<PAGE> 1
FORM 10Q
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 June 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 INCORPORATION (I.R.S. EMPLOYER
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 15,461,392 Shares outstanding as of July 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
LADS operations, net ............................... $ 14,137,100 $ 23,075,202 $ 27,188,688 $ 44,820,758
Managed care ....................................... 13,812,984 14,065,546 26,820,294 28,250,458
Buying group ....................................... 15,603,678 4,376,734 29,328,826 19,154,456
------------ ------------ ------------ ------------
43,553,762 41,517,482 83,337,808 92,225,672
------------ ------------ ------------ ------------
Operating expenses:
LADS operating expenses ............................ 10,909,722 20,523,697 21,209,058 39,177,099
Medical claims ..................................... 9,932,806 10,347,821 19,591,293 20,719,569
Cost of buying group sales ......................... 14,645,085 4,195,752 27,440,070 18,257,963
General and administrative ......................... 3,824,715 7,332,571 7,932,542 12,138,227
Depreciation and amortization ...................... 1,388,536 2,060,388 2,584,122 3,921,459
Merger costs ....................................... -- -- 508,443 --
Start-up and software development costs ............ 100,490 679,579 167,509 679,579
------------ ------------ ------------ ------------
40,801,354 45,139,808 79,433,037 94,893,896
------------ ------------ ------------ ------------
Income (loss) from operations ........................ 2,752,408 (3,622,326) 3,904,771 (2,668,224)
Interest expense ..................................... 1,046,931 1,844,382 1,674,772 3,729,497
Gain on sale of business ............................. -- (511,063) -- (511,063)
------------ ------------ ------------ ------------
Income (loss) from continuing operations before income
taxes ................................................ 1,705,477 (4,955,645) 2,229,999 (5,886,658)
Income taxes ......................................... 460,479 -- 602,100 --
------------ ------------ ------------ ------------
Income (loss) from continuing operations ............. 1,244,998 (4,955,645) 1,627,899 (5,886,658)
Discontinued operations - income from operations ..... (157,714) (664,424) (662,998) (1,611,614)
Extraordinary item - early extinguishment of debt .... -- -- 397,190 --
------------ ------------ ------------ ------------
Net income (loss) .................................... $ 1,402,712 $ (4,291,221) $ 1,893,707 $ (4,275,044)
============ ============ ============ ============
Earnings (loss) per common share:
Income (loss) from continuing operations ........... $ 0.09 $ (0.33) $ 0.11 $ (0.39)
Discontinued operations ............................ 0.01 0.04 0.05 0.11
Extraordinary charge ............................... -- -- (0.03) --
------------ ------------ ------------ ------------
Net earnings (loss) per common share ................. $ 0.10 $ (0.29) $ 0.13 $ (0.28)
============ ============ ============ ============
Earnings (loss) per common share - assuming dilution:
Income (loss) from continuing operations ........... $ 0.09 $ (0.33) $ 0.11 $ (0.39)
Discontinued operations ............................ 0.01 0.04 0.05 0.11
Extraordinary charge ............................... -- -- (0.03) --
------------ ------------ ------------ ------------
Net earnings (loss) per common share -
assuming dilution .................................. $ 0.10 $ (0.29) $ 0.13 $ (0.28)
============ ============ ============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
1
<PAGE> 3
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
--------------- -------------
ASSETS (AUDITED) (UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................................................................. $ 6,052,423 $ 5,383,578
Accounts receivable due from:
Patients and buying group members, net .................................................. 17,143,261 13,469,048
Managed Professional Associations ....................................................... 3,028,117 2,334,920
Managed health benefits payors .......................................................... 1,573,799 619,712
Inventories ................................................................................ 3,308,813 4,649,144
Prepaid expenses and other current assets .................................................. 3,166,836 3,408,495
------------- -------------
Total current assets ................................................................ 34,273,249 29,864,897
Fixed assets, net ............................................................................ 15,222,586 17,225,714
Intangible assets, net ....................................................................... 132,232,027 127,331,800
Deferred income taxes ........................................................................ 6,300,000 6,300,000
Other assets ................................................................................. 2,561,717 2,253,385
------------- -------------
Total assets ........................................................................ $ 190,589,579 $ 182,975,796
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................................... $ 6,951,099 $ 3,619,745
Accrued expenses ........................................................................... 6,279,213 6,257,840
Medical claims payable ..................................................................... 4,713,995 4,696,138
Accrued compensation ....................................................................... 3,716,787 5,769,631
Accrued restructuring charge ............................................................... 2,796,000 2,313,002
Current portion of long-term debt .......................................................... 2,143,149 2,813,048
Current portion of obligations under capital leases ........................................ 538,820 392,372
------------- -------------
Total current liabilities ........................................................... 27,139,063 25,861,776
Deferred rent payable ........................................................................ 253,258 213,482
Obligations under capital leases ............................................................. 474,891 269,860
Long-term debt, less current portion ......................................................... 81,217,396 76,957,062
Deferred leasehold incentive ................................................................. 271,358 249,428
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 15,430,685 (June 30, 1999) shares issued and outstanding ........................... 15,067 15,431
Additional paid in capital ................................................................. 89,196,292 92,186,431
Common stock to be issued; 105,164 shares (December 31, 1998) and 14,244 (June 30, 1999) ... 1,053,664 128,206
Deferred compensation ...................................................................... (300,435) (246,285)
Notes receivable from officer .............................................................. (172,984) (172,984)
Accumulated deficit ........................................................................ (16,069,991) (20,345,035)
------------- -------------
Total stockholders' equity .......................................................... 73,721,613 71,565,764
------------- -------------
Total liabilities and stockholders' equity .......................................... $ 190,589,579 $ 182,975,796
============= =============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
2
<PAGE> 4
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------------------
1998 1999
------------ -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) .......................................................... $ 1,893,707 $ (4,275,044)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Extraordinary charge - early extinguishment of debt ..................... 635,190 --
Depreciation and amortization ........................................... 2,881,277 4,483,134
Amortization of deferred leasehold incentive ............................ -- (21,930)
Amortization of loan fees ............................................... 73,821 122,532
Non-cash compensation expense ........................................... 80,166 427,240
Amortization of deferred compensation ................................... -- 54,150
Gain on sale of Block Buying Group ...................................... -- (511,063)
Changes in operating assets and liabilities, net of effects from business
combinations:
Accounts receivable, net .............................................. (10,334,998) 4,628,300
Inventories ........................................................... 155,086 (1,340,331)
Prepaid expenses and other current assets ............................. (403,912) (241,659)
Other assets .......................................................... (314,098) 778,564
Accounts payable ...................................................... 3,279,647 (3,331,354)
Accrued expenses ...................................................... 3,121,198 (90,253)
Accrued compensation .................................................. 589,621 2,052,844
Accrued restructuring charge .......................................... -- (482,998)
Deferred rent payable ................................................. -- (39,776)
Medical claims payable ................................................ 164,868 (17,857)
Due to/from Managed Professional Associations ......................... 988,967 693,197
------------ ------------
Net cash provided by operating activities ........................ 2,810,540 2,887,696
INVESTING ACTIVITIES
Payments for fixed assets, net ............................................. (2,470,986) (3,952,316)
Payments for acquisitions, net of cash acquired ............................ (14,474,590) (726,779)
Payments for capitalized acquisition costs ................................. (3,032,384) (133,374)
Net proceeds from sale of Block Buying Group ............................... -- 4,286,060
------------ ------------
Net cash used in investing activities ............................ (19,977,960) (526,409)
FINANCING ACTIVITIES
Proceeds from long-term debt ............................................... 49,632,467 --
Payments on long- term debt ................................................ (27,081,566) --
Proceeds from credit facility .............................................. -- 4,944,686
Payments on credit facility ................................................ -- (8,537,012)
Payments for financing fees ................................................ (729,217) (592,764)
Payments on capital lease obligations and other debt ....................... -- (349,586)
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 95,272
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 (used in) by financing activities .............. 20,154,592 (3,030,132)
------------ ------------
Increase (decrease) in cash and cash equivalents ........................... 2,987,172 (668,845)
Cash and cash equivalents at beginning of period ........................... 4,048,358 6,052,423
------------ ------------
Cash and cash equivalents at end of period ................................. $ 7,035,530 $ 5,383,578
============ ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements
3
<PAGE> 5
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 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 six months ended June 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 PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for income (loss) from continuing operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 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 ....................... $ 1,244,998 $ (4,955,645) $ 1,627,899 $ (5,886,658)
Denominator:
Denominator for basic earnings (loss) per
share-weighted average shares ............. 14,208,521 15,122,566 14,028,813 15,071,244
------------ ------------ ------------ ------------
Effect of dilutive securities:
Stock options ............................. 155,896 -- 175,773 --
Warrants .................................. 166,634 -- 183,303 --
Nonvested stock ........................... 90,146 -- 90,412 --
Contingent shares ......................... -- -- -- --
------------ ------------ ------------ ------------
Dilutive potential common shares ............. 412,676 -- 449,488 --
------------ ------------ ------------ ------------
Denominator for diluted earnings (loss) per
share-adjusted weighted average shares and
assumed conversions ....................... 14,621,197 15,122,556 14,478,301 15,071,244
============ ============ ============ ============
Basic earnings (loss) per common share ....... $ 0.09 $ (0.33) $ 0.11 $ (0.39)
============ ============ ============ ============
Diluted earnings (loss) common share ......... $ 0.09 $ (0.33) $ 0.11 $ (0.39)
============ ============ ============ ============
</TABLE>
4
<PAGE> 6
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
In July 1999, the Company signed a definitive purchase agreement to
sell its retail optical chains - Vision World, Inc., Stein Optical and The Eye
DRx, to Eye Care Centers of America ("ECCA"). ECCA is based in San Antonio,
Texas and operates a national chain of full-service retail optical stores. In
connection with the transaction, the Company will receive approximately $37.0
million in cash, subject to certain closing adjustments. The definitive purchase
agreement has been approved by both companies' board of directors. The parties
have agreed to close the transaction on August 31, 1999, subject to final
completion of normal and customary pre-closing conditions, which the Company
believes will be timely met. The Company anticipates using a substantial portion
of the proceeds to satisfy certain outstanding obligations under its credit
facility. While the sale of these three retail optical chains will reduce the
Company's revenues, it will significantly reduce the Company's debt and related
interest expense and have a positive impact on the Company's overall margins.
