<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 MARCH 31, 2000
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 14,526,617 Shares outstanding as of April 30, 2000.
<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
MARCH 31,
-------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Revenues:
Refractive and ambulatory surgery centers, net ...... $ 2,565,981 $ 4,387,017
Managed care ........................................ 14,184,912 13,485,780
Buying group ........................................ 14,777,744 --
------------ ------------
31,528,637 17,872,797
------------ ------------
Operating expenses:
Refractive and ambulatory surgery centers ........... 2,247,125 3,790,176
Medical claims ...................................... 10,371,748 9,741,255
Cost of buying group sales .......................... 14,062,211 --
General and administrative .......................... 5,027,205 5,295,027
Depreciation and amortization ....................... 747,130 759,116
------------ ------------
32,455,419 19,585,574
------------ ------------
Loss from operations .................................. (926,782) (1,712,777)
Interest expense, net ................................. 1,454,366 1,855,626
------------ ------------
Loss from continuing operations before minority
interest ............................................ (2,381,148) (3,568,403)
Minority interest ..................................... -- (38,817)
------------ ------------
Loss from continuing operations ....................... (2,381,148) (3,607,220)
Discontinued operations:
Income from discontinued operations ................. 2,397,325 --
Loss on disposal of discontinued operations ......... -- (7,152)
------------ ------------
Income (loss) before extraordinary item ............... 16,177 (3,614,372)
Extraordinary item-costs associated with OptiCare
Health Systems, Inc. merger ....................... -- (1,016,263)
------------ ------------
Net income (loss) ..................................... $ 16,177 (4,630,635)
============ ============
Basic and diluted income (loss) per common share:
Loss from continuing operations ..................... $ (0.16) $(0.24)
Income from discontinued operations ................. 0.16 --
------------ ------------
Income (loss) before extraordinary item ............... 0.00 (0.24)
Extraordinary item-costs associated with OptiCare
Health Systems, Inc. merger ....................... -- (0.07)
------------ ------------
Net income (loss) per common share .................... $ 0.00 $ (0.31)
============ ============
</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, MARCH 31,
1999 2000
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................................................... $ 5,032,399 $ 5,378,669
Accounts receivable due from:
Physicians, patients and surgery centers ......................................... 1,852,091 2,393,721
Managed health benefits payors ................................................... 810,606 639,019
Prepaid expenses and other current assets ........................................... 1,405,321 1,349,947
Current assets of discontinued operations ........................................... 20,102,763 13,942,736
------------ -------------
Total current assets ......................................................... 29,203,180 23,704,092
Fixed assets, net ..................................................................... 5,131,658 4,960,516
Excess of purchase price over fair values of
net assets acquired, net of accumulated
amortization of $3,500,266 and $3,951,039
at December 31, 1999 and March 31, 2000 respectively ................................ 47,703,490 47,252,717
Other assets .......................................................................... 205,059 457,973
Restricted cash ....................................................................... 500,000 500,000
Non current assets of discontinued operations ......................................... 2,135,300 431,583
------------ -------------
Total assets ................................................................. $ 84,878,687 $ 77,306,881
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable .................................................................... $ 5,687,289 $ 4,743,548
Accrued expenses .................................................................... 2,240,083 2,695,399
Medical claims payable .............................................................. 4,870,837 4,466,873
Accrued compensation ................................................................ 1,848,511 1,824,404
Accrued restructuring charge ........................................................ 663,305 590,654
Accrued interest and loan fees ...................................................... 2,086,957 3,617,154
Amount due to ECCA .................................................................. 4,031,870 4,031,870
Current portion of long-term debt ................................................... 58,135,205 58,567,453
Current portion of obligations under capital leases ................................. 90,292 93,432
Current liabilities of discontinued operations ...................................... 6,657,260 4,315,735
------------ -------------
Total current liabilities .................................................... 86,311,609 84,946,522
Obligations under capital leases, less current portion ................................ 195,902 171,160
Long-term debt, less current portion .................................................. 112,500 112,500
Long term liabilities of discontinued operations ...................................... 598,946 572,182
------------ -------------
Total liabilities ............................................................ 87,218,957 85,802,364
Minority interest ..................................................................... 409,822 448,639
Stockholders' equity (deficit):
Preferred stock, $.001 par value; 10,000,000 shares authorized: no shares issued ... -- --
Common stock, $.001 par value; 50,000,000 shares authorized; 15,616,854
shares issued and outstanding .................................................... 15,617 15,617
Additional paid in capital .......................................................... 92,981,946 92,691,973
Treasury stock (772,375 shares) ..................................................... -- (1,465,557)
Deferred compensation ............................................................... (192,135) --
Notes receivable .................................................................... (172,984) (172,984)
Accumulated deficit ................................................................. (95,382,536) (100,013,171)
------------ -------------
Total stockholders' equity (deficit) ......................................... (2,750,092) (8,944,122)
------------ -------------
Total liabilities and stockholders' equity (deficit) ......................... $ 84,878,687 $ 77,306,881
============ =============
</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>
Three Months Ended March 31,
-----------------------------
1999 2000
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................................................... $ 16,177 $(4,630,635)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Net gain (loss) from discontinued operations.................................. (2,397,325) 7,152
Depreciation and amortization ................................................ 747,130 759,116
Extraordinary item ........................................................... -- 1,016,263
Non-cash compensation expense ................................................ 50,620 79,098
Other amortization ........................................................... 27,075 192,135
Minority interest ............................................................ -- 38,817
Changes in operating assets and liabilities, net of effects from business
combinations:
Accounts receivable, net ................................................... (69,444) (370,043)
Prepaid expenses and other current assets .................................. 416,239 55,374
Other assets ............................................................... 529,941 (252,914)
Accounts payable ........................................................... 2,500,866 (943,741)
Accrued expenses ........................................................... (462,224) 455,316
Accrued compensation ....................................................... 402,953 (24,107)
Accrued restructuring charge ............................................... (280,393) (72,651)
Accrued interest and loan fees ............................................. 39,199 1,530,197
Medical claims payable ..................................................... (1,318,019) (403,964)
----------- -----------
Net cash provided by (used in) operating activities ................... 202,795 (2,564,587)
INVESTING ACTIVITIES
Payments for fixed assets, net .................................................. (370,909) (143,907)
Payments for capitalized acquisition costs ...................................... (332,035) --
----------- -----------
Net cash used in investing activities ................................. (702,944) (143,907)
FINANCING ACTIVITIES
Payments on long-term debt ...................................................... (116,150) --
Proceeds from credit facility ................................................... 3,394,686 1,959,085
Payments on credit facility ..................................................... (2,859,000) (1,526,837)
Payments for financing fees ..................................................... (36,915) --
Payments on capital lease obligations ........................................... (21,716) (21,602)
Exercise of stock options ....................................................... 12,263 --
----------- -----------
Net cash provided by financing activities ............................. 373,168 410,646
----------- -----------
DISCONTINUED OPERATIONS
Operating activities ......................................................... 4,363,498 (1,816,153)
Investing activities ......................................................... (1,704,675) 4,460,271
Financing activities ......................................................... (103,997) --
----------- -----------
Cash provided by discontinued operations ........................................ 2,554,826 2,644,118
----------- -----------
Increase in cash and cash equivalents ........................................... 2,427,845 346,270
Cash and cash equivalents at beginning of period ................................ 1,514,670 5,032,399
----------- -----------
Cash and cash equivalents at end of period ...................................... $ 3,942,515 $ 5,378,669
=========== ===========
</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)
MARCH 31, 2000
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, 1999.
Operating results for the three-month period ended March 31, 2000 are
not necessarily an indication of the results that may be expected for the year
ending December 31, 2000.
RECLASSIFICATION OF FINANCIAL STATEMENTS
During the fourth quarter of 1999, the Company announced its adoption
of a plan to exit from its physician practice management ("PPM") business.
Effective August 31, 1999, the Company consummated the sale of the retail
optical chain segment of its operations. Prior period condensed consolidated
financial statements have been restated to show these divisions as discontinued
operations.
2. LOSS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share for income from continuing operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 2000
----------- -----------
<S> <C> <C>
Numerator for basic and diluted loss per
share-loss available to common
stockholders ....................................... $(2,381,148) $(3,607,220)
Denominator for basic and diluted loss per share-
Weighted average shares ............................ 14,932,697 14,879,532
----------- -----------
Basic and diluted loss per common share ............... $ (0.16) $ (0.24)
=========== ===========
</TABLE>
There were no dilutive securities included in the computations of loss
per share in the three month period ended March 31, 1999 nor in the three month
period ended March 31, 2000 because the Company incurred a loss from continuing
operations in both periods. Options and warrants to purchase approximately
3,262,000 shares of Common Stock were outstanding at March 31, 2000, but were
not included in the computation of diluted loss per share because the effect
would have been anti-dilutive.
4
<PAGE> 6
3. RESTRUCTURING PLAN
During the fourth quarter of 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 were
composed of a number of specific projects, were expected to position the Company
to take full operational and economic advantage of recent acquisitions. The
Restructuring Plan was to 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 Restructuring Plan initiatives
resulted in the elimination of over 100 positions throughout the Company and
were completed during 1999. The planned initiatives to be undertaken as part of
the Restructuring Plan included the integration of managed care service centers
and business lines, the consolidation of retail optical back office functions
and the consolidation of certain corporate functions. The Restructuring Plan
resulted in a restructuring charge of approximately $2,796,000 for the year
ended December 31, 1998. The restructuring charge was composed of severance
costs of approximately $1,914,000 and facility and lease termination costs of
approximately $882,000.
The accrued restructuring charge of approximately $663,000 at December
31, 1999 was reduced by $72,000 to $591,000 at March 31, 2000. The reduction was
related entirely to severance payments. For the three months ended March 31,
1999, the Company utilized approximately $300,000 of this charge, related to
severance payments. The Restructuring Plan reserve was approximately $2,500,000
at March 31, 1999.
