montreal as Agent, filed as
Exhibit 4.18 to this report and incorporated herein by reference.
10.67 Fourth Amendment and Waiver to the Amended and Restated Credit
Agreement dated as of November 12, 1999 by and among Vision Twenty-One,
Inc., the Banks party hereto and Bank of Montreal as Agent for the
Banks, filed as Exhibit 4.19 to this report and incorporated herein by
reference.
10.68* Asset Purchase Agreement entered into as of July 7, 1999 by and among
Eye Care Centers of America, Inc., Vision Twenty-One, Inc. and The
Complete Optical Laboratory, Ltd., Corp., a wholly owned subsidiary of
the Company. (5)
Schedules (or similar attachments) have been omitted and the
Registrant agrees to furnish supplementally a copy of any omitted
schedule to the Securities and Exchange Commission upon request.
10.69* Letter of intent dated October 22, 1999 by and among Vision
Twenty-One, Inc. MedEquity Investors Partners, LLC, Vision Twenty-One
Partners, LLC, Peachtree Vision Twenty-One Partners, LLC and Chase
Venture Capital Associates, L.P.(6).
10.70 Employment Agreement dated November 10, 1996 between Vision
Twenty-One, Inc. and Lynn Heckler.
10.71 Employment Agreement dated August 1, 1999 between Vision Twenty-One,
Inc. and Andrew Alcorn.
27 Financial Data Schedule for September 30, 1999 (for SEC use only).
- ---------------
* Previously filed as an Exhibit in the Company filing identified in the
footnote following the Exhibit Description and incorporated herein by
reference.
(1) Registration Statement on Form S-1 filed on June 13, 1997 (File No.
333-29213).
(2) Form 8-K filed February 10, 1998.
(3) Form 8-K filed July 10, 1998.
(4) Form 10-K filed June 18, 1999.
(5) Form 8-K filed August 30, 1999.
(6) Form 8-K filed October 14, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the city of Largo, State of Florida
on November 14, 1999.
VISION TWENTY-ONE, INC.
Registrant
/s/ Richard T. Welch
----------------------------------------
Richard T. Welch
Chief Financial Officer
(The Principal Accounting Officer
and Duly Authorized Officer)
33
<PAGE> 1
Exhibit 4.19
VISION TWENTY-ONE, INC.
FOURTH AMENDMENT AND WAIVER TO CREDIT AGREEMENT
This Fourth Amendment and Waiver to Credit Agreement (herein, the
"Amendment") is entered into as of November 12, 1999, among Vision Twenty-One,
Inc., a Florida corporation (the "Borrower"), the Banks party hereto, and Bank
of Montreal as Agent for the Banks.
PRELIMINARY STATEMENTS
A. The Borrower, the Banks, and the Agent are parties to an Amended and
Restated Credit Agreement, dated as of July 1, 1998, as amended (herein, the
"Credit Agreement"). All capitalized terms used herein without definition shall
have the same meanings herein as such terms have in the Credit Agreement.
B. The Borrower has requested that the Bank of Montreal ("BOM") provide
the Borrower with a temporary bridge loan facility under the Credit Agreement
on a secured "last-in, first-out" basis, and BOM and the other Banks are
willing to amend the Credit Agreement to provide for such credit facility on
the terms and conditions as provided for in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. AMENDMENTS.
Subject to the satisfaction of the conditions precedent set forth in
Section 3 below, the Credit Agreement shall be and hereby is amended as
follows:
1.1. Section 1.14 of the Credit Agreement shall be amended and
restated in its entirety to read as follows:
Section 1.14. Bridge Loans.
(a) Bridge Loans. Subject to all of the terms and conditions
hereof, during the period from and including November 12, 1999,
to but not including November 26, 1999 (the "Bridge Loan
Period"), Bank of Montreal ("BOM") agrees to make loans (the
"Bridge Loans", the Bridge Loans to constitute Loans for all
purposes of the Loan Documents except that such Loans shall only
be made by BOM and no other Bank shall have any obligation to
fund any part thereof or purchase a participation therein) to
the Borrower under a short-term bridge loan facility in an
aggregate amount at any one time outstanding not to exceed
$3,000,000 (the "Bridge Loan Commitment"); provided, however,
that Bridge Loans shall be available to the Borrower only if and
so long as the Revolving Credit Commitments of the Banks are
fully utilized and
<PAGE> 2
the maximum amount of Loans thereunder are outstanding. Bridge
Loans may be availed of by the Borrower from time to time during
the Bridge Loan Period and borrowings thereunder may be repaid
and used again through but not including the last day of the
Bridge Loan Period, at which time the Bridge Loan Commitment
shall expire. The Borrower hereby promises to pay all Bridge
Loans (both for principal and interest) on November 26, 1999,
the final maturity thereof. BOM's obligation to make any Bridge
Loan shall be subject to the further condition that all
conditions set forth herein and in Section 7.2 shall have been
satisfied (with all references to a Borrowing therein to be
deemed a reference to an advance of a Bridge Loan). Advances of
Bridge Loans shall also be subject to the notice requirements
for Borrowings under the terms of Section 1.6 of this Agreement.
BOM shall maintain on its internal records an account evidencing
the indebtedness of the Borrower to BOM owing to it in respect
of the Bridge Loans, including the principal amount of the
Bridge Loans made by it and the interest thereon and each
repayment and prepayment in respect thereof. Any such
recordation shall be conclusive and binding on the Borrower,
absence manifest error; provided, that the failure to make any
such recordation, or any error in such recordation, shall not
affect the Borrower's obligation to repay all principal and
interest in respect of the Bridge Loans. Upon request by BOM,
the Borrower shall execute and deliver to BOM a promissory note
to evidence the Bridge Loans (the "Bridge Loan Note", the Bridge
Loan Note to constitute a Note for all purposes of the Loan
Documents), the Bridge Loan Note to be payable to the order of
BOM in the principal amount of $3,000,000 and otherwise in the
form of Exhibit J hereto. Without regard to the face principal
amount of the Bridge Loan Note, the actual principal amount at
any time outstanding and owing by the Borrower on account of the
Bridge Loan Note shall be the sum of all Bridge Loans then or
theretofore made thereon less all payments actually received
thereon.
(b) Minimum Borrowing Amount. Each Bridge Loan shall be
in an amount not less than $100,000.
(c) Interest on Bridge Loans. The outstanding principal
balance of the Bridge Loans shall bear interest (computed on the
basis of a year of 360 days and actual days elapsed) at the Base
Rate from time to time in effect plus 3.75%, provided that if
the Bridge Loans are not paid when due, at the election of BOM,
such Bridge Loans shall bear interest at a rate per annum of 2%
in excess of the interest otherwise payable thereon. Interest on
each Bridge Loan shall be payable at maturity (whether by
acceleration
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<PAGE> 3
or otherwise), and after maturity interest shall be payable upon
demand.