5. RESTRUCTURING PLAN
The Company expensed business integration costs of approximately $2.6
million that were incurred during the six months ended June 30, 1999.
Approximately $1.2 million of these costs are included in general and
administrative expenses, and approximately $1.4 million of costs related to the
Company's retail optical chains, is included in income from discontinued
operations. These business integration costs represent incremental or redundant
costs that are required to be expensed as incurred. For the six months ended
June 30, 1999, these business integration costs consisted primarily of redundant
employee costs.
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
5
<PAGE> 7
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
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
and facility and lease termination costs of approximately $0.9 million. The
reserve for the Restructuring Plan was $2.8 million at December 31, 1998.
For the six months ended June 30, 1999, the Company utilized
approximately $0.5 million of this charge, related to severance payments. The
reserve for the Restructuring Plan was $2.3 million at June 30, 1999.
In connection with the sale of the Company's retail optical chains,
discussed above, the Company expects to have a change in estimate of the
restructuring accrual. In connection with this change in estimate, the Company
expects to record a restructuring credit in the third quarter, for severance and
lease payments which will not be paid by the Company.
5. 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. The lead plaintiffs group purports to represent a
class of plaintiffs who were allegedly defrauded by 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 group must file an
amended consolidated complaint by August 14, 1999. The Company is not required
to respond until such amended consolidated complaint is filed and served. 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 class
action lawsuit will have on the financial position or results of operations of
the Company.
6
<PAGE> 8
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 three retail optical chains located in Minnesota, New Jersey and
Wisconsin. 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. The
corporate segment includes general and administrative expenses associated with
the operations of the Company's 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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1999 1998 1999
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Clinical and surgery centers $ 14,137,100 $ 23,075,202 $ 27,188,688 $ 44,820,758
Retail optical 7,141,218 15,221,828 14,661,364 30,380,564
Managed care 13,812,984 14,065,546 26,820,294 28,250,458
Buying group 15,603,678 4,376,734 29,328,826 19,154,456
------------- ------------- ------------- -------------
Total segments 50,694,980 56,739,310 97,999,172 122,606,236
Corporate -- -- -- --
------------- ------------- ------------- -------------
Total revenues $ 50,694,980 $ 56,739,310 $ 97,999,172 $ 122,606,236
============= ============= ============= =============
Segment Profit (Loss):
Clinical and surgery centers $ 3,528,832 $ 2,551,504 $ 6,376,932 $ 5,643,660
Retail optical 382,289 1,757,389 1,265,779 3,703,361
Managed care (a) 1,376,601 1,734,602 2,228,679 3,431,574
Buying group (b) 761,062 180,982 1,493,049 896,493
------------- ------------- ------------- -------------
Total segments 6,048,784 6,224,477 11,364,439 13,675,088
Corporate (1,425,061) (4,752,113) (2,933,815) (6,818,486)
------------- ------------- ------------- -------------
Total segment profit (loss) $ 4,623,723 $ 1,472,364 $ 8,430,624 $ 6,856,602
============= ============= ============= =============
</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 optical
products.
7
<PAGE> 9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL OVERVIEW
Vision Twenty-One, Inc. (the "Company") develops and manages 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 develops retail distribution channels for its LADS through affiliating
with retail optical chains, and develops 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 LADS located in 27 states through which
approximately 5,800 Affiliated Providers deliver eye care services. Of these
Affiliated Providers, approximately 250 are Managed Providers, consisting of 210
optometrists and 40 ophthalmologists practicing at 187 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 118 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. 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 focused on such development which the Company believes is a
cost-effective method of achieving its growth strategy. Among other things, 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. Furthermore, the Company will focus 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 adds additional
complimentary business to its LADs. Refractive surgery procedures for the second
quarter of 1999 increased to 4,669 from 1,709 for the second 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 add three new refractive surgery centers ending the year
with twelve centers, and in the year 2000 the Company plans on adding eighteen
refractive surgery centers. In such refractive surgery centers, the Company
expects typically to own approximately a 60% ownership interest.
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. In July 1999, the Company signed a definitive purchase
agreement to sell its retail optical chains - Vision World, Inc., Stein Optical
and The Eye DRx, to Eye Care Centers of America ("ECCA"). ECCA is based in San
Antonio, Texas and operates a national chain of full-service retail optical
stores. In connection with the transaction, the Company expects to receive
approximately $37.0 million in cash,
8
<PAGE> 10
subject to certain post-closing adjustments. The definitive purchase agreement
has been approved by both companies' board of directors. The parties have agreed
to close the transaction on August 31, 1999, subject to final completion of
normal and customary pre-closing conditions, which the Company believes will be
timely met. The Company anticipates using a substantial portion of the proceeds
to satisfy certain outstanding obligations under its credit facility. While the
sale of these three retail optical chains will reduce the Company's revenues, it
will significantly reduce the Company's debt and related interest expense and
impact the Company's future capital resources.
Upon closing of the transaction the Company and ECCA have agreed to a
strategic alliance to further expand joint initiatives regarding laser vision
procedures and managed vision care business. As part of the strategic alliance,
the joint initiative is designed to educate ECCA customers about laser vision
correction services and provide immediate access to those services through the
Company's qualified refractive surgeons and eye laser surgery centers. The
initiative is expected to begin in five markets and has the potential to expand
to an additional 22 metropolitan markets. Additionally upon closing, the
Company, through its managed care organization Block Vision, and ECCA managed
Vision Care, an ECCA affiliate, will jointly market an integrated vision care
program targeting third party payors and employer groups in select markets.
Revenue for the six months ended June 30, 1999 increased to $122.6
million. EBITDA before business integration costs of $2.6 million, professional
fees of $2.0 million, start-up costs of $0.7 million, and a gain on the sale of
the Block Buying Group of $0.5 million, increased to $8.9 million in 1999 from
$8.4 million in 1998. Excluding these costs, net income was $0.8 million, or
$0.05 per share on a diluted basis. Revenue excluding the Company's retail
optical chains was $92.2 million and EBITDA excluding the Company's retail
optical chains was $6.6 million.
Assuming the sale of the retail optical chains had occurred on
January 1, 1999, interest expense would have been reduced by $1.5 million,
amortization expense reduced by $0.5 million and depreciation expense reduced
by $0.6 million.
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.
The Company incurred approximately $1.1 million of professional fees
in the second quarter in connection with the sale of the retail optical chains
and the sale of the Block Buying Group and additional one time fees are being
incurred in the third quarter of 1999. The Company also incurred approximately
$0.9 million of one time charges during the second quarter, in connection with
the finalization of its previously announced accounting reconciliation
primarily related to professional fees.
As a result of the changes occurring in the Company's business, the
overall results should not necessarily be relied upon as being indicative of
future operating performance due in part to the divestiture of large business
units, the shift in operating focus, the expenses associated with the pending
sale of the retail optical chains and the expenses in connection with the
finalization of the accounting reconciliation completed in the quarter.
ADDITIONAL OVERVIEW
The Company enters 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
9
<PAGE> 11
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
('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.
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<PAGE> 12
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.
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.
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.