4. DISCONTINUED OPERATIONS
Effective August 31, 1999, the Company completed the sale of Vision
World, EyeCare One Corp., and The Eye DRx (the "Retail Optical Chains") to Eye
Care Centers of America, Inc. ("ECCA"). ECCA is based in San Antonio, Texas and
operates a national chain of full-service retail optical stores. In connection
with this transaction, the Company received approximately $37,300,000 in cash.
Of the proceeds the Company received at closing, approximately $30,800,000 was
applied as a permanent pay down of its term debt credit facility, approximately
$2,800,000 was paid down under its ongoing $7,500,000 revolving credit facility,
approximately $2,400,000 was used for costs and other obligations related to the
transaction and approximately $1,250,000 was utilized to fund an escrow
arrangement between the parties relative to terms under the agreement. Based on
post-closing adjustments, the final sales price was approximately $31,800,000,
and the Company has recorded a liability of approximately $4,032,000 to ECCA,
net of escrow, with respect to such post-closing adjustments. In addition,
Vision Twenty-One has indemnified one of its former managed professional
associations for certain partnership obligations. Accordingly, a charge of
$200,000 was recorded to loss on disposal of discontinued operations in 1999. A
net loss of approximately $3,250,000 was incurred on the transaction for the
year ended December 31, 1999.
5
<PAGE> 7
On October 25, 1999, the Company announced its intent to exit the
business of managing optometry and ophthalmology practices. The details of the
plan were finalized in December 1999. This represented a crucial step in the
Company's strategy of redirecting its corporate resources towards the
development of refractive and ambulatory surgery center initiatives in these
same markets. The Company expects the majority of the affected physicians to
continue to be part of the Vision Twenty-One national eye care delivery network
and/or participate in its refractive and ambulatory surgery center initiatives.
The exit of the physician practice management ("PPM") business is being
accomplished through the sale of the practice assets back to the physicians or
their affiliates, the termination of Management Agreements and the restructuring
of certain refractive surgery center facility access agreements. The terms of
each managed practice divestiture are subject to the prior approval of the banks
under the Company's credit facilities. Accordingly, in 1999, the Company
recorded a loss of $58,700,000, which is net of an income tax benefit of
$1,100,000, related to the expected sale of practice assets. As of March 31,
2000, the Company had sold 11 practices and received consideration of
approximately $5,200,000, in the form of cash and 772,375 shares of the
Company's common stock valued at approximately $1,466,000. The Company expects
to complete its exit of the PPM business by June 30, 2000.
As a result of the changes occurring in the Company's business,
including, but not limited to, the pending merger with OptiCare, the divestiture
of large business units, the shift in operating focus, changes in the Company's
managed care business, the Company's exiting of the PPM business and issues
related to the Company's accessibility to future working capital, the overall
results should not necessarily be relied upon as being indicative of future
operating performance.
The operating results of these discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------
1999 2000
----------- ------------
<S> <C> <C>
Revenues $37,060,826 $ --
Operating expenses 34,663,501 --
----------- ------------
Income from discontinued operations 2,397,325 --
----------- ------------
Loss on disposal -- (7,152)
----------- ------------
Total income (loss) on discontinued operations $ 2,397,325 $ (7,152)
=========== ============
</TABLE>
The operating expenses of the discontinued operations for the three
months ended ended March 31, 1999 include an allocation of interest expense and
amortization expense of intangible assets of approximately $1,200,000. The
interest expense allocated to discontinued operations was based on the net
assets attributed to the operations of the Retail Optical Chains in accordance
with the guidance in EITF 87-24, Allocation of Interest to Discontinued
Operations.
6
<PAGE> 8
The assets and liabilities of the discontinued operations primarily
include cash, patient accounts receivable, fixed assets, accounts payable and
accrued liabilities.
5. 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 three segments: refractive and ambulatory surgery centers, managed care and
buying group. The refractive and ambulatory surgery centers segment includes all
activity related to refractive surgery centers and ambulatory surgery centers.
The managed care segment consists primarily of the activities of the Florida,
Maryland and Arizona service centers. The buying group segment includes the
operations of the buying group division which was sold effective April 30, 1999.
The corporate category includes general and administrative expenses associated
with the operations of the Company's corporate and regional offices and expenses
not allocated to reportable segments, including the Company's restructuring and
other charges (credits).
The accounting policies of the reportable segments are the same as
those described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. 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
MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
Revenues:
Refractive and ambulatory surgery centers $ 2,565,981 $ 4,387,017
Managed care 14,184,912 13,485,780
Buying group 14,777,744 --
------------ ------------
Total segments 31,528,637 17,872,797
Corporate -- --
------------ ------------
Total revenues $ 31,528,637 $ 17,872,797
============ ============
Segment Profit (Loss):
Refractive and ambulatory surgery centers $ 318,856 $ 596,841
Managed care (a) 2,034,641 1,557,887
Buying group (b) 377,843 --
------------ ------------
Total segments 2,731,340 2,154,728
Corporate (2,910,992) (3,147,206)
------------ ------------
Total segment profit (loss) $ (179,652) $ (992,478)
============ ============
</TABLE>
(a) Managed Care segment profit includes general and administrative
expenses related to the Buying Group in 1999 which the Company is
unable to separately identify from the general and administrative
expenses of Block Vision.
(b) Buying Group profit represents the gross profit from the sale of
optical products.
7
<PAGE> 9
6. MERGER AGREEMENT
On February 10, 2000, the Company entered into an Agreement and Plan of
Merger and Reorganization ("Merger Agreement") with OptiCare Health Systems,
Inc. and OC Acquisition Corp. The merger will combine the companies' refractive
surgery, ambulatory surgery and managed care businesses. Under the terms of the
Merger Agreement, the Company's Common Stock will be converted into OptiCare
common stock at an initial exchange ratio of .402 shares of OptiCare common
stock for each share of the Company's Common Stock. At the initial exchange
ratio, approximately six million shares of OptiCare common stock would be issued
in exchange for 100% of the issued and outstanding Common Stock of the Company.
The final exchange ratio will be calculated prior to closing in part on the
basis of a subsequent determination of the Company's Consolidated Balance Sheet.
The merger will be accounted for as a purchase and includes the assumption by
OptiCare of approximately $60,000,000 of the Company's outstanding debt. The
transaction is subject to certain closing conditions, including, but not limited
to, regulatory approvals, the approval of the shareholders of both OptiCare and
the Company, the restructuring of certain debt obligations of OptiCare and the
Company and the raising by OptiCare of not less than $30,000,000 of equity or
mezzanine capital.
7. 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 20, 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 one of its officers, who
is also a director, as well as two former officers liable for alleged federal
securities law violations based upon alleged misstatements and omissions in
analyst reports, trade journal articles, press releases and filings with the
Securities and Exchange Commission.
Pursuant to judicial orders, the lead plaintiffs filed an amended
consolidated complaint on August 14, 1999. On October 11, 1999, the lead
plaintiffs and Michael P. Block executed a stipulation dismissing without
prejudice the action against Mr. Block. The Defendants filed a motion to dismiss
the amended consolidated complaint on October 15, 1999. The lead plaintiffs
served answering papers on December 3, 1999. The motion to dismiss remains under
judicial review. The Company believes that it has substantial defenses to this
matter and intends to assert them vigorously.
On or about November 15, 1999, Caremark Rx, Inc. commenced an action in
the United States District Court, Middle District, against the Company. The
action alleges a breach by the Company of a promissory note and a leased
property agreement and is seeking approximately $950,000 in damages. The Company
has asserted defenses to the claim and has filed a counter-claim for damages
against Caremark Rx, Inc. for breach of contract and unfair trade practices. The
Company believes that it has substantial defenses to this matter and intends to
assert them vigorously.
8
<PAGE> 10
Block Buying Group, LLC (the "Block Group"), an entity owned by Michael
Block, the former president of the Company's Block Vision, Inc. subsidiary, has
filed a civil action in Palm Beach County Circuit Court seeking to enjoin the
proposed merger between the Company and OptiCare. The Company previously sold
its eye care buying group business to the Block Group in June of 1999. The Block
Group has informed the Company that it believes that the proposed merger with
OptiCare is in violation of the non-competition and confidentiality provisions
entered into in connection with the June 1999 sale since OptiCare operates a
buying group division which currently competes with the Block Group. The
consummation of the proposed merger between the Company and OptiCare is subject
to certain conditions including resolution of this matter to OptiCare's
satisfaction. On April 21, 2000, the Block Group and the Company, through
counsel, have signed a stipulation to participate in expedited arbitration in
accordance with the terms and conditions of the June 1999 sale and to jointly
seek the completion of the arbitration on or before June 1, 2000, or as soon
thereafter as reasonably possible. The failure to consummate the OptiCare
transaction could have a material adverse effect on the Company. The Company
believes that it has substantial defenses to this matter and intends to assert
them vigorously.
The Company has been named as a defendant in an action commenced in the
Superior Court of New Jersey on or about March 8, 2000. The action was filed by
five optometrists against Charles Cummins, O.D. and Elliot Shack, O.D. ("Cummins
and Shack"), the Company, ECCA, and several other defendants who have not been
named nor identified. The Company previously purchased certain non-optometric
assets of Cummins and Shack in January 1998 which it subsequently sold to ECCA
in August, 1999. The action alleges breach of fiduciary duty, breach of covenant
of good faith and fair dealing, breach of contract and fraud in connection with
purported partnership agreements the optometrists had with Cummins and Shack and
seeks an accounting and specific performance as well as unspecified compensatory
and punitive damages. The Company believes that it has substantial defenses to
this matter and intends to assert them vigorously.