(d) Application of Payments. Notwithstanding anything
herein or in any other Loan Document to the contrary, the
Borrower and the Banks each hereby acknowledge and agree that
all payments received in respect of Obligations by the Agent and
all proceeds of Collateral (in each case, whether before or
after the occurrence of an Event of Default) shall be applied
first to reduce the Bridge Loans (both for principal and
interest) until payment in full thereof before payment of the
other Obligations outstanding under this Agreement and the other
Loan Documents.
(e) Purpose. The Borrower shall apply the initial advance
of the Bridge Loans due under to the payment of payroll, current
medical claims, interest and fees owing to the Banks under this
Agreement (other than certain fees due to the Agent and its
Affiliate, Nesbitt Burns Securities, Inc.), and fees owing to
the consultant for the Banks for services rendered, and
thereafter the Borrower shall apply proceeds of Bridge Loans
made to it hereunder for its current working capital purposes.
1.2. Section 8 of the Credit Agreement shall be amended by adding
at the end thereof a new Section 8.36 which shall read as follows:
Section 8.36. Management Consultant. The Borrower hereby
agrees to engage a management consultant recognized as having
experience in the healthcare industry on or before November 24,
1999, to evaluate the business and financial condition of the
Borrower and its Subsidiaries and their business prospects, such
management consultant to be selected by the Borrower and
satisfactory to the Agent. The Borrower shall at all times make
the management consultant's written evaluations and
recommendations available to the Agent and the Banks and shall
otherwise make the management consultant available at all
reasonable times to discuss with the Agent and the Banks and
their duly authorized representatives and agents the affairs,
finances, books and records, and business prospects of the
Borrower and its Subsidiaries.
1.3. Section 8.5 of the Credit Agreement shall be amended by
adding at the end thereof the following additional financial reporting
requirement:
As soon as available, and in any event no later than
Wednesday of each week (commencing November 17, 1999), the
Borrower shall provide the Agent with an updated weekly cash
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<PAGE> 4
budget prepared through the last day of the Bridge Loan Period
(or such later date requested by the Agent) in form and
substance, and in such detail, as required by the Agent together
with a weekly cash budget update reflecting the actual cash
receipts and cash disbursements made during the prior week and
any deviations from the weekly cash budget previously furnished
to the Agent.
1.4. Section 12.13(ii) shall be amended by deleting the period
appearing at the end thereof and inserting the following at the end
thereof:
, or increase the Commitments or aggregate amount of the
Credits made available hereunder.
1.5. Any reference in the Credit Agreement to the "Notes" shall
be deemed amended to mean, collectively, all of the promissory notes of
the Borrower issued under the Credit Agreement to the Banks, including,
without limitation, the Bridge Loan Note.
1.6. Any reference in the Credit Agreement to the "Loans" shall
be amended to mean, collectively, all of the loans made to the Borrower
under the Credit Agreement, including, without limitation, the Bridge
Loans.
1.7. Exhibit J to the Credit Agreement is hereby amended and
restated to read as set forth in the form attached to this Amendment as
Annex A attached hereto.
SECTION 2. WAIVERS.
The Borrower has requested that the Banks temporarily waive effective
September 30, 1999, the Borrower's non-compliance with the following covenants
contained in the Credit Agreement: (i) Section 1.8(b) which required payment of
the September 30, 1999, principal installment of $388,040.80 due with respect
to the Term A Loans, (ii) Section 1.4 which required timely payment of interest
when due in the amount of $409,411.96 which payment was received on October 6
and 7, 1999, which was after the applicable grace period, (iii) Section 8.5(a)
which required the furnishing of the July 1999, August 1999, and September 1999
monthly financial statements to the Banks, (iv) Section 4.2 which required
putting in place blocked account arrangements, (v) Section 8.5(h) which
required providing the Banks with written notice of default, and (vi) Section
8.34 which will require repayment of the Loans by $2,000,000 out of the
proceeds of repayment of advances made by the Borrower to the practice groups.
In order to accommodate the Borrowers request, the Banks hereby agree
to temporarily waive the Borrower's non-compliance with the above-referenced
covenants through the period ending November 24, 1999. This waiver is
conditioned upon the satisfaction of the conditions precedent set forth in
Section 3 below. The Banks expect and require that the Borrower comply with the
covenants referred to in clauses (i)-(vi) above on or before November 24, 1999.
If the Borrower is not in compliance with covenants listed in clauses (i)-(vi)
above as of November 24, 1999, the waiver set forth herein shall no longer be
in effect and the Banks shall be entitled to enforce the covenants referenced
above as Events of Default pursuant to Section 9 of the Credit
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<PAGE> 5
Agreement and any and all of the Banks' rights and remedies under the Loan
Documents as a result thereof.
Except as specifically waived hereby, all of the terms and conditions
of the Credit Agreement shall stand and remain unchanged and in full force and
effect. This waiver does not extend to or cover any other Events of Default
which may now or hereafter exist under the Credit Agreement, this waiver being
expressly limited to the covenants referred to in clauses (i)-(vi) above.
SECTION 3. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
3.1. The Borrower, the Agent, and the Banks shall have executed
and delivered this Amendment.
3.2. Each Material Subsidiary shall have executed its
acknowledgement and consent to this Amendment in the space provided for
that purpose below.
3.3. The Agent shall have received for each Bank the favorable
written opinion of counsel to the Borrower, in form and substance
reasonably satisfactory to the Agent.
3.4. Legal matters incident to the execution and delivery of this
Amendment shall be satisfactory to the Agent and its counsel.
SECTION 4. RELEASE OF CLAIMS.
TO INDUCE THE BANKS AND THE AGENT TO ENTER INTO THIS AMENDMENT, THE
BORROWER AND, BY SIGNING THE ACKNOWLEDGEMENT AND CONSENT REFERRED TO BELOW,
EACH OF ITS SUBSIDIARIES HEREBY RELEASE, ACQUIT, AND FOREVER DISCHARGE THE
BANKS AND THE AGENT AND EACH OF THEIR AFFILIATES (INCLUDING, WITHOUT
LIMITATION, NESBITT BURNS SECURITIES, INC. AND HARRIS TRUST AND SAVINGS BANK),
AND THEIR OFFICERS, DIRECTORS, AGENTS, EMPLOYEES, SUCCESSORS, AND ASSIGNS, FROM
ALL LIABILITIES, CLAIMS, DEMANDS, ACTIONS, AND CAUSES OF ACTION OF ANY KIND (IF
ANY THERE BE), WHETHER ABSOLUTE OR CONTINGENT, DUE OR TO BECOME DUE, DISPUTED
OR UNDISPUTED, AT LAW OR IN EQUITY, THAT THEY NOW HAVE OR EVER HAD AGAINST THE
BANKS AND THE AGENT AND THEIR AFFILIATES, OR ANY ONE OR MORE OF THEM
INDIVIDUALLY, UNDER OR IN CONNECTION WITH THE CREDIT AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS OR ANY OTHER CREDIT, DEPOSIT OR OTHER FINANCIAL
ACCOMMODATION MADE AVAILABLE TO THE BORROWER OR ANY ONE OR MORE OF ITS
SUBSIDIARIES.