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<PAGE> 13
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 current and anticipated
divestiture of large business units, the shift in operating focus, and the
expenses associated with the pending sale of the retail optical chains and
expenses in connection with the finalization of the accounting reconciliation
completed in the quarter, the Company does not believe that the historical
percentage relationships for the three months and the six months ended June 30,
1998 and 1999 reflect the Company's expected future operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -----------------------
1998 1999 1998 1999
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
LADS operations, net ................... 32.5 % 55.6 % 32.6 % 48.6 %
Managed care ........................... 31.7 33.9 32.2 30.6
Buying group ........................... 35.8 10.5 35.2 20.8
----- ----- ----- -----
Total revenues .................. 100.0 100.0 100.0 100.0
----- ----- ----- -----
Operating expenses:
LADS operating expenses ................ 25.1 49.4 25.5 42.5
Medical claims ......................... 22.8 24.9 23.5 22.5
Cost of buying group sales ............. 33.6 10.1 32.9 19.8
General and administrative ............. 8.8 17.7 9.5 13.2
Depreciation and amortization .......... 3.2 5.0 3.1 4.2
Merger costs ........................... -- -- 0.6 --
Start-up and software development
costs............................... 0.2 1.6 0.2 0.7
----- ----- ----- -----
Total operating expenses ........ 93.7 108.7 95.3 102.9
----- ----- ----- -----
Income from operations ................... 6.3 (8.7) 4.7 (2.9)
Interest expense ......................... 2.4 4.4 2.0 4.0
Gain on sale of business ................. -- (1.2) -- (0.6)
----- ----- ----- -----
Income (loss) before income taxes ........ 3.9 (11.9) 2.7 (6.3)
Income taxes ............................. 1.0 -- 0.7 --
----- ----- ----- -----
Income (loss) from continuing operations.. 2.9 (11.9) 2.0 (6.3)
Discontinued operations .................. (0.3) (1.6) (0.8) (1.7)
Extraordinary charge ..................... -- -- 0.5 --
Net income (loss) ............... 3.2 % (10.3) % 2.3 % (4.6) %
===== ===== ===== =====
Medical claims ratio ..................... 71.9 % 73.6 % 73.0 % 73.3 %
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998
Revenues. Revenues decreased 5% from $43.6 million for the three months
ended June 30, 1998 to $41.5 million for the three months ended June 30, 1999.
This decrease was primarily due to the Company's sale of the Block Buying Group,
offset by an increase in LADS operations net revenues attributable to the 1998
Acquisitions and to internal growth. Managed care revenues on a comparable basis
increased 2% over 1998. The sale of the Company's three 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
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<PAGE> 14
strategic alliance with ECCA discussed above is expected to expand the number of
markets in which the Company is able to provide refractive surgery.
LADS Operating Expenses. LADS operating expenses increased 88% from
$10.9 million for the three months ended June 30, 1998 to $20.5 million for the
three months ended June 30, 1999. LADS 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 4% from $9.9 million
for the three months ended June 30, 1998 to $10.3 million for the three months
ended June 30, 1999. The Company's medical claims ratio increased from 71.9% for
the three months ended June 30, 1998 to 73.6% for the three months ended June
30, 1999. 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
92% from $3.8 million for the three months ended June 30, 1998 to $7.3 million
for the three months ended June 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 8.8% for the three months ended June 30,
1998 to 17.7% for the three months ended June 30, 1999. This increase was
primarily due to $1.1 million of professional fees related to the sale of the
Block Buying Group and the Company's retail optical chains, and $0.9 million of
professional in connection with the finalization of the Company's previously
announced accounting reconciliation.
General and administrative expenses for the three months ended June 30,
1999 include approximately $0.6 million of business integration costs discussed
above, which are expected to be eliminated throughout 1999. Approximately $0.7
million of business integration costs related to the Company's retail optical
chains are included in income from discontinued operations.
Depreciation and Amortization. Depreciation and amortization expense
increased from $1.4 million for the three months ended June 30, 1998 to $2.1
million for the three months ended June 30, 1999. As a percentage of revenues,
depreciation and amortization expense increased from 3.2% for the six months
ended June 30, 1998 to 5.0% for the three months ended June 30, 1999.
This increase was caused primarily by the 1998 Acquisitions.
Start-up and software development costs. For the three months ended
June 30, 1998 and 1999, start-up costs relate to start-up activities associated
primarily with refractive surgery centers and initiatives. For the three months
ended June 30, 1998, software development costs are associated with the
Company's implementation of the Great Plains accounting software system.
These costs are expected to increase throughout 1999.
13
<PAGE> 15
Interest Expense. Interest expense increased 76% from $1.0 million for
the three months ended June 30, 1998 to $1.8 million for the three months ended
June 30, 1999. The increase was caused by an increase in the debt outstanding
from $49.5 million at June 30, 1998 to $80.4 million at June 30, 1999. As stated
above, the sale of the Company's three retail optical chains will significantly
reduce the Company's debt and related interest expense.
Gain on Sale of Business. 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 three retail optical chains discussed above. Income from
discontinued operations for the three months ended June 30, 1998 was $0.2
million and represented the income of Stein Optical and The Eye DRx. Income from
discontinued operations for the three months ended June 30, 1999 was $0.7
million and represented the income from Stein Optical, The Eye DRx, and Vision
World. Vision World was acquired by the Company effective June 30, 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Revenues. Revenues increased 11% from $83.3 million for the six months
ended June 30, 1998 to $92.2 million for the six months ended June 30, 1999.
This increase was caused primarily by an increase in LADS operations net
revenues attributable to the 1998 Acquisitions and to internal growth, offset by
a decrease in revenue attributable to the sale of the Block Buying Group.
Managed care revenues on a comparable basis increased 5% over 1998. The sale of
the Company's three 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.
LADS Operating Expenses. LADS operating expenses increased 85% from
$21.2 million for the six months ended June 30, 1998 to $39.2 million for the
six months ended June 30, 1999. LADS 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 6% from $19.6 million
for the six months ended June 30, 1998 to $20.7 million for the six months ended
June 30, 1999. The Company's medical claims ratio increased from 73.0% for the
six months ended June 30, 1998 to 73.3% for the six months ended June 30, 1999.
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
14
<PAGE> 16
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 53%
from $7.9 million for the six months ended June 30,1998 to $12.1 million for the
six months ended June 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 9.5% for the six months ended June 30, 1998 to 13.2% for
the six months ended June 30, 1999. This increase was primarily due to $1.1
million of professional fees related to the sale of the Block Buying Group and
the Company's retail optical chains, and $0.9 million of professional in
connection with the finalization of the Company's previously announced
accounting reconciliation.
General and administrative expenses for the six months ended June 30,
1999 include approximately $1.2 million of business integration costs discussed
above, which are expected to be eliminated throughout 1999. Approximately $1.4
million of business integration costs related to the Company's retail optical
chains are included in income from discontinued operations.
Depreciation and Amortization. Depreciation and amortization expense
increased from $2.6 million for the six months ended June 30, 1998 to $3.9
million for the six months ended June 30, 1999. As a percentage of revenues,
depreciation and amortization expense increased from 3.1% for the three months
ended June 30, 1998 to 4.2% for the six months ended June 30, 1999. This
increase was caused primarily by the 1998 Acquisitions.
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 six months ended June
30, 1998 and 1999, start-up costs relate to start-up activities associated
primarily with refractive surgery centers and initiatives. For the six months
ended June 30, 1998, software development costs are associated with the
Company's implementation of the Great Plains accounting software system. These
costs are expected to increase throughout 1999.
Interest Expense. Interest expense increased 122% from $1.7 million for
the six months ended June 30, 1998 to $3.7 million for the six months ended June
30, 1999. The increase was caused by an increase in the debt outstanding from
$49.5 million at June 30, 1998 to $80.4 million at June 30, 1999. As stated
above, the sale of the Company's three retail optical chains will significantly
reduce the Company's debt and related interest expense.
Gain on Sale of Business. In connection with the sale of the Block
Buying Group, the Company realized a gain of $0.5 million.
Discontinued Operations. Discontinued operations represent the income
from the Company's three retail optical chains discussed above. Income from
discontinued operations for the six months ended June 30, 1998 was $0.7 million
and represented the income of Stein Optical and The Eye DRx. Income from
discontinued operations for the six months ended June 30, 1999 was $1.6 million
and represented the income from Stein Optical, The Eye DRx, and Vision World.
Vision World was acquired by the Company effective June 30, 1998.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its working capital and capital
expenditure requirements primarily through institutional borrowings and private
debt and equity financings. Net cash provided by operating activities for the
six months ended June 30, 1998 and 1999 was $2.8 million and $2.9 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 six months ended June 30,
1998 was $20.0 million, and primarily resulted from the payments for
acquisitions, including capitalized acquisition costs. Net cash used in
investing activities for the six months ended June 30, 1999, was $0.5 million,
and primarily resulted from 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. This was offset by net proceeds of $4.3 million
received from the sale of the Block Buying Group.
Net cash provided by financing activities for the six months ended June
30, 1998 was $20.2 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 six months ended June 30, 1999 was $3.0 million and was primarily
attributable to payments on the Company's credit facility.
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 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. The Company had used approximately $48.3 million
of its available borrowings under the Credit Agreement.
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.
16
<PAGE> 18
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. As of June
30, 1999, the Company had used approximately $79.8 million of its available
borrowings under the Amended Credit Agreement. In connection with the pending
ECCA transaction, the Company expects to apply approximately $32 million of net
proceeds in partially paying down its credit facility debt. Approximately $2.0
million of proceeds shall be utilized for certain expenses, principally deal
related, and the remainder is expected to be used to pay down the revolver which
will be available for use by the Company in the future. Additionally, while the
Company is currently in technical noncompliance with its financial ratios, the
banks have orally committed to waive such noncompliance upon final completion
of a written agreement which the Company expects to complete within the very
near future. The Company is currently evaluating its capital structure and
various financing alternatives as it considers its working capital needs over
the foreseeable future.
For the year ended December 31, 1998, the Company completed the 1998
Acquisitions and, in connection with the 1998 Acquisitions, the Company provided
aggregate consideration of approximately $37.5 million consisting of 1.6 million
shares of Common Stock, $21.9 million in cash and promissory notes in the
aggregate principal amount of approximately $1.3 million, subject to
post-closing adjustments. In addition, the Company is required to provide
additional contingent consideration, consisting of 301,583 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.