On or about November 1, 1999, The Source Buying Group, Inc. commenced
an action in the United States District Court for the Eastern District of
Pennsylvania against Block Vision. The action alleges a breach by Block Vision
of a promissory note and is seeking approximately $562,500 representing the
accelerated principal balance of the note which the plaintiff alleges is due,
together with interest and costs. In the alternative, the plaintiff is seeking
approximately $20,800 of interest allegedly due. On or about January 14, 2000,
the action was transferred to the United States District Court for the Southern
District of Florida. Block Vision has asserted defenses to the claim and has
moved to compel arbitration. The plaintiff has filed an opposition to Block
Vision's motion for arbitration. 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 lawsuits will have on the financial
position or results of operations of the Company. However, there can be no
assurances that the resolution of the aforementioned lawsuits will not have a
material adverse effect on the Company and further contribute to its negative
financial operations.
9
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL OVERVIEW
Since its inception, Vision Twenty-One has sought to develop and
manage local area eye care delivery systems ("LADS(SM)"). LADS involved
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,
Vision Twenty-One developed retail distribution channels for its LADS through
affiliating with retail optical chains and developed managed care distribution
channels for its LADS through contracting with local health plans and other
third party payors.
Vision Twenty-One's LADS operating revenue was primarily derived from
a wide range of service fees earned through strategic affiliations with eye
care clinics and retail optical locations and through ownership interests in
refractive surgery centers ("RSCs"), ambulatory surgery centers ("ASCs") and
retail optical chains. LADS also included the management of practices of
optometry and ophthalmology ("PPM"). The PPM business involved the Company
entering into long-term management agreements ("Management Agreements") with
professional associations or corporations pursuant to which the Company was the
sole provider of comprehensive management, business and administrative services
for the non-professional aspects of the professional practices. The PPM segment
represented a substantial portion of the Company's business in 1999.
Vision Twenty-One also generated significant revenue from its buying
group division that provided benefits to its Affiliated Providers through the
consolidation and management of purchases of optical goods. In addition, the
Company generated significant revenue from its managed care division by
entering into capitated managed care contracts with third-party insurers and
payors and by administering indemnity fee-for-service plans.
During 1999, the Company began implementing a plan of divesting itself
of the PPM, retail optical chains and buying group businesses in order to focus
on expanding its refractive surgery, ambulatory surgery and managed care
businesses. The sales of the buying group division and retail optical chains
were completed in two individual transactions. The PPM divestiture requires
multiple transactions involving the sales of practice assets, typically back to
the doctors or their affiliates, and the termination of Management Agreements.
This divestiture program commenced late in the 4th quarter of 1999 and is
expected to be completed by June 30, 2000. As of March 31, 2000, the Company
had sold 11 practices and received consideration of approximately $5.2 million.
Vision Twenty-One was incorporated in Florida on May 9, 1996. Its
principal operating subsidiaries consist of Vision 21 Managed Eye Care of Tampa
Bay, Inc. ("Vision 21 MCO"), Vision 21 Physician Practice Management Company,
Inc. ("Vision 21 PPMC") and BBG-COA, Inc. and its subsidiaries ("Block
Vision"). Vision 21 PPMC and Vision 21 MCO were merged with Vision Twenty-One
in November 1996. In the merger, all of the outstanding shares of stock of
Vision 21 PPMC and Vision 21 MCO which were owned by certain executive officers
and directors of Vision Twenty-One were exchanged for common stock of Vision
Twenty-One. The principal executive office of Vision Twenty-One is located at
7360 Bryan Dairy Road, Suite 200, Largo, Florida 33777, and its telephone
number is (727) 545-4300.
MERGER AGREEMENT WITH OPTICARE HEALTH SYSTEMS
The Company's Board of Directors voted to explore a number of
strategic alternatives intended to maximize shareholder value. As a result, on
February 10, 2000, the Company entered into an Agreement and Plan of Merger and
Reorganization ("Merger Agreement") with OptiCare Health Systems, Inc. and OC
Acquisition Corp. (collectively, "OptiCare"). The merger will combine the
companies' refractive surgery, ambulatory surgery and managed care businesses.
Under the terms of the Merger Agreement, the Company's Common Stock will be
converted into OptiCare common stock at an initial exchange ratio of .402
shares of OptiCare common stock for each share of the Company's Common Stock.
At the initial exchange ratio, approximately six million shares of OptiCare
common stock would be issued in exchange for 100% of the issued and outstanding
Common Stock of the Company. The final exchange ratio will be calculated prior
to closing, in part, on the basis of a subsequent determination of the
Company's consolidated balance sheet. The merger will be accounted for as a
purchase and includes the assumption by OptiCare of approximately $60.0 million
of the Company's outstanding debt. The transaction is subject to certain
closing
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conditions, including, but not limited to, regulatory approvals, the approval
of the shareholders of both OptiCare and the Company, the restructuring of
certain debt obligations of OptiCare and the Company and the raising by
OptiCare of not less than $30.0 million of equity or mezzanine capital.
DISPOSITION OF BUSINESSES
The Company has concentrated on developing it's LADs since late 1997.
Over the past year, the Company has been analyzing certain business units
within such LADs and assessing the long-term strategic value of each existing
component. Effective August 31, 1999, the Company completed the sale of Vision
World, Stein Optical (a trade name of EyeCare One Corp.), and The Eye DRx (the
"Retail Optical Chains" ) to Eye Care Centers of America, Inc. ("ECCA"). ECCA
is based in San Antonio, Texas and operates a national chain of full-service
retail optical stores. In connection with this transaction, the Company
received approximately $37.3 million in cash. Of the proceeds the Company
received at closing, approximately $30.8 million was applied as a permanent pay
down of its term debt credit facility, approximately $2.8 million was paid down
under its ongoing $7.5 million revolving credit facility, approximately $2.4
million was used for costs and other obligations related to the transaction and
approximately $1.3 million was utilized to fund an escrow arrangement between
the parties relative to terms under the agreement. Based on post-closing
adjustments, the final sales price was approximately $31.8 million, and the
Company has recorded a liability of approximately $4.0 million to ECCA, net of
escrow, with respect to such post-closing adjustments. Under the sale
agreement, Vision Twenty-One indemnified one of its former Managed Professional
Associations for certain partnership obligations. Accordingly, a charge of $0.2
million was recorded to loss on disposal of discontinued operations in 1999. A
net loss of approximately $3.2 million was recorded on the transaction. The
Company is currently in discussions with ECCA regarding payment of the
post-closing purchase price adjustment and has reached an oral agreement that
is conditioned upon consummation of the OptiCare transaction. In the event the
OptiCare transaction is not consummated for whatever reason, there can be no
assurance that the Company will be able to pay the amounts owed to ECCA.
On June 4, 1999, the Company completed the sale of its 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 facilities.
EXIT FROM PHYSICIAN PRACTICE MANAGEMENT BUSINESS
On October 25, 1999, the Company announced its intent to exit the
business of managing optometry and ophthalmology practices. The details of the
plan were finalized in December 1999. This represented a crucial step in the
Company's strategy of redirecting its corporate resources towards the
development of refractive surgery and ambulatory surgery center initiatives in
these same markets. The Company expects the majority of the affected physicians
to continue to be part of the Vision Twenty-One national eye care delivery
network and/or participate in its refractive and ambulatory surgery center
initiatives. The exit of the physician practice management ("PPM") business is
expected to be accomplished through the sale of the practice assets back to the
physicians or their affiliates, the termination of Management Agreements and the
restructuring of certain refractive surgery center facility access agreements.
The terms of each managed practice divestiture are subject to the prior approval
of the banks under the Company's credit facilities. Accordingly, in 1999, the
Company recorded a loss of $58.7 million, which is net of an income tax benefit
of $1.1 million, related to the expected sale of practice assets. As of March
31, 2000, the Company had sold 11 practices and received consideration of
approximately $5.2 million.
As a result of the changes occurring in the Company's business,
including, but not limited to, the pending merger with OptiCare, the
divestiture of large business units, the shift in operating focus, changes in
the Company's managed care business, the Company's exiting of the PPM business
and issues related to the Company's accessibility to future working capital,
the overall results should not necessarily be relied upon as being indicative
of future operating performance.
POSSIBLE DELISTING BY NASDAQ
On April 20, 2000, the Company received a letter from Nasdaq advising
the Company of a possible delisting of the Company from the Nasdaq National
Market due to the Company's failure to timely file its Form 10-K with the
Securities and Exchange Commission. The delay in filing the Form 10-K was
primarily attributable to the Company's discontinued operations. The Company
requested and has received a hearing related to this matter which is scheduled
for May 25, 2000.
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In addition to filing Form 10-Q for the three months ended March 31,
2000, the Company will have to show NASDAQ that it meets the other listing
requirements and, based upon current circumstances, it is unlikely that it will
meet such requirements. While the Company believes it has reasonable arguments
in favor of its continued listing and it expects to seek a waiver of such
conditions through closing of the OptiCare transaction, there can be no
assurance that the Company's listing on the Nasdaq National Market will
continue following the date of the currently scheduled hearing.
ADDITIONAL OVERVIEW
As part of its PPM business, Vision Twenty-One entered into Management
Agreements with professional associations or corporations (the "Managed
Professional Associations") pursuant to which Vision Twenty-One was the sole
provider of comprehensive management, business and administrative services for
the non-professional aspects of the professional practices. Each managed
provider maintained full authority, control and responsibility over the
provision of professional care and services to its patients. Vision Twenty-One
did not provide professional care to patients nor did Vision Twenty-One employ
any of the ophthalmologists or optometrists, or any other professional health
care provider personnel, of the Managed Professional Association. The initial
term of the Management Agreement was typically 40 years. Under the majority of
Vision Twenty-One's Management Agreements, the management fees ranged from 20%
to 37% of the Managed Professional Associations' net revenues after deducting
from such revenues all expenses of the clinics other than those related to
shareholders of the Managed Professional Associations. This type of arrangement
was usually utilized in management relationships with ophthalmology practices.