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<PAGE> 6
SECTION 5. MISCELLANEOUS.
5.1. The Borrower has heretofore executed and delivered to the Agent and
the Banks certain of the Collateral Documents. The Borrower hereby acknowledges
and agrees that, notwithstanding the execution and delivery of this Amendment,
the Collateral Documents remain in full force and effect and the rights and
remedies of the Agent and the Banks thereunder, the obligations of the Borrower
thereunder, and the liens and security interests created and provided for
thereunder remain in full force and effect and shall not be affected, impaired,
or discharged hereby. The Borrower hereby acknowledges and agrees that the
Bridge Loans constitute Obligations secured by each of the Collateral
Documents. Nothing herein contained shall in any manner affect or impair the
priority of the liens and security interests created and provided for by the
Collateral Documents as to the indebtedness which would be secured thereby
prior to giving effect to this Amendment.
5.2. Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit Agreement,
the Notes, or any other instrument or document executed in connection
therewith, or in any certificate, letter or communication issued or made
pursuant to or with respect to the Credit Agreement, any reference in any of
such items to the Credit Agreement being sufficient to refer to the Credit
Agreement as amended hereby.
5.3. The Borrower agrees to pay on demand all costs and expenses of or
incurred by the Agent in connection with the negotiation, preparation,
execution, and delivery of this Amendment and the other instruments and
documents to be executed and delivered in connection herewith, including the
fees and expenses of counsel for the Agent.
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<PAGE> 7
5.4. This Amendment may be executed in any number of counterparts, and by
the different parties on different counterpart signature pages, all of which
taken together shall constitute one and the same agreement. Any of the parties
hereto may execute this Amendment by signing any such counterpart and each of
such counterparts shall for all purposes be deemed to be an original. This
Amendment shall be governed by the internal laws of the State of Illinois.
5.5. This Amendment together with the other Loan Documents represent the
entire agreement of the Borrower, its Subsidiaries, the Banks and the Agent
with respect to the subject matter hereof and thereof, and there are no
promises or undertakings by the Banks or the Agent relative to the subject
matter hereof or thereof not expressly set forth therein. While the Agent and
the Banks intend to review and discuss with the Borrower the situation arising
as a result of the existing Events of Default and the Borrower's current
financial condition and business prospects, no such discussions shall be
binding upon the Agent or the Banks or otherwise create any additional
obligations unless agrees to in writing by the parties hereto. The Agent and
the Banks make no representations as to what actions, if any, the Agent and the
Banks will take after the expiration of the waiver period set forth in Section
2 above with respect to the Events of Default referred to therein if uncured at
that time or with respect to any other Event of Default not subject to the
limited waiver of Section 2 above, and the Agent and the Banks must and do
specifically reserve any and all rights and remedies they have (after giving
effect to this Amendment) with respect to any such Event of Default.
[SIGNATURE PAGES TO FOLLOW]
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<PAGE> 8
This Fourth Amendment to Amended and Restated Credit Agreement is dated
as of the date and year first above written.
VISION TWENTY-ONE, INC.
By /s/ Richard Welch
--------------------------------------
Name Richard Welch
Title Chief Financial Officer
Accepted and agreed to as of the day and year last above written.
BANK OF MONTREAL, in its individual PILGRIM PRIME RATE TRUST
Capacity as a Bank and as a Agent By: Pilgrim Investments, Inc.,
as its Investment Manager
By /s/ Jack J. Kane By /s/ Charles E. LeMieux
- ----------------------------------- ----------------------------------
Name Jack J. Kane Name Charles E. LeMieux, CFA
Title Director Title Assistant Vice President
BANK ONE TEXAS, N.A. PILGRIM AMERICA HIGH INCOME
INVESTMENTS LTD.
By: Pilgrim Investments, Inc.,
as its Investment Manager
By /s/ Ronnie Kaplan By /s/ Charles E. LeMieux
- ----------------------------------- ----------------------------------
Name Ronnie Kaplan Name Charles E. LeMieux, CFA
Title Vice President Title Assistant Vice President
PACIFICA PARTNERS I, L.P. MERRILL LYNCH BUSINESS FINANCIAL
By: Imperial Credit Asset SERVICES, INC.
Management, as its
Investment Manager
By /s/ Dean K. Kawa By /s/ M. Thadeus Murphy
- ----------------------------------- ----------------------------------
Name Dean K. Kawa Name M. Thadeus Murphy
Title Vice President Title AVP and Counsel
S-1
<PAGE> 9
ACKNOWLEDGEMENT AND CONSENT
The undersigned, being all of the Material Subsidiaries of Vision
Twenty-One, Inc., have heretofore executed and delivered to the Agent and the
Banks one or more Guaranties and Collateral Documents. Each of the undersigned
hereby consents to the Fourth Amendment to Credit Agreement as set forth above
and confirms that its Guaranty and Collateral Documents, and all of its
obligations thereunder, remain in full force and effect and, without limiting
the foregoing, acknowledges and agrees that the Bridge Loans constitute
Obligations guaranteed by, or otherwise secured by, the Loan Documents executed
by it. Each of the undersigned further agrees that the consent of the
undersigned to any further amendments to the Credit Agreement shall not be
required as a result of this consent having been obtained, except to the
extent, if any, required by the Loan Documents referred to above.
"GUARANTORS"
VISION 21 PHYSICIAN PRACTICE MANAGEMENT
COMPANY
VISION 21 OF SOUTHERN ARIZONA, INC.
VISION 21 OF SIERRA VISTA, INC.
VISION 21 MANAGEMENT SERVICES, INC.
VISION 21 MANAGED EYE CARE OF TAMPA BAY, INC.
VISION TWENTY-ONE MANAGED EYE CARE IPA, INC.
BBG-COA, INC.
BLOCK VISION, INC.
UVC INDEPENDENT PRACTICE ASSOCIATION, INC.
MEC HEALTH CARE, INC.
LSI ACQUISITION, INC.
VISION TWENTY-ONE EYE SURGERY CENTERS, INC.
EYE SURGERY CENTER MANAGEMENT, INC.
VISION TWENTY-ONE REFRACTIVE CENTER, INC.
VISION TWENTY-ONE OF WISCONSIN, INC.