Effective September 1, 1998, the Company completed the acquisition of
American SurgiSite Centers, Inc., an ambulatory surgery center developer,
management and consulting company located in New Jersey. In connection with this
transaction, the Company paid $1.47 million in cash and 235,366 shares. 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.
Effective June 30, 1998, the Company completed the acquisition of
Vision World, a retail optical chain located in Minneapolis, Minnesota,
effective June 30, 1998. In connection with this transaction, the Company paid
$16.1 million in cash, net of cash acquired.
In March 1998, the Company completed a pooling of interests transaction
with EyeCare One and VIPA, Inc. In connection with the pooling transaction, the
Company issued 1,109,806 shares of Common Stock, subject to post-closing
adjustments, valued at approximately $10.5 million.
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 immediate and the Company recorded a
business development charge of $120,000. 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 a start-up cost of $0.2 million
in the second quarter in connection with such grant. The remaining 60% of the
shares were recorded as an offset in stockholders' equity as deferred
compensation
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<PAGE> 19
for $180,000. In October 1996, the Company entered into a five-year advisory
agreement with an industry consultant and director of the Company 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 a 100% vesting. The Company recorded a 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 June 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 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.
The Company has grown significantly with acquisitions funded with stock
of the Company. The Company may use its Common Stock as consideration for future
acquisitions in conjunction with its expansion strategy where it believes the
transaction will be accretive, which will be a factor in the Company's future
acquisitions, financial position and performance. The number of shares of Common
Stock the Company is ultimately required to provide in connection with its
acquisitions and the Company's ability to use stock in acquisitions will be
affected by the market price for its Common Stock and the number or shares so
provided will affect the Company's earnings per share.
In 1999, thus far, the Company has operated and grown principally
through the use of positive operating capital cash flows and with a total sale
of $1.1 million in Company stock in two private transactions. As a result of the
Second Amendment, certain limited borrowings are now available to the Company.
In connection with the Company's business integration plan described
above, the Company expects to spend approximately $4.9 million for severance and
other employee termination benefits in fiscal 1999. Additionally, the Company
currently expects to spend approximately $3.0 million for capital expenditures
and $3.0 million for new operating leases of equipment in fiscal 1999 which
includes costs to open new ASCs and new refractive surgery centers. Based upon
the Company's short-term anticipated capital needs for operation of its
business, general corporate purposes, along with furtherance of certain growth
objectives, management believes that the combination of the funds expected to be
provided from the Company's operations, limited accessibility under the credit
facility, accessibility to operating leases for certain new equipment and
currently anticipated future sources, will be sufficient for the short term. In
order to fully implement its vision care initiatives, including full
implementation of its refractive surgery program throughout its LADS markets the
Company will seek additional working capital in the very near future and is
currently analyzing its options relative to the same. Additionally, to the
extent additional capital resources are currently needed for acquisitions or
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other significant matters, the Company expects to utilize supplemental
borrowings to the extent available and/or the net proceeds, if feasible, from
the offering of debt or equity securities. Any inability of the Company to
achieve acceptable financing as sought in the future would have an adverse
effect on the Company.
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 actively
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 four general categories: (i) Financial (general ledger, financial and
management reporting, accounts payable, payroll and fixed assets), (ii) Retail
Chains (integrated-Point of Sale, Purchase Order Management, and Inventory
Control Systems), (iii) Practice Management (including billing, collection,
accounts receivables and third party billing) and (iv) 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. The Company has selected the Delta Optical Computer System (the "Delta
System") as its integrated system for Retail Chains category. The Delta System
has been implemented in its Stein Optical Division. As part of the Company's
Restructuring Plan, the Delta System will be implemented in the remaining two
retail chain divisions. The Company has received certification that the Delta
System is Year 2000 compliant. 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 over the next several months, Year 2000
upgrades. In addition, a custom software system has been implemented within
numerous practices as well, and has received all necessary Year 2000 upgrades.
The Managed Care category generally has custom software that has been upgraded
for Year 2000 compliance and final testing is scheduled over the next several
months.
The Company has initiated 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 is currently examining and developing contingency plans
to deal with possible disruptions due to year "2000" issues. 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
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<PAGE> 21
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.
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 six
months ended June 30, 1999.
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 proposed sale of our retail optical chains to ECCA;
(iii) our ability to efficiently and effectively manage the managed
clinics;
(iv) our financing plans including our ability to obtain
satisfactory working capital through additional offerings of
debt or equity;
(v) 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;
(vi) 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;
(vii) the impact on us of current and future governmental
regulations and investigations;
(viii) our current and future managed care contracts and the impact
such contracts have on gross profit;
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<PAGE> 22
(ix) our ability to continue to recruit Affiliated Providers, to
convert certain of the Affiliated Providers to managed
clinics, and to maintain our relationships with Affiliated
Providers;
(x) 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;
(xi) 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;
(xii) our ability to operate the managed care business efficiently,
profitably and effectively;
(xiii) our integration of systems and implementation of cost savings
and reduction plans;
(xiv) the future LADS overall operating margins;
(xv) our year 2000 readiness and the readiness of third parties;
(xvi) our expected savings from the restructuring programs;
(xvii) our current and expected future revenue and the impact of any
acquisition and the consolidation of infrastructure may have
on our future performance;
(xviii) our current run rate for laser vision correction procedures
and the expected growth of such procedures and return on
invested capital;
(xviv) our late filing of the 10-Q and 10-K; and
(xx) the purported class action complaints filed against the
company.
(xxi) 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) our inability to close the proposed transaction with ECCA, and
enter into the strategic alliances with ECCA and the effect of
any post-closing adjustment, if any, to the overall purchase
price.
(iii) any material inability to successfully implement or enforce
our expected strategic alliance initiatives, including
increasing vision correction services and expanding managed
vision care markets, integrate and profitably operate our
acquisitions or to successfully open and integrate and
profitably operate de novo clinics, refractive surgery centers
and ASCs;
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(iv) any material inability to acquire additional sufficient
working capital and financing at a reasonable cost to fund our
ongoing operations and growth strategy or to obtain and
maintain future compliance with covenants and commitments set
forth in our credit facility;
(v) the inability to expand our managed care business, renew
existing managed care contracts or maintain and expand our
Contract Provider Network;
(vi) our inability to successfully and profitably operate our
managed care business or for existing managed care contracts
to positively impact gross profit;
(vii) our ability to maintain our relationships with our managed
clinics and the managed clinics' inability to operate
profitably;
(viii) changes in state and/or federal governmental regulations which
could materially affect our ability to operate or materially
affect our profitability;
(ix) 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,
(x) the degree current shortages in refractive surgery equipment
adversely impacts our access at reasonable prices to same;
(xi) consolidation of our competitors, poor operating results by
our competitors, or adverse governmental or judicial rulings
against our competitors;
(xii) any failure by us to meet analysts expectations;
(xiii) our stock price;
(xiv) any adverse change in our medical claims to managed care
revenue ratio;
(xv) 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;
(xvi) our inability to realize any significant benefits, cost
savings or reductions from our restructuring program;
(xvii) the non-compliance or readiness on third parties with respect
to year "2000" issues;
(xviii) our inability to successfully increase and expand vision care
and refractive surgery programs and other desired initiatives
complimentary to our LADS business;
(xviv) unexpected cost increases,
(xx) our inability to successfully defend against the class action
lawsuits or any additional litigation that may arise;
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<PAGE> 24
(xxi) any failure of the pre-closing conditions to the ECCA
transaction to be met or waived, or the impact of any post
closing adjustments;
(xxii) any material inability to achieve internal growth in our
business and increase shareholder value;
(xxiii) any future operating and net losses we may incur;
(xxiv) any future material reduction in demand for refractive
surgeries;
(xxv) any material inability to successfully manage changes in our
business mix;
(xxvi) any failure of other business divisions of the Company to
perform successfully;
(xxvii) any adverse governmental or regulatory changes or actions,
including any healthcare regulations and related enforcement
actions; and
(xxviii) 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.
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 or to reflect the occurrence of unanticipated events.
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<PAGE> 25
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, 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. The lead plaintiffs group purports to represent a class of
plaintiffs who were allegedly defrauded by 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 group must file an
amended consolidated complaint by August 14, 1999. The Company is not required
to respond until such amended consolidated complaint is filed and served. 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 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 June 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 April 1999, the Company issued an aggregate of 76,620 contingent
shares of Common Stock which were reserved for issuance effective December 15,
1997 to Drs. Pusateri (19,155), Cortelli (19,155), Sever (19,155) and Ramseur
(19,155) in connection with the acquisition of Managed Health Services, Inc.
In April 1999, the Company issued 14,300 shares to Florida Eye Care
Associates, Inc. ("FECA") in connection with the Company's acquisition of
substantially all of the assets of FECA.
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<PAGE> 26
In June 1999, the Company issued 10,137 shares to Dr. Dyson in
connection with the Company's acquisition of Dr. Dyson's practice.
In June 1999, the Company issued 59,433 shares of its common stock to
Richard L. Lindstrom, a director of the Company pursuant to a subscription
agreement dated June 11, 1999.