Additionally, Vision Twenty-One had Management Agreements with management fees
ranging from 50% to 87% of net practice revenues where Vision Twenty-One was
required to pay generally all the expenses of the clinics with the exception of
professional salaries and benefits. Such arrangements were typically utilized
in management relationships with optometrists. The management fees earned by
Vision Twenty-One pursuant to these Management Agreements fluctuated depending
on the level of revenues and expenses of the Managed Professional Associations.
The Managed Professional Associations derive their revenues from professional
fees as well as fees received for the use of ASCs, RSCs and sales of optical
goods. The Managed Professional Associations receive payments from a
combination of sources including capitation payments from managed care
companies and government funded reimbursements (Medicare and Medicaid).
Managed care revenues are derived principally from fixed premium
payments received pursuant to its managed care contracts on a capitated or
risk-sharing basis. The Company also receives fees for the provision of certain
financial and administrative services related to its indemnity fee-for-service
plans. Pursuant to its capitated managed care contracts, the Company receives a
fixed premium 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
typically have a one-year term.
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.
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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 consisted 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 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 purchased all of the
outstanding stock of The Complete Optical Laboratory, Ltd., Corp. located in
New Jersey which serviced the Company's New Jersey optometry clinics and
acquired substantially all of the business assets of a managed care company
located in Florida which serviced 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, approximately $13.5 million in cash and
promissory notes in the aggregate principal amount of $1.3 million, subject to
post-closing adjustments.
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 targets are met.
In March 1998, the Company completed a transaction with EyeCare One
Corp. ("EyeCare One") and Vision Insurance Plan of America, Inc. ("VIPA").
EyeCare One, operating under the trade name of Stein Optical, was a retail
optical chain consisting of 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 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.
EyeCare One Corp. was sold effective August 31, 1999.
In January 1998, the Company completed the acquisition of The Eye DRx,
a retail optical chain of 19 retail clinics located in Bloomfield, New Jersey.
In connection with this transaction, the Company paid $7.2 million in cash and
issued 522,600 shares of Common Stock. In conjunction with this acquisition,
the Company entered into Management Agreements with the Managed Professional
Associations' stockholders. The Eye DRx was sold effective August 31, 1999.
1998 RESTRUCTURING PLAN
During the fourth quarter of 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 were
composed of a number of specific projects, were expected to position the
Company to take full operational and economic advantage of recent acquisitions.
The Restructuring Plan was to 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 Restructuring Plan
initiatives resulted in the elimination of over 100 positions throughout the
Company and were completed during 1999. The planned initiatives to be
undertaken as part of the Restructuring Plan included the integration of
managed care service centers and business lines, the consolidation of retail
optical 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. The
restructuring charge was composed of severance costs of approximately $1.9
million and facility and lease termination costs of approximately $.9 million.
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The accrued restructuring charge of $.7 million at December 31, 1999
was reduced by $.1 million to $.6 million at March 31, 2000. The reduction was
related entirely to severance payments. For the three months ended March 31,
1999, the Company utilized approximately $0.3 million of this charge, related
to severance payments. The reserve for the Restructuring Plan was $2.5 million
at March 31, 1999.
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 1999 divestitures and the
planned exit of the PPM business, the Company does not believe that the
historical percentage relationships for the three months ended March 31, 1999
and 2000 reflect the Company's expected future operations.
THREE MONTHS ENDED
MARCH 31
--------------------
1999 2000
----- -----
Revenues:
Refractive and ambulatory surgery centers, net .. 8.1% 24.6%
Managed care..................................... 45.0 75.4
Buying group..................................... 46.9 --
----- -----
Total revenues............................ 100.0 100.0
----- -----
Operating expenses:
Refractive and ambulatory surgery centers........ 7.1 21.2
Medical claims................................... 32.9 54.5
Cost of buying group sales....................... 44.6 --
General and administrative....................... 16.0 29.7
Depreciation and amortization.................... 2.4 4.2
----- -----
Total operating expenses.................. 103.0 109.6
----- -----
Loss from operations............................... (3.0) (9.6)
Interest expense................................... 4.6 10.4
----- -----
Loss from continuing operations before.............
minority interest................ (7.6) (20.0)
Minority interest.................................. -- (0.2)
----- -----
Loss from continuing operations.................... (7.6) (20.2)
Discontinued operations:
Income from discontinued operations........ 7.6 --
----- -----
Income (loss) before extraordinary item ........... -- (20.2)
Extraordinary item ....................... -- (5.7)
----- -----
Net income (loss) --% (25.9%)
===== =====
Medical claims ratio............................... 73.1% 72.2%
===== =====
Three-Month Period Ended March 31, 2000 Compared to Three-Month Period Ended
March 31, 1999
Revenues.
Revenues decreased 43.3% from $31.5 million for the three months ended
March 31, 1999 to $17.9 million for the three months ended March 31, 2000. This
decrease was primarily due to the Company's sale of the buying group division,
offset by an increase in refractive and ambulatory surgery center net revenues
attributable to growth in the number of refractive surgery centers and laser
vision correction procedures performed. Managed care revenues on a comparable
basis decreased 4.9% from 1999 revenues.
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Refractive and ambulatory surgery center operating expenses.
Refractive and ambulatory surgery center operating expenses increased
68.7% from $2.2 million for the three months ended March 31, 1999 to $3.8
million for the three months ended March 31, 2000. The increase is due, in
large part, to the costs associated with operating new refractive centers.
Medical Claims.
Medical claims expense decreased 6.1% from $10.4 million for the three
months ended March 31, 1999 to $9.7 million for the three months ended March
31, 2000. The Company's medical claims ratio decreased from 73.1% for the three
months ended March 31, 1999 to 72.2% for the three months ended March 31, 2000.
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.
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. The Company completed the sale of the buying group division during
the second quarter of 1999.
General and Administrative.
General and administrative expenses increased 5.3% from $5.0 million
for the three months ended March 31,1999 to $5.3 million for the three months
ended March 31, 2000. General and administrative expenses consist mainly 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 well as professional fees, advertising, building and occupancy
costs, operating lease expenses and other costs related to the maintenance of a
headquarters operation. While total expenditures did not change significantly,
expenses as a percentage of revenue increased dramatically from 16.0% for the
three months ended March 31, 1999 to 29.7% for the three months ended March 31,
2000. The increased percentage is due to lower revenue of the continuing
businesses coupled with significant costs associated with accounting, legal and
consulting professionals offset by reductions in headcount and related
expenses. Management has been aggressively reducing staff and related overhead
expenses in an effort to bring overall general and administrative expenses in
line with the current run rate of the continuing business. Professional fees
are expected to remain high in the second quarter of 2000 as a result of: 1)
the requirements of the PPM divestiture effort, 2) activities required to
resolve certain claims, 3) ongoing negotiations with the Company's lenders, and
4) activities necessary to close the proposed merger with OptiCare.
Depreciation and Amortization.
Depreciation and amortization expense increased from $747,000 for the
three months ended March 31, 1999 to $759,000 for the three months ended March
31, 2000. As a percentage of revenues, depreciation and amortization expense
increased from 2.4% for the three months ended March 31, 1999 to 4.2% for the
three months ended March 31, 2000 due to the reduction of revenues resulting
from the sale of the Company's buying group division.
Interest Expense.
Interest expense increased 27.6% from $1.5 million for the three months
ended March 31, 1999 to $1.9 million for the three months ended March 31, 2000.
In the first quarter of 1999, approximately $0.4 million of interest expense was
allocated to discontinued operations versus none in the first quarter of 2000.
Although average borrowings were approximately $25.1 million lower in the first
quarter of 2000 versus the same period in 1999, the average interest rate on the
Company's borrowings rose significantly in the first quarter of 2000 due to a
general increase in interest rates as well as higher spreads required by its
lenders.
Extraordinary Item.
The extraordinary item of approximately $1.0 million represents costs
incurred by the Company in connection with the merger with OptiCare Health
Systems, Inc.
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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 financing. Net cash used in operating activities for the three
months ended March 31, 2000 was $2.6 million as compared to net cash provided
by operating activities of $0.2 million for the three months ended March 31,
1999. Of the $2.8 million negative swing in cash flow from operating
activities, $3.4 million was attributable to a shift in supplier and other
trade payable support as accounts payable increased $2.5 million in the first
quarter of 1999 versus a decrease of $0.9 million in the first quarter of 2000.
Net cash used in investing activities for the three months ended March
31, 2000 was $0.1 million resulting from purchases of medical equipment and
office furniture related to the Company's new refractive surgery centers as well
as purchases in the normal course of business. Net cash used in investing
activities for the three months ended March 31, 1999 was $0.7 million and
resulted from payments for medical equipment, office furniture and capitalized
acquisition costs.
Net cash provided by financing activities for the three months ended
March 31, 2000 and 1999 of $0.4 million were primarily attributable to increased
borrowings under the Company's credit facilities, net of repayments.
On January 30, 1998, the Company entered into a five-year, $50.0
million credit agreement (the "Credit Agreement") with the Bank of Montreal as
agent (the "Agent") for a consortium of banks (the "Banks"). The Credit
Agreement, which was to mature 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. Borrowings under the Credit Agreement were secured by a pledge of the
stock of substantially all of the Company's subsidiaries as well as the assets
of the Company and certain of its subsidiaries. Obligations under the Credit
Agreement were guaranteed by certain of the Company's subsidiaries. The Credit
Agreement contained negative and affirmative covenants and agreements that
placed restrictions on the Company regarding disposition of assets, capital
expenditures, additional indebtedness, permitted liens and payment of
dividends, as well as required the maintenance of certain financial ratios. The
interest rate on the Credit Agreement was, 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. As of June 30, 1998, 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
credit agreement (the "Restated Credit Agreement") with the Bank of Montreal as
agent for a consortium of banks. The Restated Credit Agreement was used, in
part, for early extinguishment of the Company's outstanding balance of
approximately $48.3 million under its prior Credit Agreement. The remaining
balance under the Restated Credit Agreement was used for working capital,
acquisitions and general corporate purposes. 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. At December 31, 1998,
approximately $81.6 million was outstanding under the Restated Credit
Agreement.