By /s/ Richard T. Welch
------------------------------------------
Richard T. Welch, an authorized signatory
for each of the above-referenced entities
S-2
<PAGE> 10
ANNEX A TO FOURTH AMENDMENT TO CREDIT AGREEMENT
EXHIBIT J
BRIDGE LOAN NOTE
U.S. $3,000,000 ____________, 1999
FOR VALUE RECEIVED, the undersigned, VISION TWENTY-ONE, INC., a Florida
corporation (the "Borrower"), promises to pay to the order of Bank of Montreal
(the "Bank") on November 24, 1999, at the principal office of the Agent in
Chicago, Illinois, in immediately available funds, the principal sum of Three
Million Dollars ($3,000,000) or, if less, the aggregate unpaid principal amount
of all Bridge Loans made by the Bank to the Borrower pursuant to the Credit
Agreement and with each such Bridge Loan to mature and become payable as
provided in the Credit Agreement, together with interest on the principal
amount of each such Bridge Loan from time to time outstanding hereunder at the
rates, and payable in the manner and on the dates, specified in the Credit
Agreement.
The Bank shall record on its books or records or on a schedule attached
to this Note, each Bridge Loan made by it together with all payments of
principal and interest and the principal balances from time to time outstanding
hereon, and the interest rate applicable thereto, provided that prior to the
transfer of this Note all such amounts shall be recorded on a schedule attached
to this Note. The record thereof, whether shown on such books or records or on
the schedule to this Note, shall be prima facie evidence of the same, provided,
however, that the failure of the Bank to record any of the foregoing or any
error in any such record shall not limit or otherwise affect the obligation of
the Borrower to repay all Bridge Loans made to it under the Credit Agreement
together with accrued interest thereon.
This Note is one of the Notes referred to in the Amended and Restated
Credit Agreement dated as of July 1, 1998, among the Borrower, the Banks party
thereto, and Bank of Montreal as Agent for the Banks (such Amended and Restated
Credit Agreement as the same may from time to time be amended being referred to
as the "Credit Agreement") and payment hereof is secured by the Loan Documents,
and this Note and the holder hereof are entitled to all the benefits provided
for thereby or referred to therein, to which Credit Agreement and Loan
Documents reference is hereby made for a statement thereof. All defined terms
used in this Note, except terms otherwise defined herein, shall have the same
meaning as in the Credit Agreement. This Note shall be governed by and
construed in accordance with the laws of the State of Illinois.
Prepayments may be made hereon, certain prepayments are required to be
made hereon and this Note may be declared due prior to the expressed maturity
hereof, all in the events, on the terms and in the manner as provided for in
the Credit Agreement.
<PAGE> 11
The Borrower hereby waives demand, presentment, protest or notice of
any kind hereunder.
VISION TWENTY-ONE, INC.
/s/
By______________________________________
Name__________________________________
Title_________________________________
S-2
<PAGE> 1
EXHIBIT 10.70
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of the 10 day of
November, 1996 (the "Agreement"), by and between VISION 21, INC., a Florida
corporation, (the "Company"), and LYNN A. HECKLER (the "Executive").
WHEREAS, the Company is presently engaged in the business of
providing physician practice management services and related services to
ophthalmologists, optometrists and other eye care providers;
WHEREAS, the Executive has experience in the human resources
field;
WHEREAS, the Company wishes to assure itself of the services
of the Executive for the period provided in this Agreement and the Executive is
willing to serve in the employ of the Company for such period upon the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants
herein contained, the parties, intending to be legally bound, hereby agree as
follows:
1. EMPLOYMENT
The Company hereby agrees to continue to employ the Executive
upon the terms and conditions herein contained, and the Executive hereby agrees
to accept such employment for the term described below. The Executive agrees to
serve as the Company's Director of Human Resources and to perform the duties
and functions customarily performed by the Director of Human Resources of a
publicly traded firm during the term of this Agreement. In such capacity, the
Executive shall have such powers and responsibilities consistent with her
position as the Chief Executive Officer and Board of Directors may assign to
her.
Throughout the term of this Agreement, the Executive shall
devote her best efforts and substantially all of her business time and services
to the business and affairs of the Company.
2. TERM OF AGREEMENT
The two (2) year initial term of employment under this
Agreement shall commence as of November 10, 1996 (the "Effective Date"). After
the expiration of such two year initial employment period, the term of the
Executive's employment hereunder shall automatically be extended without
further action by the parties for successive one (1) year renewal terms,
provided that if either party gives the other party at least thirty (30) days
advance written notice of her or its intention to not renew this Agreement for
an additional term, the Agreement shall terminate upon the expiration of the
current term.
Notwithstanding the foregoing, the Company shall be entitled
to terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Executive (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates her employment before the
current term of this Agreement expires, as described in Section 5(d).
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<PAGE> 2
3. SALARY AND BONUS
The Executive shall receive a base salary during the term of
this Agreement at a rate of not less than $75,000 per annum, payable in
installments consistent with the Company's normal payroll schedule. The
Compensation Committee of the Board shall consult with the President and review
this base salary at annual intervals, and may adjust the Executive's annual
base salary from time to time as the Committee deems to be appropriate.
The Executive shall also be eligible to receive an annual
incentive bonus from the Company for each fiscal year of the Company during the
term of this Agreement. If the Company has fully achieved such financial
performance targets as may be set for the fiscal year by the Compensation
Committee, the amount payable to the Executive shall be 30 percent of her
annual base salary in effect on the last day of the year. If the Company fails
to fully achieve its financial performance targets for the fiscal year, the
portion of such bonus which shall be paid to the Executive shall be such amount
as may be determined to be appropriate by the Compensation Committee of the
Company's Board, based on the Company's partial achievement of the performance
measures.
4. ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional
compensation and welfare and fringe benefits:
(a) Stock Options. As of the Effective Date of this
Agreement, the Executive shall be granted nonstatutory stock options
with respect to 35,000 shares of common stock pursuant to the terms of
the Company's 1996 Stock Incentive Plan, with options to vest in a
series of four equal installments. During the remaining term of the
Agreement, any additional stock option or restricted stock awards
under the 1996 Stock Incentive Plan shall be at the discretion of the
Compensation Committee of the Company's Board.
(b) Medical Insurance. The Company shall provide the
Executive and her dependents with health insurance coverage no less
favorable than that from time to time made available to other key
employees.
(c) Vacation. The Executive shall be entitled to up to four
weeks of vacation during each year during the term of this Agreement
and any extensions thereof, prorated for partial years.
(d) Relocation Allowance. The Company shall provide the
Executive with an allowance of up to three thousand dollars ($3,000)
to reimburse her for the costs of relocating her household to the
Tampa, Florida metropolitan area.
(e) Business Expenses. The Company shall reimburse the
Executive for all reasonable expenses she incurs in promoting the
Company's business, including expenses for travel, entertainment of
business associates and similar items, upon presentation by the
Executive from time to time of an itemized account of such
expenditures.
In addition to the benefits provided pursuant to the
preceding paragraphs of this Section 4, the Executive shall be eligible to
participate in such other executive compensation and retirement plans of the
Company as are applicable generally to other officers, and in such welfare
benefit plans, programs, practices and policies of the Company as are generally
applicable to other key employees.