In June 1999, the Company issued 117,666 shares of its common stock to
J.K.K. Holdings, LLP, which Jeffrey I. Katz, a director of the Company is a
limited partner, pursuant to a subscription agreement dated June 11, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. See Exhibit Index attached hereto.
(b) During the quarterly period ended June 30, 1999, the Company filed a
report on Form 8-K on April 16, 1999 announcing the Company's delay in
filing its Form 10-K for the year ended December 31, 1998, providing
certain financial results and discussing business initiatives. The
Company also filed a report on form 8-K on June 8, 1999, relating to
two press releases filed by the Company concerning the end of the
reconciliation process and the announcement of the results for the
first quarter.
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<PAGE> 27
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)
(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.
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.
10.63 Subscription Agreement dated June 11, 1999 by and among J.K.K.
Holdings, LLP and Vision Twenty-One, Inc.
10.64 Subscription Agreement dated June 11, 1999 by and among Richard L.
Lindstrom and Vision Twenty-One, Inc.
27 Financial Data Schedule for June 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.
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<PAGE> 28
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 August 13, 1999.
VISION TWENTY-ONE, INC.
Registrant
/s/ Richard T. Welch
--------------------------------------
Richard T. Welch
Chief Financial Officer (The Principal
Accounting Officer and Duly Authorized
Officer)
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<PAGE> 1
Exhibit 10.63
SUBSCRIPTION AGREEMENT
Private Placement of Common Stock,
Par Value $.001 per Share
THIS AGREEMENT, made this 11th day of June, 1999, by and among J.K.K.
HOLDINGS, LLP (the "Purchaser") and VISION TWENTY-ONE, INC., a Florida
corporation (the "Corporation"):
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase shares of the Corporation's
common stock and the Corporation desires to sell shares of its common stock as
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, premises and
agreement of the parties hereto and of the mutual benefits to be gained by the
performance thereof and for other good and valuable consideration, the receipt
and adequacy of which hereby are acknowledged, the parties hereto, for
themselves and their respective heirs, personal representatives, successors and
assigns covenant and agree as follows:
1. Subscription. The Purchaser hereby elects to participate in the
Corporation by subscribing to purchase 117,666 shares of the common stock, par
value $.001 per share, offered hereby (the "Common Stock") at a price of $6.00
per share in accordance with the terms and conditions set forth herein.
2. Purchase Price. The purchase price for the Common Stock subscribed
for hereby is equal to $6.00 per share, or $706,000 in total for purchase of the
117,666 shares of Common Stock subscribed for herein.
3. High Risk of Loss of Investment. There are risks incident to the
ownership of Common Stock in the Corporation. This investment is speculative.
4. Representations by Undersigned. The Purchaser represents and
warrants to the Corporation and its officers and directors as follows:
(a) The Purchaser has been given (i) access to all books and
records, legal documents and other material information of the
Corporation; (ii) access to all material contracts and documents of the
Corporation relating to the issuance of the Common Stock and the
Corporation's business; and (iii) an opportunity to ask questions of
and receive answers from the executive officers of the Corporation,
regarding the information in (i) and (ii) above.
(b) The Purchaser is advised that the Common Stock subscribed
for hereby has not been registered under the Securities Act of 1933, as
amended (the "Act"), or any
<PAGE> 2
applicable state securities laws in reliance upon exemption provisions
of the Act and such other laws; and accordingly, no Federal or state
agency has made any recommendation or endorsement as to, or otherwise
passed on the merits of, purchasing the Common Stock.
(c) Because the Common Stock has not been registered under the
Act or state law, the Purchaser of the Common Stock must bear the
economic risks of investment for an indefinite period of time. The
Purchaser is advised that it will not be possible to readily liquidate
his or her investment. The Purchaser is further aware that such
registration in the future is uncertain and that the Corporation is not
under any obligation to register the Common Stock or assist in
complying with any exemption from registration, except as set forth
below.
(d) The Purchaser has read, is familiar with and understands
Rule 501 of Regulation D and represents that the Purchaser is an
"accredited investor" as defined in Rule 501(a) of Regulation D under
the Act. The Purchaser represents that he or she has (i) a net worth of
at least $1,000,000, exclusive of his home, home furnishings and
automobiles; (ii) annual income of at least $200,000, which he or she
represents is sufficient to provide for his or her personal needs,
living expenses, and contingencies; (iii) an overall commitment to
investments which are not readily marketable that is not
disproportionate to his or her net worth so that an investment in the
Common Stock will not cause such overall commitment to be excessive;
and (iv) such knowledge and experience in business and financial
matters that he or she is capable of evaluating the Corporation and its
proposed activities and the merits of investment in the Common Stock.
The Purchaser further represents that he is a director. The Purchaser
has adequate means of providing for his or her current needs and
personal contingencies and has no need for liquidity in his or her
investment and can afford to lose the entire amount of the investment.
(e) The Purchaser has made such independent inquiries as he or
she deems necessary to evaluate properly his or her investment in the
Common Stock, including consultation with his or her personal legal and
tax advisors to determine whether the investment is appropriate for him
or her.
(f) The Purchaser is over twenty-one (21) years of age.
(g) The Purchaser: (i) is acquiring the Common Stock solely
for the Purchaser's own account for investment purposes only and not
with a view toward resale or distribution thereof, either in whole or
in part; (ii) has no contract, undertaking, agreement or other
arrangement, in existence or contemplated, to sell, pledge, assign or
otherwise transfer the Common Stock to any other person; and (iii)
agrees not to sell or otherwise transfer the Common Stock unless and
until the Common Stock is subsequently registered under the 1933 Act
and any applicable state securities laws, or unless an exemption from
any such requirement is available. No other person or entity will have,
upon consummation of the transactions contemplated herein, a direct or
indirect beneficial interest in the Common Stock. The Purchaser does
not currently have any reason to anticipate any change in his or her
circumstances or other particular
2
<PAGE> 3
occasion or event which would cause him or her to sell his Common
Stock.
(h) The Purchaser understands that the statutory basis on
which the Common Stock is being offered, sold and/or issued to the
Purchaser would not be available if the Purchaser's present intention
were to hold the Common Stock for a fixed period of time or until the
occurrence of a certain event. The Purchaser realizes that, in the view
of the Securities and Exchange Commission (the "Commission"), a
purchase of the Common Stock now with a present intention to resell by
reason of a foreseeable specific contingency or any anticipated change
in the market value of the Common Stock, or in the condition of the
Corporation or that of the industry in which the business of the
Corporation is engaged or in connection with a contemplated
liquidation, or settlement of any loan obtained by the Purchaser for
the acquisition of the Common Stock, and for which the Common Stock may
be pledged as a security or as donations to religious or charitable
institutions for the purpose of securing a deduction on an income tax
return, would, in fact, constitute a purchase with an intention
inconsistent with the Purchaser's representations to the Corporation
and the Commission would then regard such purchase as a purchase for
which the exemption from registration under the Act relied upon by the
Corporation in connection herewith is not available.
(i) The funds provided for the Purchaser's investment in the
Common Stock are either the separate property of the Purchaser,
community property over which the Purchaser has the right of control,
or are funds as to which the Purchaser otherwise has the sole right of
management.
(j) If the Purchaser is a partnership, corporation, trust or
other entity: (i) the Purchaser has enclosed with this Subscription
Agreement evidence of the authority of the individual executing this
Subscription Agreement to act on its behalf (e.g., if a trust, a
certified copy of the trust agreement; if a corporation, a certified
corporate resolution authorizing the signature and a certified copy of
the articles of incorporation; or if a partnership, a certified copy of
the partnership agreement); (ii) the Purchaser was not organized or
reorganized for the specific purposes of acquiring the Common Stock;
(iii) the Purchaser has total assets in excess of $5,000,000 or each of
the equity owners of the Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Act; (iv) the
individual executing this Subscription Agreement has the full power and
authority to execute this Subscription Agreement on behalf of such
entity and to make the representations and warranties made herein on
its behalf; and (v) an investment in the Common Stock described herein
has been affirmatively authorized, if required, by the governing board
of such entity and is not prohibited by the governing documents of the
entity.
(k) The following address is the Purchaser's principal
business address:
710 East 24th Street
Minneapolis, MN 55404
3
<PAGE> 4
(l) The Purchaser has received no representation or warranty
from any person regarding the Corporation or its business or prospects,
or the Common Stock; and the Purchaser acknowledges that the ability of
the Corporation to achieve its business objective is uncertain.
(m) The Purchaser is a bona fide resident and domiciliary, not
a transient or temporary resident, of the State of Minnesota.
(n) The Purchaser has made such investigation and examination
of the affairs of the Corporation and has obtained such information
relating thereto as he or she deems necessary to verify the accuracy of
the information furnished to him or her.
(o) Unless the Purchaser has notified the Corporation to the
contrary in writing, he or she acknowledges that he or she has not
relied upon the advice of a "purchaser representative" (as defined in
Regulation D of the Securities and Exchange Commission) in evaluating
the risks and merits of this investment.
(p) The Purchaser understands that the Corporation is relying
upon the truth and accuracy of these representations and warranties.