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 credit facility maturing in June 2003. The First
Amendment resulted in a reduction of $10.0 million in the total borrowing
capacity of the Company. 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.
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<PAGE> 18
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 and Restated
Credit Agreement"). The Second Amendment principally revised certain financial
covenants in connection with the credit facility which the Company was
previously unable to meet, terminated early 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 and waived the Company's
non-compliance with certain obligations under the Amended and Restated Credit
Agreement through the date thereof.
On August 30, 1999, the Company entered into a third amendment to the
Amended and Restated Credit Agreement (the "Third Amendment"). The Third
Amendment provided for the consent to the sale of the Company's Retail Optical
Chains to ECCA by the Banks and Agent as parties to the Amended and Restated
Credit Agreement, revised certain covenants and financial ratios and waived the
Company's non-compliance with certain obligations under the Amended and
Restated Credit Agreement through the date thereof. On August 31, 1999 the sale
of the Company's Retail Optical Chains to ECCA was consummated. Of the proceeds
received by the Company, $30.8 million was used to permanently reduce the
Company's term loan borrowings and $2.8 million was used to reduce the
outstanding balance under the Company's $7.5 million revolving credit facility.
On November 12, 1999, the Company entered into a fourth amendment to
the Amended and Restated Credit Agreement (the "Fourth Amendment"). Pursuant to
the Fourth Amendment, a bridge loan facility of $3.0 million was made available
to the Company which was to mature on November 26, 1999. Waivers were extended
on a short-term basis regarding certain of the Company's violations of loan
covenants and repayment obligations.
On November 24, 1999, the Company entered into a fifth amendment to
the Amended and Restated Credit Agreement (the "Fifth Amendment"). Pursuant to
the Fifth Amendment, the repayment date for the bridge facility was extended,
and waivers with respect to violations of certain covenants including payment
of certain interest and principal amounts currently due were granted until
December 10, 1999.
On December 3, 1999, the Company entered into a sixth amendment to the
Amended and Restated Credit Agreement (the "Sixth Amendment"). Pursuant to the
Sixth Amendment, availability under the bridge loan facility was increased from
an aggregate of $3.0 million to an aggregate of $4.4 million, the repayment
date of the bridge loan facility was extended, and waivers for violations of
certain covenants and principal and interest payments due were granted until
January 31, 2000.
On December 10, 1999, the Company entered into a seventh amendment to
the Amended and Restated Credit Agreement (the "Seventh Amendment"). Pursuant
to the Seventh Amendment, availability under the bridge loan facility was
increased to an aggregate of $9.4 million, the repayment date of the bridge
loan facility was extended until March 31, 2000 and waivers regarding
violations of certain covenants and payment obligations currently due were
granted until December 31, 1999. Pursuant to the Seventh Amendment, the Company
agreed to provide the Banks with a weekly operating budget and to obtain
approval from the Banks for all significant cash expenditures.
On December 29, 1999, the parties to the Amended and Restated Credit
Agreement executed a waiver letter (the "December Waiver"). The December Waiver
extended the waivers provided by the Seventh Amendment regarding violations of
certain covenants and payment obligations currently due until February 29, 2000
while the Company explored the possibility of the sale of the entire business
or a substantial portion of its assets. The December Waiver granted the Company
the ability to use a portion of the proceeds from the sale of the physician
practice management businesses to meet its "reasonable and necessary" operating
expenses until the sale of the Company was consummated.
On February 29, 2000, the parties to the Amended and Restated Credit
Agreement executed a waiver letter (the "February Waiver"). The February Waiver
related to the Company's announcement that it had entered into a definitive
merger agreement with OptiCare and extended the waivers provided by the Seventh
Amendment until the earlier of March 24, 2000 or the termination of the merger
agreement with OptiCare pursuant to its terms.
On March 20, 2000, the parties to the Amended and Restated Credit
Agreement executed a waiver letter (the "March Waiver"). The March Waiver
extended (i) the waivers provided by the Seventh Amendment and the December and
February Waivers and (ii) the bridge facility due date, until the earlier of
April 14, 2000 or the termination of the merger agreement with OptiCare
pursuant to its terms.
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On April 14, 2000, the parties to the Amended and Restated Credit
Agreement executed a waiver letter (the "April Waiver"). The April Waiver
extended (i) the waiver provided by the Seventh Amendment and the December,
February and March Waivers and (ii) the bridge facility due date until the
earlier of May 5, 2000 or the termination of the merger agreement with OptiCare
pursuant to its terms.
On May 5, 2000, the parties to the Amended and Restated Credit
Agreement executed a waiver letter (the "May Waiver"). The May Waiver extended
(i) the waiver provided by the Seventh Amendment and the December, February,
March and April Waivers and (ii) the bridge facility due date until the earlier
of May 19, 2000 or the termination of the merger agreement with OptiCare
pursuant to its terms.
On May 19, 2000, the parties to the Amended and Restated Credit
Agreement executed a waiver letter (the "May 19th Waiver"). The May 19th Waiver
extended (i) the waiver provided by the Seventh Amendment and the December,
February, March, April and May Waivers and (ii) the bridge facility due date
until the earlier of June 2, 2000 or the termination of the merger agreement
with OptiCare pursuant to its terms.
On November 20, 1997, the Company completed the sale of 2,300,000
shares of its Common Stock at a price of $9.50 in a secondary public offering
(the "Secondary Offering"). The net proceeds of $20.5 million from the
Secondary Offering were used to fund a portion of the consideration for the
Block Acquisition.
In October 1997, the Company received a commitment from Prudential
Credit for a credit facility in the aggregate amount of $37.0 million pursuant
to a Note Purchase Agreement (the "Bridge Credit Facility"). Approximately
$27.0 million of the Bridge Credit Facility was available, if needed, to fund
the cash portion of the Block Acquisition to the extent that net proceeds from
the Company's Secondary Offering were insufficient for such purpose. The
remaining balance of approximately $10.0 million of the Bridge Credit Facility
was available for optometry and ophthalmology practice acquisitions. The
Company borrowed $5.6 million and $6.5 million for use in funding the cash
portions of the Block Acquisition and LaserSight Acquisitions, respectively.
Additionally, the Company borrowed approximately $3.5 million for use in the
funding of certain optometry and ophthalmology practice acquisitions. Amounts
borrowed pursuant to the Bridge Credit Facility were secured by a first
security interest in all of the Company's assets. The Bridge Credit Facility
was required to be repaid at the earlier of six months from the date of any
borrowing from the Bridge Credit Facility or upon the closing of any future
debt or equity offering by the Company. The Bridge Credit Facility contained
negative and affirmative covenants and agreements which included covenants
requiring the maintenance of certain financial ratios. The Company repaid its
Bridge Credit Facility borrowings in full from available proceeds under its
Credit Agreement.
On August 18, 1997, the Company completed the sale of 2,100,000 shares
of its Common Stock at a price of $10.00 per share in an initial public
offering (the "Initial Public Offering"). The net proceeds from the Initial
Public Offering were used to repay substantially all of the Company's
outstanding indebtedness and to provide funding for the acquisitions of
optometry and ophthalmology clinics and ASCs.
In April 1997, the Company entered into a credit facility in the
aggregate amount of $4.9 million with Prudential Securities Group Inc.
("Prudential") pursuant to a note and warrant purchase agreement" (as amended
and restated, the "Note and Warrant Purchase Agreement"). The proceeds from the
borrowing were used to repay the Company's credit facility with Barnett Bank
N.A. in the principal amount of $2.0 million and for general working capital
purposes. Under the Note and Warrant Purchase Agreement, the Company issued a
senior note secured by all the Company's assets (the "Prudential Note"). The
Prudential Note accrued interest at 10% per annum with a maturity of the
earlier of January 1, 1998 or upon completion of the Initial Public Offering.
In addition, the Note and Warrant Purchase Agreement included a detachable
warrant to purchase 210,000 shares of Common Stock at an exercise price equal
to $10.00 per share, the price of the Common Stock in the Initial
Public Offering. The number of shares of Common Stock covered by the
warrants and the exercise price were subject to adjustment under certain
circumstances. The Prudential Note was repaid by the Company from the net
proceeds of the Initial Public Offering.
In February 1997, the Company borrowed an aggregate of $2.0 million
from Piper Jaffray Healthcare Fund II Limited Partnership ("Piper Jaffray") for
working capital purposes pursuant to the issuance of senior subordinated notes
bearing interest at 10% per annum (the "1997 Subordinated Notes"). The 1997
Subordinated Notes included a detachable warrant to purchase an aggregate of
18
<PAGE> 20
333,333 shares of Common Stock which had an exercise price of $6.00 per share.
The number of shares of Common Stock covered by the warrants and the exercise
price were subject to adjustment under certain circumstances. The 1997
Subordinated Notes were repaid by the Company from the net proceeds of the
Initial Public Offering.
In December 1996, the Company borrowed an aggregate of $1.3 million
from certain individuals for working capital purposes pursuant to the issuance
of senior subordinated notes bearing interest at 10% per annum (the "1996
Subordinated Notes"). The 1996 Subordinated Notes included detachable warrants
to purchase an aggregate of 208,333 shares of Common Stock at an exercise price
of $6.00 per share. The number of shares of Common Stock covered by the
warrants and the exercise price were subject to adjustment under certain
circumstances. The 1996 Subordinated Notes were repaid by the Company from the
net proceeds of the Initial Public Offering.