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<PAGE> 3
5. PAYMENTS UPON TERMINATION
(a) Involuntary Termination. If the Executive's employment is
terminated by the Company during the term of this Agreement, the Executive
shall be entitled to receive her base salary accrued through the date of
termination. The Executive shall also receive any nonforfeitable benefits
already earned and payable to her under the terms of any deferred compensation,
incentive or other benefit plan maintained by the Company, payable in
accordance with the terms of the applicable plan.
If the termination is not for death, disability as described
in paragraph (b), for Cause as described in paragraph (c) or a voluntary
termination by the Executive as described in paragraph (d), the Company shall
also be obligated to make a series of monthly payments to the Executive for
each month during the remaining term of this Agreement, but not less than
twelve (12) months. Each monthly payment shall be equal to one-twelfth (1/12th)
of the Executive's annual base salary, as in effect on the date of termination.
(b) Disability. The Company shall be entitled to terminate
this Agreement, if the Board determines that the Executive has been unable to
attend to her duties for at least ninety (90) days because of a medically
diagnosable physical or mental condition, and has received a written opinion
from a physician acceptable to the Board that such condition prevents the
Executive from resuming full performance of her duties and is likely to
continue for an indefinite period. Upon such termination, the Company shall pay
to Executive a monthly disability benefit equal to one-twenty-fourth (1/24th)
of her current annual base salary at the time she became permanently disabled.
Payment of such disability benefit shall commence on the last day of the month
following the date of the termination by reason of permanent disability and
cease with the earliest of (i) the month in which the Executive returns to
active employment, either with the Company or otherwise, (ii) the end of the
initial term of this Agreement, or the current renewal term, as the case may
be, or (iii) the twenty-fourth month after the date of the termination. Any
amounts payable under this Section 5(b) shall be reduced by any amounts paid to
the Executive under any long-term disability plan or other disability program
or insurance policies maintained or provided by the Company.
(c) Termination for Cause. If the Executive's employment is
terminated by the Company for Cause, the amount the Executive shall be entitled
to receive from the Company shall be limited to her base salary accrued through
the date of termination, and any nonforfeitable benefits already earned and
payable to the Executive under the terms of deferred compensation or incentive
plans maintained by the Company.
For purposes of this Agreement, the term "Cause" shall be
limited to (i) any action by the Executive involving willful disloyalty to the
Company, such as embezzlement, fraud, misappropriation of corporate assets or a
breach of the covenants set forth in Sections 9 and 10 below; or (ii) the
Executive being convicted of a felony; or (iii) the Executive being convicted
of any lesser crime or offense committed in connection with the performance of
her duties hereunder or involving moral turpitude; or (iv) the intentional and
willful failure by the Executive to substantially perform her duties hereunder
as directed by the Company's Chief Executive Officer or Board of Directors
(other than any such failure resulting from the Executive's incapacity due to
physical or mental disability).
(d) Voluntary Termination by the Executive. If the Executive
resigns or otherwise voluntarily terminates her employment before the end of
the current term of this Agreement, the amount the Executive shall be entitled
to receive from the Company shall be limited to her base salary accrued through
the date of termination, and any nonforfeitable benefits already earned and
payable to the Executive under the terms of any deferred compensation or
incentive plans of the Company.
For purposes of this paragraph, a resignation by the
Executive shall not be deemed to be voluntary if the Executive resigns during
the period of three months after the date she is (1) assigned to a position of
lesser rank (other than for Cause, or by reason of permanent disability), (2)
assigned duties materially inconsistent with such position.
-3-
<PAGE> 4
6. EFFECT OF CHANGE IN CORPORATE CONTROL
(a) In the event of a Change in Corporate Control, the
vesting of any stock options or other awards granted to the Executive under the
terms of the Company's 1996 Stock Incentive Plan shall become immediately
vested in full and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control,
the Executive is involuntarily terminated (other than for Cause) by the
Company, the Executive shall be entitled to receive as severance pay in lieu of
the monthly payments described in Section 5(a) above, a series of twelve (12)
equal monthly payments, each equal to one-twelfth (1/12th) of the sum of (i)
the Executive's annual base salary in effect at the time of the Change in
Corporate Control plus (ii) the annual bonus paid to the Executive with respect
to the last fiscal year of the Company ending prior to the Change in Corporate
Control.
(b) For purposes of this Agreement, a "Change in Corporate
Control" shall include any of the following events:
(1) The acquisition in one or more transactions of
more than thirty percent of the Company's outstanding Common Stock by
any corporation, or other person or group (within the meaning of
Section 14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company into
or with another corporation in which the Company is not the surviving
entity, or any transfer or sale of substantially all of the assets of
the Company or any merger or consolidation of the Company into or with
another corporation in which the Company is the surviving entity and,
in connection with such merger or consolidation, all or part of the
outstanding shares of Common Stock shall be changed into or exchanged
for other stock or securities of any other person, or cash, or any
other property.
(3) Any election of persons to the Board of
Directors which causes a majority of the Board of Directors to consist
of persons other than (i) persons who were members of the Board of
Directors on September 1, 1996, and (ii) persons who were nominated
for election as members of the Board by the Board of Directors (or a
Committee of the Board) at a time when the majority of the Board (or
of such Committee) consisted of persons who were members of the Board
of Directors on September 1, 1996; provided, that any person nominated
for election by the Board of Directors composed entirely of persons
described in (i) or (ii), or of persons who were themselves nominated
by such Board, shall for this purpose be deemed to have been nominated
by a Board composed of persons described in (i).
(4) Any person, or group of persons, announces a
tender offer for at least thirty percent (30%) of the Company's Common
Stock.
provided that, no acquisition of stock by any person in a public offering or
private placement of the Company's common stock or other transaction approved
by the Company's Board of Directors shall be considered a Change in Corporate
Control.
(c) Notwithstanding anything else in this Agreement, the
amount of severance compensation payable to the Executive as a result of a
Change in Corporate Control under this Section 6, or otherwise, shall be
limited to the maximum amount the Company would be entitled to deduct pursuant
to Section 280G of the Internal Revenue Code of 1986, as amended.
-4-
<PAGE> 5
7. DEATH
If the Executive dies during the term of this Agreement, the
Company shall pay to the Executive's estate a lump sum payment equal to the sum
of the Executive's base salary accrued through the date of death plus the total
unpaid amount of any bonuses earned with respect to the fiscal year of the
Company most recently ended. In addition, the death benefits payable by reason
of the Executive's death under any retirement, deferred compensation or other
employee benefit plan maintained by the Company shall be paid to the
beneficiary designated by the Executive in accordance with the terms of the
applicable plan or plans.
8. WITHHOLDING
The Company shall, to the extent permitted by law, have the
right to withhold and deduct from any payment hereunder any federal, state or
local taxes of any kind required by law to be withheld with respect to any such
payment.