5. The Purchaser acknowledges that he or she understands the meaning
and legal consequences of the representations and warranties contained in
Section 4 hereof, and he or she hereby agrees to protect, defend, indemnify and
hold harmless the Corporation and its officers, directors and agents, from and
against any and all loss, damage or liability due to or arising out of a breach
of any representation of warranty of the Purchaser. Notwithstanding any of the
representations, warranties, acknowledgments or agreements made herein by the
Purchaser, the Purchaser does not either thereby or in any other manner waive
any rights granted to or her him under Federal or state securities laws.
6. It is understood that this subscription is not binding upon the
Corporation until the Corporation accepts it, which acceptance is at the sole
discretion of the Corporation, to be evidenced by execution of this Subscription
Agreement where indicated by an executive officer of the Corporation.
7. The Subscription Agreement is not subject to termination or
cancellation by the subscriber except as set forth below:
TO RESIDENTS OF FLORIDA: THE SHARES OF COMMON STOCK OFFERED HEREIN HAVE
NOT BEEN REGISTERED WITH THE FLORIDA DIVISION OF SECURITIES. PURSUANT TO FLORIDA
STATUTES, SECTION 517.061(11) (A) (5), INVESTORS MAY ELECT, WITHIN THREE (3)
BUSINESS DAYS AFTER DELIVERY OF THEIR SUBSCRIPTION AGREEMENT AND THE PURCHASE
PRICE FOR THE SHARES, TO WITHDRAW THEIR SUBSCRIPTION AND RECEIVE A FULL REFUND
(WITHOUT INTEREST) OF SUCH PURCHASE PRICE. THIS WITHDRAWAL WILL BE WITHOUT ANY
FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH SUCH WITHDRAWAL, AN INVESTOR
SHOULD SEND A LETTER OR TELEGRAM TO THE
4
<PAGE> 5
CORPORATION, INDICATING THE INTENTION TO WITHDRAW, POSTMARKED PRIOR TO THE END
OF THE THIRD BUSINESS DAY AFTER DELIVERY OF FUNDS TO THE CORPORATION, RETURN
RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND TO EVIDENCE THE TIME WHEN
IT IS MAILED. ANY ORAL REQUESTS FOR RESCISSION SHOULD BE ACCOMPANIED BY A
REQUEST FOR WRITTEN CONFIRMATION THAT THE ORAL REQUEST WAS RECEIVED ON A TIMELY
BASIS.
8. The Corporation may accept or reject a subscription in whole or part
for any reason after receipt of a properly executed Subscription Agreement,
Offeree Questionnaire and a check representing full payment for the Shares
subscribed. A Subscription Agreement will be considered accepted by the
Corporation only after it has been signed by an authorized officer of the
Corporation. If the Corporation refuses a subscription, the Corporation will
promptly refund the subscription payment without interest, promptly after such
rejection, along with notice thereof.
9. The Purchaser understands and agrees that any certificate evidencing
the Common Stock shall be stamped or otherwise imprinted with a legend in
substantially the following form:
RESTRICTED SECURITIES
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SALE OF THESE SECURITIES OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATES' SECURITIES LAWS.
The Purchaser further acknowledges that: (i) if the Common Stock
described herein becomes publicly traded, any necessary stop transfer orders
will be placed upon the certificates for the Common Stock in accordance with the
Act, and (ii) the Corporation is under no obligation to aid the Purchaser in
obtaining any exemption from the registration requirements of the Act or any
jurisdiction.
10. In no event will the Purchaser sell or otherwise transfer any of
the securities described herein other than in accordance with the terms thereof
and applicable law.
11. All information which the Purchaser has provided to the Corporation
concerning the Purchaser, the Purchaser's financial position and the Purchaser's
knowledge of financial and business matters is correct and complete as of the
date hereof, and if there should be any change in such information prior to the
issuance of the Common Stock to the Purchaser, the Purchaser will immediately
provide the Corporation with such new information. The Purchaser further
5
<PAGE> 6
agrees, if required by the Corporation or its authorized representative, to
provide bank references, tax returns or other confirming information concerning
the Purchaser's financial position as may be reasonably requested by the
Corporation.
12. Prior to the offer to sell the Common Stock to the Purchaser, the
Purchaser had a preexisting personal or business relationship with the
Corporation or at least one of its officers, directors or controlling persons
evincing trust between the Purchaser and such other person.
13. The Purchaser acknowledges that the Corporation and other parties
will rely upon the representations made herein to qualify the issuance of the
Common Stock for the registration exemptions afforded by the Act and Regulation
D, and any similar exemptions afforded by the laws of applicable states. The
Purchaser agrees to provide such other information and assistance as may be
necessary to comply with all applicable Federal and state securities
registration requirements or exemptions thereto for the issuance of the Common
Stock, or otherwise as may be reasonably necessary for compliance with any and
all laws and ordinances to which the Corporation is subject.
14. Registration Rights.
(a) Demand Registration. In case the Corporation shall receive
from the Purchaser a written request that the Corporation effect a registration
under the Securities Act with respect to not less than all of the shares of
Common Stock subscribed to herein, the Corporation shall as soon as practicable,
but in any event within 60 days, file and effect such registration (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as would permit or facilitate the sale and distribution of all such
shares of Common Stock. The Corporation shall not be required to effect more
than one (1) registration under this Section 14. In addition, during any
twenty-four month period, the Corporation shall have the right to delay on one
occasion any registration statement filed pursuant to this Section 14 for one
(1) period not in excess of thirty (30) days.
(b) Piggy Back Registration. If at any time or from time to
time the Corporation shall determine to register any of its securities, either
for its own account or the account of a security holder or holders, other than
(i) a registration relating solely to employee benefit plans or (ii) a
registration relating solely to a Commission Rule 145 transaction, the
Corporation will:
(i) promptly give to the Purchaser written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Common Stock specified in a written request or
requests, made within 20 days after receipt of such written notice from the
Corporation, by the Purchaser.
(c) Underwriting. If the registration of which the Corporation
gives notice is for a registered public offering involving an underwriting, the
Corporation shall so advise the Purchaser. In such event, the right of the
Purchaser to registration pursuant to this section shall
6
<PAGE> 7
be conditioned upon the Purchaser's participation in such underwriting and the
inclusion of the Purchaser's Common Stock in the underwriting to the extent
provided herein. The Purchaser shall (together with the Corporation and any
other shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Corporation. Notwithstanding
any other provision of this section, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Common Stock to be included
in such registration. The Corporation shall so advise the Purchaser and the
number of shares of Common Stock that may be included in the registration and
underwriting shall reduced accordingly. If the Purchaser disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Corporation and the managing underwriter. Any securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration,
and shall not be transferred in a public distribution prior to 90 days after the
effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require. The Corporation may
include shares of Common Stock held by shareholders other than the Purchaser in
a registration statement pursuant to this section if, and to the extent that,
the amount of Common Stock otherwise includible in such registration statement
by the Purchaser would not thereby be diminished.
(d) All registration expenses incurred in connection with
registrations pursuant to this section shall be borne by the Corporation.
(e) The Corporation shall have the sole and exclusive right to
utilize and select the underwriters of any public offering of shares of the
Common Stock, including any public offering conducted pursuant to the
registration rights set forth above. The use of underwriters in any registration
right set forth above is, at the sole discretion of the Corporation, subject to
the Corporation's ability to engage underwriters under terms and conditions
deemed reasonable by the Corporation.
(f) The Corporation shall not be required to continue a
registration statement if such shares of Common Stock of Purchaser are eligible
to be sold under Rule 144 of the Securities Act, or otherwise eligible for sale
to the public without registration.
(g) The Corporation shall have the right to suspend or delay
the effectiveness of any registration statement upon the advice of counsel,
where such suspension or delay is required to allow the Corporation to maintain
compliance with all securities laws.
(h) The Purchaser agrees to cooperate with the Corporation in
all respects in connection with registration of the Common Stock, including
timely supplying all information and executing and returning all documents
requested by the Corporation and its managing underwriter and which are
customary in transactions of this type.
(i) In the event of an underwritten offering, the Purchaser
agrees to accept the terms of the underwriting as agreed upon between the
Corporation and its underwriters so long as they are reasonable and customary.
7
<PAGE> 8
(j) The Corporation shall have the right to defer the filing
of any registration statement or suspend the effectiveness of such registration
statement or reduce the number of shares of the Purchaser's Common Stock
registered in the registration statement if the Board of Directors of the
Corporation determines in good faith that it would be seriously detrimental to
the Corporation and its stockholders for such registration statement to be filed
or utilized in a transaction.
15. This agreement shall not be assignable by any party without the
written consent of the other party; contains the entire agreement between the
parties; cannot be modified except in writing signed by all parties hereto;
shall be binding upon the parties, their heirs, legal representatives,
successors and assigns; can be specifically enforced; and shall be governed by
Florida law.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on the 11th day of June, 1999.
"PURCHASER"
J.K.K. HOLDINGS, LLP
By: /s/ Jonathan I. Katz
--------------------------------
Jonathan I. Katz
-----------------------------------
Tax Identification or
Social Security Number
-----------------------------------
Address
-----------------------------------
City, State and Zip Code
In consideration of and in reliance upon the foregoing, the
subscription and purchase described herein is hereby accepted this 11th of June,
1999.
VISION TWENTY-ONE, INC.