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, a current director of the Company, and issued
108,133 shares of restricted Common Stock. These shares were valued at $2.77
per share or $300,000. Of these shares, 40% vested immediately, and the Company
recorded a business development charge of $120,000. The remaining 60% of the
shares were recorded as an offset in stockholders' equity as deferred
compensation in the amount of $180,000. In June 1999, the Company expanded its
relationship with the individual to strengthen its refractive care initiative
and provided such individual with options to acquire 100,000 shares at $3.69
per share with 100% vesting. The Company recorded start-up cost of $0.2 million
in the second quarter of 1999 in connection with such grant. In October 1996,
the Company entered into a five-year advisory agreement with an industry
consultant who is the current Chairman of the Board of the Company and issued
125,627 shares of restricted Common Stock, which were to vest over the life of
the advisory agreement. These shares were valued at $2.77 per share or
$349,000. The Company recorded the issuance of these shares as an offset in
stockholders' equity as deferred compensation. This deferred compensation is
being amortized as the shares vest on a pro rata basis. In June 1999, the
Company expanded its relationship with the individual to strengthen its
refractive care initiatives and provided such individual with options to
acquire 100,000 shares at $3.44 per share, with 100% vesting. The Company
recorded start-up cost of $0.1 million in the second quarter of 1999 in
connection with such grant.
On June 11, 1999 the Company entered into Subscription Agreements with
an entity controlled by one of the Company's current directors and with the
Company's Chief Medical Officer, who is also a current director, for the
purchase of the Company's Common Stock. The aggregate proceeds received by the
Company of approximately $1.1 million were used for working capital purposes.
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.
During the fourth quarter of 1999, the Company's liquidity was
adversely impacted by the announced exit from the PPM business as collection of
PPM management fee revenues during the negotiation process declined
significantly. However, during the first quarter of 2000, the Company began
completing the sale of the practice assets back to physicians or affiliates.
The resulting proceeds provided additional resources to fund operations. As of
March 31, 2000, the Company had sold 11 practices and received proceeds of
approximately $5.2 million. Management has been aggressively reducing staff and
related overhead spending, carefully managing business unit operating cash flow
and negotiating for the divestiture of the remaining PPM businesses in an
effort to further improve the Company's liquidity position and restore
profitability.
While the Company believes that the OptiCare transaction will
ultimately be consummated, there can be no assurance that it will. The failure
of the OptiCare transaction to be consummated could have a material adverse
effect on the Company. The Company has experienced significant losses and is
currently dependent upon the cooperation, approvals and availability of waivers
from the Banks as parties to its credit facility for operating capital. If the
Company is unable to consummate the merger with OptiCare, it would immediately
need to obtain additional capital by offering debt or equity securities to fund
its operations. There can be no assurance that such capital will be available,
if at all, on a timely basis or on terms acceptable to the Company.
Furthermore, the Company would have to obtain certain additional waivers with
respect to its credit facility in order to raise such capital, and there can be
no assurance that such waivers would be forthcoming. Should the merger with
OptiCare not occur, the Company is not currently aware of, nor is it presently
permitted to solicit under its Merger Agreement with OptiCare, any other
potential purchaser that could acquire the Company under similar terms or in a
satisfactory period of time.
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<PAGE> 21
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 and Restated 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 three months ended March 31, 2000.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q, the annual report and certain information provided
periodically in writing and orally by the Company's designated officers and
agents 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, the
Form 10-K and the documents incorporated herein by reference, 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 officers with respect to, among
other things:
(i) the consummation of the proposed merger transaction
contemplated between the Company and OptiCare Health Systems,
Inc. ("OptiCare");
(ii) our financial prospects;
(iii) our exit from the PPM business;
(iv) our financing plans including our ability to meet our
obligations under our current credit facility and obtain
satisfactory operating and working capital;
(v) trends affecting our financial condition or results of
operations including our divestiture of business units;
(vi) our operating strategy including the shift in focus to
managed care and refractive and ambulatory surgery center
businesses;
(vii) the impact on us of current and future governmental
regulations;
(viii) our current and future managed care contracts and the impact
such contracts have on gross profit;
(ix) our ability to maintain our relationships with Affiliated
Providers and our ability to maintain strategic relationships
with selected retail optical companies;
(x) our ability to effectively manage and operate our refractive
and ambulatory surgery center business;
(xi) our ability to operate the managed care business efficiently,
profitably and effectively;
(xii) our integration of systems and implementation of cost savings
and reduction plans;
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<PAGE> 22
(xiii) our expected savings from the restructuring programs;
(xiv) our current and expected future revenue and the impact of the
consolidation of infrastructure and business divestitures may
have on our future performance;
(xv) the expected growth of laser vision correction procedures and
return on invested capital;
(xvi) our timely filing of Securities and Exchange Act Reports and
our ability to maintain our NASDAQ listing; and
(xvii) the purported class action complaints and the Caremark and
Block Group actions filed against the Company.
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) the inability to close the proposed merger transaction with
OptiCare;
(ii) the inability of the conditions to the closing of the
OptiCare transaction to be satisfied, including, but not
limited to, obtaining any required consents, approvals of the
shareholders of both companies, the restructuring of the bank
debt of the Company and OptiCare and OptiCare obtaining the
required financing;
(iii) our inability to sell certain business units and any
potential losses arising therefrom;
(iv) our inability to obtain sufficient cash from our credit
facility and business divestitures to fund our ongoing
operations including severance obligations and contingent
payment obligations;
(v) our loss of, changes in, or inability to keep, key personnel,
management or directors;
(vi) our inability to close on agreements to unwind our practice
management agreements or to pay the purchase price adjustment
amounts owed to ECCA or otherwise enter into acceptable
settlement agreements;
(vii) any unexpected increases in or additional charges or losses
related to the unwinding of our managed practices;
(viii) the continuation of operating and net losses being
experienced by the Company and increases in such losses;
(vix) any material inability to acquire additional sufficient
capital at a reasonable cost to fund our continued operations
or to maintain compliance with our credit facility;
(x) the inability to maintain our managed care business;
(xi) any adverse changes in our managed care business, including
but not limited to, the inability to renew existing managed
care contracts or obtain future contracts or maintain and
expand our Affiliated Provider network;
(xii) our inability to negotiate managed care contracts with HMOs;
(xiii) our inability to successfully and profitably operate our
managed care business or for existing managed care contracts
to positively impact gross profit;
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<PAGE> 23
(xiv) any adverse change in our medical claims to managed care
revenue ratio;
(xv) changes in state and/or federal governmental regulations
which could materially affect our ability to operate or
materially affect our ability to consummate the proposed
transaction with OptiCare;
(xvi) any adverse governmental or regulatory changes or actions,
including any healthcare regulations and related enforcement
actions or the inability to obtain required consents for the
OptiCare transaction;
(xvii) the inability to maintain or obtain required licensure in the
states in which we operate;
(xviii) our stock price and OptiCare's stock price and events that
may adversely impact OptiCare's business and it's ability to
consummate the merger transaction with the Company;
(xix) our inability to successfully open, integrate and profitably
operate, RSCs and ASCs;
(xx) the degree current shortages in refractive surgery equipment
adversely impacts the Company's access to same;
(xxi) consolidation of our competitors, poor operating results by
our competitors, or adverse governmental or judicial rulings
against our competitors;
(xxii) our inability to realize any significant benefits, cost
savings or reductions from our restructuring program;
(xxiii) our inability to increase and expand vision care and
refractive surgery programs and other desired initiatives;
(xxiv) unexpected cost increases;
(xxv) our inability to successfully defend against the class action
lawsuits, the Caremark lawsuit, the Block Group lawsuit or
any additional litigation that currently exists or may arise
in the future;
(xxvi) Our inability to timely file our required reports with the
SEC or to maintain the listing of our common stock on Nasdaq,
and
(xxvii) 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 to reflect the occurrence of unanticipated events.
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<PAGE> 24
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Except as described below, the Company is not a party to any material
litigation and is not aware of any threatened material litigation:
The Company, one of its executive officers who is also a director and
two former officers are named as defendants in several purported class action
lawsuits filed in the United States District Court for the middle District of
Florida, Tampa Division. The complaints allege, principally, that the Company
and the other defendants issued materially false and misleading statements
related to the Company's integration of its acquisitions, in violation of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder. The plaintiffs seek 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. The purported class action lawsuits were as follows: (i) Tad McBride
against Vision Twenty-One, Inc., Theodore N. Gillette, Richard T. Welch, and
Michael P. Block (filed on January 22, 1999); (ii) Robert Rosen v. Vision
Twenty-One, Inc., Theodore N. Gillette and Richard T. Welch (filed on January
27, 1999); (iii) Charles Murray against Vision Twenty-One, Inc., Theodore N.
Gillette, Richard T. Welch and Michael P. Block (filed on January 29, 1999);
and (iv) Sam Cipriano, on behalf of himself and all others similarly situated
v. Vision Twenty-One, Inc., Theodore N. Gillette, Richard T. Welch and Michael
P. Block.
On April 20, 1999, pursuant to a motion and order, these complaints
were consolidated into one case captioned: Tad McBride, Plaintiff, v. Vision
Twenty-One, Inc., Theodore N. Gillette, Richard T. Welch and Michael P. Block
(Case No. 99-138-CIV-T-25F), and one plaintiff's group was appointed lead
plaintiff by judicial order on May 6, 1999. This uncertified consolidated class
action seeks to hold the Company and one of its officers who is also a director
as well as two former officers liable for alleged federal securities law
violations based upon alleged misstatements and omissions in analyst reports,
trade journal articles, press releases and filings with the Securities and
Exchange Commission.
Pursuant to judicial orders, the lead plaintiffs filed an amended
consolidated complaint on August 14, 1999. On October 11, 1999, the lead
plaintiffs and Michael P. Block executed a stipulation dismissing without
prejudice the action against Mr. Block. The Defendants filed a motion to
dismiss the amended consolidated complaint on October 15, 1999. The lead
plaintiffs served answering papers on December 3, 1999. The motion to dismiss
remains under judicial review. Management of the Company is unable to determine
the impact, if any, that the resolution of the aforementioned uncertified
consolidated class action lawsuit will have on the financial position or
results of operations of the Company. While it is impossible to predict the
outcome or impact of such litigation, the Company believes it has substantial
defenses to this matter and intends to assert them vigorously.