9. PROTECTION OF CONFIDENTIAL INFORMATION
The Executive agrees that she will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade
secrets) confidential, and that she will not (except with the Company's prior
written consent), while in the employ of the Company or thereafter, disclose
any such confidential information to any person, firm, corporation, association
or other entity, other than in furtherance of her duties hereunder, and then
only to those with a "need to know." The Executive shall not make use of any
such confidential information for her own purposes or for the benefit of any
person, firm, corporation, association or other entity (except the Company)
under any circumstances during or after the term of her employment. The
foregoing shall not apply to any information which is already in the public
domain, or is generally disclosed by the Company or is otherwise in the public
domain at the time of disclosure.
The Executive recognizes that because her work for the
Company will bring her into contact with confidential and proprietary
information of the Company, the restrictions of this Section 9 are required for
the reasonable protection of the Company and its investments and for the
Company's reliance on and confidence in the Executive.
10. COVENANT NOT TO COMPETE
The Executive hereby agrees that she will not, either during
the Employment Term or during the period of twelve (12) months from the time
the Executive's employment under this Agreement is terminated, engage in any
business activities on behalf of any enterprise which competes with the Company
in the business of managing ophthalmology or optometry practices or related eye
care or medical facilities. The Executive will be deemed to be engaged in such
competitive business activities if she participates in such a business
enterprise as an employee, officer, director, consultant, agent, partner,
proprietor, or other participant; provided that the ownership of no more than 2
percent of the stock of a publicly traded corporation engaged in a competitive
business shall not be deemed to be engaging in competitive business activities.
The Executive agrees that she shall not, for a period of one
year from the time her employment under this Agreement ceases (for whatever
reason), or, if later, during any period in which she is receiving monthly
severance payments under Section 5 or Section 6 of this Agreement,
(i) solicit any employee or full-time consultant of the Company for
the purposes of hiring or retaining such employee or consultant, or
-5-
<PAGE> 6
(ii) contact any present or prospective client of the Company to
solicit such a person to enter into a management contract with any
organization other than the Company or a related entity.
For this purpose, the Executive shall be considered to be receiving monthly
severance payments under Section 5 of this Agreement during any period for
which she would be entitled to receive such severance payments.
11. INJUNCTIVE RELIEF
The Executive acknowledges and agrees that it would be
difficult to fully compensate the Company for damages resulting from the breach
or threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce such provisions
in any action or proceeding instituted in the United States District Court for
the Western District of Florida or in any court in the State of Florida having
subject matter jurisdiction. This provision with respect to injunctive relief
shall not, however, diminish the Company's right to claim and recover damages.
It is expressly understood and agreed that although the
parties consider the restrictions contained in this Agreement to be reasonable,
if a court determines that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction on the activities
of the Executive, no such provision of this Agreement shall be rendered void
but shall be deemed amended to apply as to such maximum time and territory and
to such extent as such court may judicially determine or indicate to be
reasonable.
12. SEPARABILITY
If any provision of this Agreement shall be declared to be
invalid or unenforceable, in whole or in part, such invalidity or
unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect.
13. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit
of the heirs and representatives of the Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by the Executive.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties
and shall supersede any and all previous contracts, arrangements or
understandings between the Company and the Executive. The Agreement may be
amended at any time by mutual written agreement of the parties hereto.
15. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed
in accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the Company has caused this Agreement to
be duly executed, and the Executive has hereunto set her hand, as of the day
and year first above written.
Attest: VISION 21, INC.
/s/ Richard J. Welch By /s/ Theodore Gillette
- -------------------- -------------------------------------
Secretary Title: President and CEO
Witness: EXECUTIVE:
/s/ Judi Erekson /s/ Lynn A. Heckler
- -------------------- ---------------------------------------
LYNN A. HECKLER
-7-
<PAGE> 1
EXHIBIT 10.71
EMPLOYMENT AGREEMENT
MADE as of the 1st day of August, 1999 (the "Agreement"), by and
between VISION TWENTY-ONE, INC., a Florida corporation (the "Company"), and
ANDREW ALCORN (the "Executive").
WHEREAS, the Company is presently engaged in the business of providing
laser vision correction, ambulatory surgery center services and management, and
managed eye care, practice management and related services to ophthalmologists,
optometrists and other eye care providers;
WHEREAS, the Executive has extensive management experience and is
willing to serve as President of the Company's Managed Care Division;
WHEREAS, the Company wishes to assure itself of the services of the
Executive for the period provided in this Agreement and the Executive is
willing to serve in the employ of the Company for such period upon the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. EMPLOYMENT
The Company hereby agrees to employ the Executive upon the terms and
conditions herein contained, and the Executive hereby agrees to accept such
employment for the term described below. The Executive agrees to serve as the
President of the Company's Managed Care Division and to have such powers and
responsibilities consistent with his position as the Chief Operating Officer
may assign to him.
Throughout the term of this Agreement, the Executive shall devote his
best efforts and substantially all of his business time and services to the
business and affairs of the Company.
2. TERM OF AGREEMENT
The two (2) year initial term of employment under this Agreement shall
commence as of August 1, 1999 (the "Effective Date"). At the expiration of the
initial employment period, the term of the Executive's employment hereunder
shall automatically be extended without further action by the parties for
successive one (1) year renewal terms, provided that if either party gives the
other party at least thirty (60) days advance written notice of his or its
intention not to renew this Agreement for the additional term, the Agreement
shall terminate upon the expiration of the current term.
Notwithstanding the foregoing, the Company shall be entitled to
terminate this Agreement immediately, subject to a continuing obligation to
make any payments required under Section 5 below, if the Executive (i) becomes
disabled as described in Section 5(b), (ii) is terminated for Cause, as defined
in Section 5(c), or (iii) voluntarily terminates his employment before the
current term of this Agreement expires, as described in Section 5(d).
<PAGE> 2
3. SALARY AND BONUS
The Executive shall receive a base salary during the term of this
Agreement at a rate of not less than $225,000.00 per annum, payable in biweekly
installments consistent with the Company's normal payroll schedule. The
Compensation Committee of the Company's Board shall consult with the Chief
Executive Officer and the Chief Operating Officer to review this base salary at
annual intervals, and may adjust the Executive's annual base salary from time
to time as the Committee deems to be appropriate.
The Executive shall also be eligible to receive an annual incentive
bonus from the Company for each fiscal year of the Company during the term of
this Agreement. The Executive shall be eligible to receive up to 40 percent of
his annual base salary in effect on the last day of the year pursuant to the
terms of the Company's Incentive Compensation Program ("ICP").
The payment of a bonus to the Executive under terms of the ICP is
intended to comply with and shall be interpreted in accordance with the
requirements of Section 162(m) of the Internal Revenue Code, and accordingly,
if the Compensation Committee of the Board follows the foregoing requirements
and the annual bonus is disapproved by the Compensation Committee of the Board
accordance with said requirements, the Executive shall not be paid the
performance-based portion of the bonus for the fiscal year at issue, to the
extent such performance-based portion of the bonus causes the Executive's total
applicable remuneration to exceed $1,000,000 for the fiscal year at issue.
4. ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional compensation and
welfare and fringe benefits:
(a) Stock Options. Pursuant to the terms of a separate stock option
agreement, the Executive shall be granted nonstatutory stock options
under the Company's 1996 Stock Incentive Plan with respect to 50,000
shares of common stock.
(b) Medical and Life Insurance. The Company shall provide the
Executive and his dependents with health insurance coverage on the
same basis as that from time to time made available to other
executives.
(c) Automobile. The Company will provide the Executive with the use of
a Company automobile. The Company will cover the costs of routine
maintenance, fuel and liability insurance for the leased vehicle. The
Executive will be responsible for appropriately reporting his personal
use of the vehicle for income tax purposes.
(d) Paid Time Off ("PTO"). The Executive shall be entitled to paid
time off for each Company-recognized holiday, and for such other time
as he shall take away from the work site, provided that his
performance is not adversely impacted.
In addition to the benefits provided pursuant to the preceding
paragraphs of this Section 4, the Executive shall be eligible to participate in
such other executive compensation and retirement plans of the Company as are
applicable generally to other executives, and in such welfare benefit
<PAGE> 3
plans, programs, practices and policies of the Company as are generally
applicable to other executives.
5. PAYMENTS UPON TERMINATION
(a) Involuntary Termination. If the Executive's employment is
terminated by the Company during the term of this Agreement for a reason other
than death, disability as described in paragraph (b), "Cause" as described in
paragraph (c), or voluntary termination by the Executive as described in
paragraph (d), the Executive shall be entitled to receive his salary and
welfare benefits until the later to occur of the date of termination of this
Agreement or the date that is twelve (12) months after the date of his
employment termination. For the purposes of the preceding sentence, "salary"
shall mean the highest annual base salary in effect during the year preceding
the employment termination. The Executive shall also receive any nonforfeitable
benefits already earned and payable to him under the terms of any deferred
compensation, incentive or other benefit plan maintained by the Company,
payable in accordance with the terms of the applicable plan. In the event that
the Company should during the term of this Agreement require the Executive to
relocate his business office outside the boundaries of Palm Beach County, he
shall have the right within sixty (60) days following this request to resign
from employment and have such resignation deemed to be an involuntary
termination triggering the severance provisions of this Section 5(a).
(b) Disability. The Company shall be entitled to terminate this
Agreement if the Board determines that the Executive has been unable to attend
to his duties for at least ninety consecutive (90) days because of a medically
diagnosable physical or mental condition, and has received a written opinion
from a physician acceptable to the Board that such condition prevents the
Executive from resuming full performance of his duties and is likely to
continue for an indefinite period. Upon such termination and subject to the
payment provision of the following sentence, the Company shall pay to Executive
a monthly disability benefit equal to one-twelfth (1/12th) of his current
annual base salary at the time he became disabled for the first six (6) months
of such disability, and one-twenty-fourth (1/24th) of his current annual base
salary thereafter. Payment of such disability benefit shall commence on the
last day of the month following the date of the termination by reason of
disability and cease with the earliest to occur of (i) the month in which the
Executive returns to active employment, either with the Company or otherwise,
(ii) the end of the initial term of this Agreement, or the current renewal
term, as the case may be, or (iii) the twenty-fourth (24th) month after the
date of the termination. Any amounts payable under this Section 5(b) shall be
reduced by any amounts paid to the Executive under any disability plan or other
disability program or insurance policies maintained or provided by the Company.
(c) Termination for Cause. If the Executive's employment is terminated
by the Company for Cause, the amount the Executive shall be entitled to receive
from the Company shall be limited to his base salary accrued through the date
of termination, and any nonforfeitable benefits already earned and payable to
the Executive under the terms of deferred compensation or incentive plans
maintained by the Company.
For purposes of this Agreement, the term "Cause" shall be limited to
(i) any action by the Executive involving willful disloyalty to the Company,
such as embezzlement, fraud, misappropriation of corporate assets or a breach
of the covenants set forth in Sections 9 and 10 below; or (ii) the Executive
being convicted of a felony; or (iii) the Executive being convicted of any
lesser crime or offense committed in connection with the performance of his
duties hereunder
<PAGE> 4
or involving moral turpitude; or (iv) the intentional and willful failure by
the Executive to substantially perform his duties hereunder as directed by the
Chief Operating Officer (other than any such failure resulting from the
Executive's incapacity due to physical or mental disability).
(d) Voluntary Termination by the Executive. If the Executive resigns
or otherwise voluntarily terminates his employment before the end of the
current term of this Agreement, the amount the Executive shall be entitled to
receive from the Company shall be limited to his base salary through the date
of termination, and any nonforfeitable benefits already earned and payable to
the Executive under the terms of any deferred compensation or incentive plans
of the Company.
For purposes of this paragraph, a resignation by the Executive shall
not be deemed to be voluntary if the Executive resigns during the period three
months following (i) his assignment to duties materially inconsistent with the
primary duties and responsibilities of his position, or (ii) the Company's
breach of any of its material obligations under this Agreement.
6. EFFECT OF CHANGE IN CORPORATE CONTROL
(a) In the event of a Change in Corporate Control, the vesting of any
stock options or other awards granted to the Executive under the terms of the
Company's 1996 Stock Incentive Plan shall become immediately vested in full
and, in the case of stock options, exercisable in full.
In addition, if, at any time during the period of twelve (12)
consecutive months following the occurrence of a Change in Corporate Control,
the Executive is involuntarily terminated (other than for Cause) by the
Company, the Executive shall be entitled to receive as severance pay in lieu of
the payments described in Section 5(a) above, a series of twelve (12) equal
monthly payments, each equal to one-twelfth (1/12th) of the sum of (i) the
Executive's annual base salary in effect at the time of the Change in Corporate
Control plus (ii) the annual bonus paid to the Executive with respect to the
last fiscal year of the Company ending prior to the Change in Corporate
Control.
(b) For purposes of this Agreement, a "Change in Corporate Control"
shall include any of the following events:
(1) The acquisition in one or more transactions of more than
thirty percent of the Company's outstanding Common Stock by any
corporation, or other person or group (within the meaning of Section
14(d)(3) of the Securities Exchange Act of 1934, as amended);
(2) Any merger or consolidation of the Company into or with
another corporation in which the Company is not the surviving entity,
or any transfer or sale of substantially all of the assets of the
Company or any merger or consolidation of the Company into or with
another corporation in which the Company is the surviving entity and,
in connection with such merger or consolidation, all or part of the
outstanding shares of Common Stock shall be changed into or exchanged
for other stock or securities of any other person, or cash, or any
other property.
(3) Any election of persons to the Board of Directors which
causes a majority of the Board of Directors to consist of persons
other than (i) persons who were members of the Board of Directors on
the Effective Date, and (ii) persons who were nominated for election
<PAGE> 5
as members of the Board by the Board of Directors (or a Committee of
the Board) at a time when the majority of the Board (or of such
Committee) consisted of persons who were members of the Board of
Directors on the Effective Date; provided, that any person nominated
for election by the Board of Directors composed entirely of persons
described in (i) or (ii), or of persons who were themselves nominated
by such Board, shall for this purpose be deemed to have been nominated
by a Board composed of persons described in (i).