By: /s/ Theodore N. Gillette
--------------------------------
Theodore Gillette, Chairman,
President and CEO
8
<PAGE> 1
Exhibit 10.64
SUBSCRIPTION AGREEMENT
Private Placement of Common Stock,
Par Value $.001 per Share
THIS AGREEMENT, made this 11th day of June, 1999, by and among RICHARD
L. LINDSTROM, M.D. (the "Purchaser") and VISION TWENTY-ONE, INC., a Florida
corporation (the "Corporation"):
W I T N E S S E T H:
WHEREAS, the Purchaser desires to purchase shares of the Corporation's
common stock and the Corporation desires to sell shares of its common stock as
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants, premises and
agreement of the parties hereto and of the mutual benefits to be gained by the
performance thereof and for other good and valuable consideration, the receipt
and adequacy of which hereby are acknowledged, the parties hereto, for
themselves and their respective heirs, personal representatives, successors and
assigns covenant and agree as follows:
1. Subscription. The Purchaser hereby elects to participate in the
Corporation by subscribing to purchase 59,433 shares of the common stock, par
value $.001 per share, offered hereby (the "Common Stock") at a price of $6.00
per share in accordance with the terms and conditions set forth herein.
2. Purchase Price. The purchase price for the Common Stock subscribed
for hereby is equal to $6.00 per share, or $356,598 in total for purchase of the
59,433 shares of Common Stock subscribed for herein.
3. High Risk of Loss of Investment. There are risks incident to the
ownership of Common Stock in the Corporation. This investment is speculative.
4. Representations by Undersigned. The Purchaser represents and
warrants to the Corporation and its officers and directors as follows:
(a) The Purchaser has been given (i) access to all books and
records, legal documents and other material information of the
Corporation; (ii) access to all material contracts and documents of the
Corporation relating to the issuance of the Common Stock and the
Corporation's business; and (iii) an opportunity to ask questions of
and receive answers from the executive officers of the Corporation,
regarding the information in (i) and (ii) above.
(b) The Purchaser is advised that the Common Stock subscribed
for hereby has not been registered under the Securities Act of 1933, as
amended (the "Act"), or any
<PAGE> 2
applicable state securities laws in reliance upon exemption provisions
of the Act and such other laws; and accordingly, no Federal or state
agency has made any recommendation or endorsement as to, or otherwise
passed on the merits of, purchasing the Common Stock.
(c) Because the Common Stock has not been registered under the
Act or state law, the Purchaser of the Common Stock must bear the
economic risks of investment for an indefinite period of time. The
Purchaser is advised that it will not be possible to readily liquidate
his or her investment. The Purchaser is further aware that such
registration in the future is uncertain and that the Corporation is not
under any obligation to register the Common Stock or assist in
complying with any exemption from registration, except as set forth
below.
(d) The Purchaser has read, is familiar with and understands
Rule 501 of Regulation D and represents that the Purchaser is an
"accredited investor" as defined in Rule 501(a) of Regulation D under
the Act. The Purchaser represents that he or she has (i) a net worth of
at least $1,000,000, exclusive of his home, home furnishings and
automobiles; (ii) annual income of at least $200,000, which he or she
represents is sufficient to provide for his or her personal needs,
living expenses, and contingencies; (iii) an overall commitment to
investments which are not readily marketable that is not
disproportionate to his or her net worth so that an investment in the
Common Stock will not cause such overall commitment to be excessive;
and (iv) such knowledge and experience in business and financial
matters that he or she is capable of evaluating the Corporation and its
proposed activities and the merits of investment in the Common Stock.
The Purchaser further represents that he is a director. The Purchaser
has adequate means of providing for his or her current needs and
personal contingencies and has no need for liquidity in his or her
investment and can afford to lose the entire amount of the investment.
(e) The Purchaser has made such independent inquiries as he or
she deems necessary to evaluate properly his or her investment in the
Common Stock, including consultation with his or her personal legal and
tax advisors to determine whether the investment is appropriate for him
or her.
(f) The Purchaser is over twenty-one (21) years of age.
(g) The Purchaser: (i) is acquiring the Common Stock solely
for the Purchaser's own account for investment purposes only and not
with a view toward resale or distribution thereof, either in whole or
in part; (ii) has no contract, undertaking, agreement or other
arrangement, in existence or contemplated, to sell, pledge, assign or
otherwise transfer the Common Stock to any other person; and (iii)
agrees not to sell or otherwise transfer the Common Stock unless and
until the Common Stock is subsequently registered under the 1933 Act
and any applicable state securities laws, or unless an exemption from
any such requirement is available. No other person or entity will have,
upon consummation of the transactions contemplated herein, a direct or
indirect beneficial interest in the Common Stock. The Purchaser does
not currently have any reason to anticipate any change in his or her
circumstances or other particular
2
<PAGE> 3
occasion or event which would cause him or her to sell his Common
Stock.
(h) The Purchaser understands that the statutory basis on
which the Common Stock is being offered, sold and/or issued to the
Purchaser would not be available if the Purchaser's present intention
were to hold the Common Stock for a fixed period of time or until the
occurrence of a certain event. The Purchaser realizes that, in the view
of the Securities and Exchange Commission (the "Commission"), a
purchase of the Common Stock now with a present intention to resell by
reason of a foreseeable specific contingency or any anticipated change
in the market value of the Common Stock, or in the condition of the
Corporation or that of the industry in which the business of the
Corporation is engaged or in connection with a contemplated
liquidation, or settlement of any loan obtained by the Purchaser for
the acquisition of the Common Stock, and for which the Common Stock may
be pledged as a security or as donations to religious or charitable
institutions for the purpose of securing a deduction on an income tax
return, would, in fact, constitute a purchase with an intention
inconsistent with the Purchaser's representations to the Corporation
and the Commission would then regard such purchase as a purchase for
which the exemption from registration under the Act relied upon by the
Corporation in connection herewith is not available.
(i) The funds provided for the Purchaser's investment in the
Common Stock are either the separate property of the Purchaser,
community property over which the Purchaser has the right of control,
or are funds as to which the Purchaser otherwise has the sole right of
management.
(j) If the Purchaser is a partnership, corporation, trust or
other entity: (i) the Purchaser has enclosed with this Subscription
Agreement evidence of the authority of the individual executing this
Subscription Agreement to act on its behalf (e.g., if a trust, a
certified copy of the trust agreement; if a corporation, a certified
corporate resolution authorizing the signature and a certified copy of
the articles of incorporation; or if a partnership, a certified copy of
the partnership agreement); (ii) the Purchaser was not organized or
reorganized for the specific purposes of acquiring the Common Stock;
(iii) the Purchaser has total assets in excess of $5,000,000 or each of
the equity owners of the Purchaser is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Act; (iv) the
individual executing this Subscription Agreement has the full power and
authority to execute this Subscription Agreement on behalf of such
entity and to make the representations and warranties made herein on
its behalf; and (v) an investment in the Common Stock described herein
has been affirmatively authorized, if required, by the governing board
of such entity and is not prohibited by the governing documents of the
entity.
(k) The following address is the Purchaser's principal
business address:
710 East 24th Street
Minneapolis, MN 55404
3
<PAGE> 4
(l) The Purchaser has received no representation or warranty
from any person regarding the Corporation or its business or prospects,
or the Common Stock; and the Purchaser acknowledges that the ability of
the Corporation to achieve its business objective is uncertain.
(m) The Purchaser is a bona fide resident and domiciliary, not
a transient or temporary resident, of the State of Minnesota.
(n) The Purchaser has made such investigation and examination
of the affairs of the Corporation and has obtained such information
relating thereto as he or she deems necessary to verify the accuracy of
the information furnished to him or her.
(o) Unless the Purchaser has notified the Corporation to the
contrary in writing, he or she acknowledges that he or she has not
relied upon the advice of a "purchaser representative" (as defined in
Regulation D of the Securities and Exchange Commission) in evaluating
the risks and merits of this investment.
(p) The Purchaser understands that the Corporation is relying
upon the truth and accuracy of these representations and warranties.
5. The Purchaser acknowledges that he or she understands the meaning
and legal consequences of the representations and warranties contained in
Section 4 hereof, and he or she hereby agrees to protect, defend, indemnify and
hold harmless the Corporation and its officers, directors and agents, from and
against any and all loss, damage or liability due to or arising out of a breach
of any representation of warranty of the Purchaser. Notwithstanding any of the
representations, warranties, acknowledgments or agreements made herein by the
Purchaser, the Purchaser does not either thereby or in any other manner waive
any rights granted to or her him under Federal or state securities laws.
6. It is understood that this subscription is not binding upon the
Corporation until the Corporation accepts it, which acceptance is at the sole
discretion of the Corporation, to be evidenced by execution of this Subscription
Agreement where indicated by an executive officer of the Corporation.