On or about November 15, 1999, Caremark Rx, Inc. commenced an action
in the United States District Court, Middle District, against the Company. The
action alleges a breach by the Company of a promissory note and a leased
property agreement and is seeking approximately $950,000 in damages. The
Company has asserted defenses to the claim and
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<PAGE> 25
has filed a counter-claim for damages against Caremark Rx, Inc. for breach of
contract and unfair trade practices. The Company believes that Caremark Rx,
Inc.'s claims are without merit and intends to vigorously defend the lawsuit.
Block Buying Group, LLC (the "Block Group"), an entity owned by
Michael P. Block, the former president of the Company's Block Vision
subsidiary, has filed a civil action in Palm Beach County Circuit Court seeking
to enjoin the proposed merger between the Company and OptiCare. The Company
previously sold its buying group division to the Block Group in June of 1999.
The Block Group has informed the Company that it believes that the proposed
merger with OptiCare is in violation of the non-competition and confidentiality
provisions entered into in connection with the June 1999 sale since OptiCare
operates a buying group division which currently competes with the Block Group.
On April 21, 2000, the Block Group and the Company, through counsel, have
signed a stipulation to participate in expedited arbitration in accordance with
the terms and conditions of the June 1999 sale and to jointly seek the
completion of the arbitration on or before June 1, 2000, or as soon thereafter
as reasonably possible. While it is impossible to determine the eventual
outcome of this action, the Company believes that it has substantial defenses
to this claim and intends to vigorously defend itself. The consummation of the
proposed merger between the Company and OptiCare is subject to certain
conditions including resolution of this matter to OptiCare's satisfaction. The
failure to consummate the OptiCare transaction would have a material adverse
effect on the Company.
The Company has been named as a defendant in an action commenced in
the Superior Court of New Jersey on or about March 8, 2000. The action was
filed by five optometrists against Charles Cummins, O.D. and Elliot Shack, O.D.
("Cummins and Shack"), the Company, ECCA, Inc. and several other defendants who
have not been named nor identified. The Company previously purchased certain
non-optometric assets of Cummins and Shack in January 1998 which it
subsequently sold to ECCA in August of 1999. The action alleges breach of
fiduciary duty, breach of covenant of good faith and fair dealing, breach of
contract and fraud in connection with purported partnership agreements the
optometrists had with Cummins and Shack and seeks an accounting and specific
performance as well as unspecified compensatory and punitive damages. The
Company believes it has substantial defenses to these claims and intends to
vigorously defend itself.
On or about November 1, 1999, The Source Buying Group, Inc. commenced
an action in the United States District Court for the Eastern District of
Pennsylvania against Block Vision, Inc. The action alleges a breach by Block
Vision of a promissory note and is seeking approximately $562,500 representing
the accelerated principal balance of the note which the plaintiff alleges is
due, together with interest and costs. In the alternative, the plaintiff is
seeking approximately $20,800 of interest allegedly due. On or about January
14, 2000, the action was transferred to the United States District Court for
the Southern District of Florida. Block Vision has asserted defenses to the
claim and has moved to compel arbitration. The plaintiff has filed an
opposition to Block Vision's motion for arbitration. The Company believes that
plaintiff's claims are without merit and intends to vigorously defend the
lawsuit.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. See Exhibit Index attached hereto.
(b) During quarterly period ended March 31, 2000, the Company filed a
report on Form 8-K on January 10, 2000, announcing the signing of a
waiver letter to the Amended and Restated Credit Agreement. The
Company filed a report on Form 8-K on February 10, 2000, announcing
the execution of a definitive merger agreement by and between the
Company and OptiCare Health Systems, Inc. and on March 8, 2000 the
Company filed a Form 8-K announcing the filing of a press release
concerning certain Company stock price and volume activity.
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<PAGE> 26
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
May 25, 2000.
VISION TWENTY-ONE, INC.
Registrant
By: /s/ HOWARD S. HOFFMAN
---------------------------------
Howard S. Hoffman
Interim Chief Financial Officer
(Acting Principal Accounting Officer
and Duly Authorized Officer)
25
<PAGE> 27
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBITS DESCRIPTION
- ------- --------------------
2.1* -- Agreement and Plan of Merger and Reorganization
among Vision Twenty-one, Inc., OC Acquisition Corp.
and OptiCare Health Systems, Inc. Schedules (or
similar attachments) have been omitted, and the
Registrant agrees to furnish supplementally a
copy of any omitted schedule to the Securities and
Exchange Commission upon request.(26)
3.1* -- Amended and Restated Articles of Incorporation of
Vision Twenty-One, Inc.(1)
3.2* -- By-laws of Vision Twenty-One, Inc.(1)
4.5* -- Note Purchase Agreement for 10% Senior Subordinated
Notes due December 19, 1999 (Detachable Warrants
Exchangeable Into Common Stock) dated December 20,
1996, by and between Vision Twenty-One, Inc. and
certain purchasers.(1)
4.6* -- Amendment No. 1 dated April 18, 1997 to that certain
Note Purchase Agreement dated December 20, 1996, by
and between Vision Twenty-One, Inc. and certain
purchasers.(1)
4.7* -- Note Purchase Agreement for 10% Senior Subordinated
Series 1997 Notes Due December 19, 1999 (Detachable
Warrants Exchangeable Into Common Stock) dated
February 28, 1997 between Vision Twenty-One, Inc.
and Piper Jaffray Healthcare Fund II Limited
Partnership.(1)
4.8* -- Amended and Restated Note and Warrant Purchase
Agreement dated June 1997 and First Amendment to
Amended and Restated Note and Warrant Purchase
Agreement dated August 1997 between Vision
Twenty-One, Inc. and Prudential Securities Group.(4)
4.9* -- Credit facility commitment letter dated October 10,
1997 between Prudential Securities Credit
Corporation and Vision Twenty-One, Inc.(5)
4.10* -- Note Purchase Agreement dated October 1997 between
Vision Twenty-One, Inc. and Prudential Securities
Credit Corporation.(9)
4.11* -- Letter Amendment dated December 30, 1997 to the Note
and Warrant Purchase Agreement between Vision
Twenty-One, Inc. and Prudential Securities Credit
Corporation.(10)
4.13* -- Credit Agreement dated as of January 30, 1998 among
Vision Twenty-One, Inc. and Bank of Montreal as
Agent for a consortium of banks.(11)
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.(15)
4.15* -- First Amendment to the Amended and Restated Credit
Agreement dated as of February 23, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(18)
4.16* -- Second Amendment to the Amended and Restated Credit
Agreement dated as of June 11, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent. (18)
4.17* -- Third Amendment to the Amended and Restated Credit
Agreement dated as of August 30, 1999 by and among
Vision Twenty-One, Inc., the Banks who are a party
thereto and Bank of Montreal as Agent.(19)
4.18* -- Waiver Letter dated October 14, 1999 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(20)
4.19* -- Fourth Amendment and Waiver to the Amended and
Restated Credit Agreement dated as of November 12,
1999 by and among Vision Twenty-One, Inc., the Banks
who are a party thereto and Bank of Montreal as
Agent.(21)
<PAGE> 28
4.20* -- Fifth Amendment to the Amended and Restated Credit
Agreement dated as of November 24, 1999 by and among
Vision Twenty-One, Inc., the Banks who are a party
thereto and Bank of Montreal as Agent.(22)
4.21* -- Sixth Amendment to the Amended and Restated Credit
Agreement dated as of December 3, 1999 by and among
Vision Twenty-One, Inc., the Banks who are a party
thereto and Bank of Montreal as Agent.(22)
4.22* -- Seventh Amendment to the Amended and Restated Credit
Agreement dated as of December 10, 1999 by and among
Vision Twenty-One, Inc., the Banks who are a party
thereto and Bank of Montreal as Agent.(22)
4.23* -- Waiver Letter dated December 29, 1999 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(23)
4.24* -- Waiver letter dated February 29, 2000 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(26)
4.25* -- Waiver letter dated March 24, 2000 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(26)
4.26* -- Waiver letter dated as of April 14, 2000 to the
Amended and Restated Credit Agreement by and among
Vision Twenty-One, Inc., the Banks who are a party
thereto and Bank of Montreal as Agent.(26)
4.27* -- Waiver letter dated as of May 5, 2000 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(26)
4.28 -- Waiver letter dated as of May 19, 2000 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.
(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.)
10.4* -- Services Agreement dated September 9, 1996 between
Vision Twenty-One, Inc. and Dr. Richard L.