(4) Any person, or group of persons, announces a tender offer
for at least thirty percent (30%) of the Company's Common Stock;
provided that, no acquisition of stock by any person in a public offering or
private placement of the Company's common stock approved by the Company's Board
of Directors, shall be considered a Change in Corporate Control.
(c) Notwithstanding anything else in this Agreement, the amount of
severance compensation payable to the Executive as a result of a Change in
Corporate Control under this Section 6, or otherwise, shall be limited to the
maximum amount the Company would be entitled to deduct pursuant to Section 280G
of the Internal Revenue Code of 1986, as amended.
7. DEATH
If the Executive dies during the term of this Agreement, the Company
shall pay to the Executive's estate a lump sum payment equal to the sum of the
Executive's base salary through the date of death, plus the total unpaid amount
of any bonuses earned with respect to the fiscal year of the Company most
recently ended, plus an amount equal to six (6) months' base salary at the rate
in effect on the date of death. Any amounts payable under this Section 7 shall
be reduced by any amounts paid to the Executive's beneficiaries or estate under
insurance program provided by the Company.
8. WITHHOLDING
The Company shall, to the extent permitted by law, have the right to
withhold and deduct from any payment hereunder any federal, state or local
taxes of any kind required by law to be withheld with respect to any such
payment.
9. PROTECTION OF CONFIDENTIAL INFORMATION
The Executive agrees that he will keep all confidential and
proprietary information of the Company or relating to its business (including,
but not limited to, information regarding the Company's customers, pricing
policies, methods of operation, proprietary computer programs and trade
secrets) confidential, and that he will not (except with the Company's prior
written consent), while in the employ of the Company or thereafter, disclose
any such confidential information to any person, firm, corporation, association
or other entity, other than in furtherance of his duties hereunder, and then
only to those with a "need to know." The Executive shall not make use of any
such confidential information for his own purposes or for the benefit of any
person, firm, corporation, association or other entity (except the Company)
under any circumstances during or after the term of his employment. The
foregoing shall not apply to any information which is
<PAGE> 6
already in the public domain, or is generally disclosed by the Company or is
otherwise in the public domain at the time of disclosure.
The Executive recognizes that because his work for the Company will
bring him into contact with confidential and proprietary information of the
Company, the restrictions of this Section 9 are required for the reasonable
protection of the Company and its investments and for the Company's reliance on
and confidence in the Executive.
10. COVENANT NOT TO COMPETE
The Executive hereby agrees that he will not, either during the
Employment Term or until such time as all payments made pursuant to the
provisions of Section 5 of this Agreement cease, engage in any business
activities on behalf of any enterprise which competes with the Company in any
business in which the Company is now engaged or any other business in which the
Company is actively engaged at the time of the termination. The Executive will
be deemed to be engaged in such competitive business activities if he
participates in such a business enterprise as an employee, officer, director,
consultant, agent, partner, proprietor, or other participant; provided that the
ownership of no more than 2 percent of the stock of a publicly traded
corporation engaged in a competitive business shall not be deemed to be
engaging in competitive business activities.
The Executive agrees that he shall not, for a period of one year from
the time his employment under this Agreement ceases (for whatever reason), or,
if later, during any period in which he is receiving monthly severance payments
under Section 5 of this Agreement,
(i) solicit any employee or full-time consultant of the Company for
the purposes of hiring or retaining such employee or consultant, or
(ii) solicit any present or prospective client of the Company for the
purposes of offering such client services or products that are similar
to those the Company is actively engaged in providing at the time of
the Executive's termination.
11. INJUNCTIVE RELIEF
The Executive acknowledges and agrees that it would be difficult to
fully compensate the Company for damages resulting from the breach or
threatened breach of the covenants set forth in Sections 9 and 10 of this
Agreement and accordingly agrees that the Company shall be entitled to
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce such provisions
in any action or proceeding instituted in the United States District Court for
the Western District of Florida or in any court in the State of Florida having
subject matter jurisdiction. This provision with respect to injunctive relief
shall not, however, diminish the Company's right to claim and recover damages.
It is expressly understood and agreed that although the parties
consider the restrictions contained in this Agreement to be reasonable, if a
court determines that the time or territory or any other restriction contained
in this Agreement is an unenforceable restriction on the activities of the
Executive, no such provision of this Agreement shall be rendered void but shall
be deemed amended to apply as to such maximum time and territory and to such
extent as such court may judicially determine or indicate to be reasonable.
<PAGE> 7
12. SEPARABILITY
If any provision of this Agreement shall be declared to be invalid or
unenforceable, in whole or in part, such invalidity or unenforceability shall
not affect the remaining provisions hereof which shall remain in full force and
effect.
13. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the assigns and successors of
the Company, but neither this Agreement nor any rights hereunder shall be
assignable or otherwise subject to hypothecation by the Executive.
14. ENTIRE AGREEMENT
This Agreement represents the entire agreement of the parties and
shall supersede any and all previous contracts, arrangements or understandings
between the Company and the Executive. The Agreement may be amended at any time
only by mutual written agreement of the parties hereto.
15. GOVERNING LAW
This Agreement shall be construed, interpreted, and governed in
accordance with the laws of the State of Florida, other than the conflict of
laws provisions of such laws.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed, and the Executive has hereunto set his hand, as of the day and year
first above written.
Attest: VISION TWENTY-ONE, INC.
/s/ Robert Collins /s/ Theodore Gillette
- ------------------ ----------------------------------------
President/COO Chief Executive Officer
Witness:
/s/ /s/ Andrew Alcorn
- ------------------ ----------------------------------------
ANDREW ALCORN
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF VISION TWENTY-ONE, INC. AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,079,459
<SECURITIES> 0
<RECEIVABLES> 19,813,804
<ALLOWANCES> 3,780,984
<INVENTORY> 1,377,133
<CURRENT-ASSETS> 22,931,459
<PP&E> 18,090,408
<DEPRECIATION> 6,564,515
<TOTAL-ASSETS> 144,854,797
<CURRENT-LIABILITIES> 71,628,859
<BONDS> 832,329
0
0
<COMMON> 15,574
<OTHER-SE> 69,755,055
<TOTAL-LIABILITY-AND-EQUITY> 144,854,797
<SALES> 19,154,456
<TOTAL-REVENUES> 129,965,006
<CGS> 18,257,963
<TOTAL-COSTS> 110,236,825
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,528,826
<INCOME-PRETAX> (9,544,788)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,544,788)
<DISCONTINUED> (8,331,627)
<EXTRAORDINARY> 5,796,771
<CHANGES> 0
<NET-INCOME> (12,079,644)
<EPS-BASIC> (0.80)
<EPS-DILUTED> (0.80)
</TABLE>