7. The Subscription Agreement is not subject to termination or
cancellation by the subscriber except as set forth below:
TO RESIDENTS OF FLORIDA: THE SHARES OF COMMON STOCK OFFERED HEREIN HAVE
NOT BEEN REGISTERED WITH THE FLORIDA DIVISION OF SECURITIES. PURSUANT TO FLORIDA
STATUTES, SECTION 517.061(11) (A) (5), INVESTORS MAY ELECT, WITHIN THREE (3)
BUSINESS DAYS AFTER DELIVERY OF THEIR SUBSCRIPTION AGREEMENT AND THE PURCHASE
PRICE FOR THE SHARES, TO WITHDRAW THEIR SUBSCRIPTION AND RECEIVE A FULL REFUND
(WITHOUT INTEREST) OF SUCH PURCHASE PRICE. THIS WITHDRAWAL WILL BE WITHOUT ANY
FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH SUCH WITHDRAWAL, AN INVESTOR
SHOULD SEND A LETTER OR TELEGRAM TO THE
4
<PAGE> 5
CORPORATION, INDICATING THE INTENTION TO WITHDRAW, POSTMARKED PRIOR TO THE END
OF THE THIRD BUSINESS DAY AFTER DELIVERY OF FUNDS TO THE CORPORATION, RETURN
RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND TO EVIDENCE THE TIME WHEN
IT IS MAILED. ANY ORAL REQUESTS FOR RESCISSION SHOULD BE ACCOMPANIED BY A
REQUEST FOR WRITTEN CONFIRMATION THAT THE ORAL REQUEST WAS RECEIVED ON A TIMELY
BASIS.
8. The Corporation may accept or reject a subscription in whole or part
for any reason after receipt of a properly executed Subscription Agreement,
Offeree Questionnaire and a check representing full payment for the Shares
subscribed. A Subscription Agreement will be considered accepted by the
Corporation only after it has been signed by an authorized officer of the
Corporation. If the Corporation refuses a subscription, the Corporation will
promptly refund the subscription payment without interest, promptly after such
rejection, along with notice thereof.
9. The Purchaser understands and agrees that any certificate evidencing
the Common Stock shall be stamped or otherwise imprinted with a legend in
substantially the following form:
RESTRICTED SECURITIES
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. NO SALE OF THESE SECURITIES OR DISPOSITION MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATES' SECURITIES LAWS.
The Purchaser further acknowledges that: (i) if the Common Stock
described herein becomes publicly traded, any necessary stop transfer orders
will be placed upon the certificates for the Common Stock in accordance with the
Act, and (ii) the Corporation is under no obligation to aid the Purchaser in
obtaining any exemption from the registration requirements of the Act or any
jurisdiction.
10. In no event will the Purchaser sell or otherwise transfer any of
the securities described herein other than in accordance with the terms thereof
and applicable law.
11. All information which the Purchaser has provided to the Corporation
concerning the Purchaser, the Purchaser's financial position and the Purchaser's
knowledge of financial and business matters is correct and complete as of the
date hereof, and if there should be any change in such information prior to the
issuance of the Common Stock to the Purchaser, the Purchaser will immediately
provide the Corporation with such new information. The Purchaser further
5
<PAGE> 6
agrees, if required by the Corporation or its authorized representative, to
provide bank references, tax returns or other confirming information concerning
the Purchaser's financial position as may be reasonably requested by the
Corporation.
12. Prior to the offer to sell the Common Stock to the Purchaser, the
Purchaser had a preexisting personal or business relationship with the
Corporation or at least one of its officers, directors or controlling persons
evincing trust between the Purchaser and such other person.
13. The Purchaser acknowledges that the Corporation and other parties
will rely upon the representations made herein to qualify the issuance of the
Common Stock for the registration exemptions afforded by the Act and Regulation
D, and any similar exemptions afforded by the laws of applicable states. The
Purchaser agrees to provide such other information and assistance as may be
necessary to comply with all applicable Federal and state securities
registration requirements or exemptions thereto for the issuance of the Common
Stock, or otherwise as may be reasonably necessary for compliance with any and
all laws and ordinances to which the Corporation is subject.
14. Registration Rights.
(a) Demand Registration. In case the Corporation shall receive
from the Purchaser a written request that the Corporation effect a registration
under the Securities Act with respect to not less than all of the shares of
Common Stock subscribed to herein, the Corporation shall as soon as practicable,
but in any event within 60 days, file and effect such registration (including,
without limitation, appropriate qualification under applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Securities Act and any other governmental requirements or
regulations) as would permit or facilitate the sale and distribution of all such
shares of Common Stock. The Corporation shall not be required to effect more
than one (1) registration under this Section 14. In addition, during any
twenty-four month period, the Corporation shall have the right to delay on one
occasion any registration statement filed pursuant to this Section 14 for one
(1) period not in excess of thirty (30) days.
(b) Piggy Back Registration. If at any time or from time to
time the Corporation shall determine to register any of its securities, either
for its own account or the account of a security holder or holders, other than
(i) a registration relating solely to employee benefit plans or (ii) a
registration relating solely to a Commission Rule 145 transaction, the
Corporation will:
(i) promptly give to the Purchaser written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Common Stock specified in a written request or
requests, made within 20 days after receipt of such written notice from the
Corporation, by the Purchaser.
(c) Underwriting. If the registration of which the Corporation
gives notice is for a registered public offering involving an underwriting, the
Corporation shall so advise the Purchaser. In such event, the right of the
Purchaser to registration pursuant to this section shall
6
<PAGE> 7
be conditioned upon the Purchaser's participation in such underwriting and the
inclusion of the Purchaser's Common Stock in the underwriting to the extent
provided herein. The Purchaser shall (together with the Corporation and any
other shareholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Corporation. Notwithstanding
any other provision of this section, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Common Stock to be included
in such registration. The Corporation shall so advise the Purchaser and the
number of shares of Common Stock that may be included in the registration and
underwriting shall reduced accordingly. If the Purchaser disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom by written
notice to the Corporation and the managing underwriter. Any securities excluded
or withdrawn from such underwriting shall be withdrawn from such registration,
and shall not be transferred in a public distribution prior to 90 days after the
effective date of the registration statement relating thereto, or such other
shorter period of time as the underwriters may require. The Corporation may
include shares of Common Stock held by shareholders other than the Purchaser in
a registration statement pursuant to this section if, and to the extent that,
the amount of Common Stock otherwise includible in such registration statement
by the Purchaser would not thereby be diminished.
(d) All registration expenses incurred in connection with
registrations pursuant to this section shall be borne by the Corporation.
(e) The Corporation shall have the sole and exclusive right to
utilize and select the underwriters of any public offering of shares of the
Common Stock, including any public offering conducted pursuant to the
registration rights set forth above. The use of underwriters in any registration
right set forth above is, at the sole discretion of the Corporation, subject to
the Corporation's ability to engage underwriters under terms and conditions
deemed reasonable by the Corporation.
(f) The Corporation shall not be required to continue a
registration statement if such shares of Common Stock of Purchaser are eligible
to be sold under Rule 144 of the Securities Act, or otherwise eligible for sale
to the public without registration.
(g) The Corporation shall have the right to suspend or delay
the effectiveness of any registration statement upon the advice of counsel,
where such suspension or delay is required to allow the Corporation to maintain
compliance with all securities laws.
(h) The Purchaser agrees to cooperate with the Corporation in
all respects in connection with registration of the Common Stock, including
timely supplying all information and executing and returning all documents
requested by the Corporation and its managing underwriter and which are
customary in transactions of this type.
(i) In the event of an underwritten offering, the Purchaser
agrees to accept the terms of the underwriting as agreed upon between the
Corporation and its underwriters so long as they are reasonable and customary.
7
<PAGE> 8
(j) The Corporation shall have the right to defer the filing
of any registration statement or suspend the effectiveness of such registration
statement or reduce the number of shares of the Purchaser's Common Stock
registered in the registration statement if the Board of Directors of the
Corporation determines in good faith that it would be seriously detrimental to
the Corporation and its stockholders for such registration statement to be filed
or utilized in a transaction.
15. This agreement shall not be assignable by any party without the
written consent of the other party; contains the entire agreement between the
parties; cannot be modified except in writing signed by all parties hereto;
shall be binding upon the parties, their heirs, legal representatives,
successors and assigns; can be specifically enforced; and shall be governed by
Florida law.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on the 11th day of June, 1999.
"PURCHASER"
/s/Richard L. Lindstrom
-----------------------------------
Richard L. Lindstrom, M.D.
-----------------------------------
Social Security Number
-----------------------------------
Address
-----------------------------------
City, State and Zip Code
In consideration of and in reliance upon the foregoing, the
subscription and purchase described herein is hereby accepted this 11th of June,
1999.
VISION TWENTY-ONE, INC.
By: /s/ Theodore N. Gillette
-----------------------------------
Theodore Gillette, Chairman,
President and CEO
<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 six months ended June 30, 1999 and is qualified in its entirety by
reference to such consolidated financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,383,578
<SECURITIES> 0
<RECEIVABLES> 20,364,723
<ALLOWANCES> 3,941,043
<INVENTORY> 4,649,144
<CURRENT-ASSETS> 29,864,897
<PP&E> 27,820,278
<DEPRECIATION> 10,054,562
<TOTAL-ASSETS> 182,975,796
<CURRENT-LIABILITIES> 25,861,776
<BONDS> 77,226,922
0
0
<COMMON> 15,431
<OTHER-SE> 71,550,333
<TOTAL-LIABILITY-AND-EQUITY> 182,975,796
<SALES> 19,154,456
<TOTAL-REVENUES> 92,225,672
<CGS> 18,257,963
<TOTAL-COSTS> 78,154,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,729,497
<INCOME-PRETAX> (5,886,658)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,886,658)
<DISCONTINUED> 1,611,614
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,274,044
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
</TABLE>