Lindstrom, M.D.(1)
10.5* -- Vision Twenty-One, Inc. 1996 Stock Incentive
Plan.(1)
10.6* -- Vision Twenty-One, Inc. Affiliated Professionals
Stock Plan.(1)
10.7* -- Agreement dated May 10, 1996 between Vision
Twenty-One, Inc. and Bruce S. Maller.(1)
10.8* -- Advisory Agreement dated October 20, 1996 between
Vision Twenty-One, Inc. and Bruce S. Maller.(1)
10.9* -- Services Agreement dated March 10, 1996 between
Vision Twenty-One, Inc. and The BSM Consulting
Group.(1)
10.14* -- Note Purchase Agreement for 10% Senior Subordinated
Notes Due December 19, 1999 (Detachable Warrants
Exchangeable Into Common Stock) dated December 20,
1996 by and between Vision Twenty-One, Inc. and
certain purchasers, filed as Exhibit 4.5 to this
Report and incorporated herein by reference.(2)
<PAGE> 29
10.15* -- Amendment No. 1 dated April 18, 1997 to that certain
Note Purchase Agreement dated December 20, 1996 by
and between Vision Twenty-One, Inc. and certain
purchasers, filed as Exhibit 4.6 to this Report and
incorporated herein by reference.(1)
10.16* -- Note Purchase Agreement for 10% Senior Subordinated
Series 1997 Notes Due December 19, 1999 (Detachable
Warrants Exchangeable Into Common Stock) by and
between Vision Twenty-One, Inc. and Piper Jaffray
Healthcare Fund II Limited Partnership, filed as
Exhibit 4.7 to this Report and incorporated herein
by reference.(1)
10.17* -- Amended and Restated Note and Warrant Purchase
Agreement dated June 1997 and First Amendment to
Amended and Restated Note and Warrant Purchase
Agreement dated August 1997 between Vision
Twenty-One, Inc. and Prudential Securities Group,
Inc. filed as Exhibit 4.8 to this Report and
incorporated herein by reference.(4)
10.18* -- Form of Indemnification Agreement.(1)
10.22* -- Business Management Agreement dated December 1, 1996
between Vision Twenty-One, Inc. and Gillette &
Associates, #6965, P.A.(2)
10.24* -- Business Management Agreement dated December 1, 1996
between Eye Institute of Southern Arizona, P.C. and
ExcelCare, P.C. (as assigned to Vision Twenty-One,
Inc.)(1)
10.27* -- Business Management Agreement dated December 1, 1996
between Vision Twenty-One, Inc. and Lindstrom,
Samuelson & Hardten Ophthalmology Associates,
P.A.(1)
10.43* -- Regional Services Agreement dated May 1997 between
Vision Twenty-One, Inc. and Richard L. Lindstrom,
M.D.(1)
10.47* -- Form of Contract Provider agreement(2)
10.53* -- Note Purchase Agreement dated October 1997 between
Vision Twenty-One, Inc. and Prudential Securities
Credit Corporation.(9)
10.55* -- Letter Agreement of October 2, 1997 by and between
Prudential Securities Incorporated, as exclusive
agent for obtaining a $50.0 million credit facility,
and Vision Twenty-One, Inc.(9)
10.56* -- Letter Agreement of October 14, 1997 by and between
Prudential Securities Incorporated, as exclusive
financial adviser in the Block Acquisition, and
Vision Twenty-One, Inc.(9)
10.57* -- Letter Amendment dated December 30, 1997 to the Note
and Warrant Purchase Agreement between Vision
Twenty-One, Inc. and Prudential Securities Credit
Corporation.(10)
10.59* -- Credit Agreement dated as of January 30, 1998 among
Vision Twenty-One, Inc., the Banks who are a party
thereto and Bank of Montreal as Agent.(11)
10.60* -- Amended and Restated Credit Agreement dated as of
July 1, 1998 among Vision Twenty-One, Inc. the Banks
who are a party thereto and Bank of Montreal as
Agent.(16)
10.61* -- First Amendment to the Amended and Restated Credit
Agreement dated as of February 23, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(18)
<PAGE> 30
10.62* -- Second Amendment to the Amended and Restated Credit
Agreement dated as of June 11, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(18)
10.63* -- Subscription Agreement dated June 11, 1999 by and
among J.K.K. Holdings, LLP and Vision Twenty-One,
Inc.(16)
10.64* -- Subscription Agreement dated June 11, 1999 by and
among Dr. Richard L. Lindstrom and Vision
Twenty-One, Inc.(16)
10.65* -- Third Amendment to the Amended and Restated Credit
Agreement dated as of August 30, 1999 by and among
Vision Twenty-One, Inc., the Banks who are a party
thereto and Bank of Montreal as Agent.(19)
10.66* -- Waiver Letter dated October 14, 1999 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(20)
10.67* -- Fourth Amendment and Waiver to the Amended and
Restated Credit Agreement dated as of November 12,
1999 by and among Vision Twenty-One, Inc., the Banks
who are a party thereto and Bank of Montreal as
Agent.(21)
10.68* -- Asset Purchase Agreement entered into as of July 7,
1999 by and among Eye Care Centers of America, Inc.,
Vision Twenty-One, Inc. and The Complete Optical
Laboratory, Ltd., Corp., a wholly-owned subsidiary
of the Company.(19)
Schedules (or similar attachments) have been
omitted, and the Registrant agrees to furnish
supplementally a copy of any omitted schedule to the
Securities and Exchange Commission upon request.
10.71* -- Employment Agreement dated August 1, 1999 between
Vision Twenty-One, Inc. and Andrew Alcorn.(21)
10.72* -- Fifth Amendment to the Amended and Restated Credit
Agreement dated as of November 27, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(22)
10.73* -- Sixth Amendment to the Amended and Restated Credit
Agreement dated as of December 3, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(22)
10.74* -- Seventh Amendment to the Amended and Restated Credit
Agreement dated as of December 10, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(22)
10.75* -- Waiver letter dated December 29, 1999 to the Amended
and Restated Credit Agreement among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(23)
<PAGE> 31
EXHIBIT
NUMBER EXHIBITS DESCRIPTION
- ------- --------------------
10.76* -- Waiver letter dated February 29, 2000 to the Amended
and Restated Credit Agreement among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(26)
10.77* -- Waiver letter dated March 24, 2000 to the Amended
and Restated Credit Agreement by and among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(26)
10.78* -- Employment Agreement dated February 8, 1999 between
Vision Twenty-One, Inc. and Robert P. Collins.(25)
10.79* -- Consulting Agreement dated November 26, 1999 by and
between Vision Twenty-One, Inc. and Nightingale and
Associates, LLC.(26)
10.80* -- Vision Twenty-One, Inc. Employee Stock Purchase
Plan.(17)
10.81* -- Agreement and Plan of Merger and Reorganization
among Vision Twenty-One, Inc., OC Acquisition Corp.
and OptiCare Health Systems, Inc.(26)
10.82* -- Waiver letter dated as of April 14, 2000 to the
Amended and Restated Credit Agreement among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(26)
10.83* -- Waiver letter dated as of May 5, 2000 to the Amended
and Restated Credit Agreement among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent.(26)
10.84 -- Waiver letter dated as of May 19, 2000 to the Amended
and Restated Credit Agreement among Vision Twenty-One,
Inc., the Banks who are a party thereto and Bank of
Montreal as Agent, filed as Exhibit 4.28 to this
report and incorporated herein by reference.
27.1 -- Financial Data Schedule for the three months ended
March 31, 2000 (for SEC use only).
27.2 -- Restated Financial Data Schedule for the three months
ended March 31, 1999 (for SEC use only).
99.1* -- Joint Press Release dated February 10, 2000
announcing the execution of a definitive merger
agreement by and between Vision Twenty-One, Inc. and
OptiCare Health Systems, Inc.(24)
* 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) Amendment No. 1 to Registration Statement on Form S-1 filed on July 23,
1997.
(3) Amendment No. 3 to Registration Statement on Form S-1 filed on August 14,
1997.
<PAGE> 32
(4) Amendment No. 4 to Registration Statement on Form S-1 filed on August 18,
1997.
(5) Form 8-K filed September 30, 1997.
(6) Registration Statement on Form S-1 filed on October 30, 1997 (333-39031).
(7) Amendment No. 1 to Registration Statement on Form S-1 filed on November 3,
1997.
(8) Form 10-Q filed on November 14, 1997.
(9) Amendment No. 2 to Registration Statement on Form S-1 filed November 19,
1997.
(10) Form 8-K filed January 13, 1998. (11) Form 8-K filed February 10, 1998.
(12) Form 8-K filed April 14, 1998.
(13) Registration Statement on Form S-1 filed on April 30, 1998 (File No.
333-51437).
(14) Amendment No. 1 to Registration Statement on Form S-1 filed on May 12,
1998 (333-51437).
(15) Form 8-K filed July 10, 1998.
(16) Form 10-Q filed August 14, 1998.
(17) Form S-8 filed November 13, 1998.
(18) Form 10-K filed June 18, 1999.
(19) Form 8-K filed August 30, 1999.
(20) Form 8-K filed October 14, 1999.
(21) Form 10-Q filed November 14, 1999.
(22) Form 8-K filed December 13, 1999.
(23) Form 8-K filed January 10, 2000.
(24) Form 8-K filed February 10, 2000.
(25) Form 10-Q filed June 24, 1999.
(26) Form 10-K filed May 5, 2000.
<PAGE> 1
Exhibit 4.28
May 19, 2000
Vision Twenty-One, Inc.
7360 Bryan Dairy Road, Suite 200
Largo, FL 33777
Attention: Bruce Maller, Chairman of the Board
Gentlemen:
We refer to the Amended and Restated Credit Agreement dated as of
July 1, 1998, as amended, between you and us (the "Credit Agreement"). All
capitalized terms used herein without definition shall have the same meaning
herein as such terms are defined in the Credit Agreement.
The Borrower has advised the Banks that the Borrower has entered into
an Agreement and Plan of Merger and Reorganization, dated as of February 10,
2000 (the "Merger Agreement"), among the Borrower, Opticare Health Systems,
Inc. (the "Parent"), and OC Acquisition Corp., a wholly-owned subsidiary of the
Parent ("Merger Sub"), pursuant to which the parties intend to merge Merger Sub
with and into the Borrower subject to the terms and conditions thereof which
include, among other things, restructuring the Obligations owing to the Banks
on terms and conditions mutually agreed upon by the Borrower and the Banks.
While the Borrower and the Banks have initiated discussions and due diligence
concerning the Merger and any proposed restructuring of the Obligations, the
Borrower acknowledges that the Banks have not consented to the Merger nor have
the Banks agreed to any terms and conditions relating to any restructuring of
the Obligations. In the meantime, however, the Borrower intends to continue to
sell the remaining physician practice management groups operated by the
Borrower and its Subsidiaries (collectively being referred to herein as the
"PPM Businesses") and use a portion of the proceeds from the sale of the PPM
Businesses to meet its reasonable and necessary operating expenses.
To afford the Borrower an opportunity to proceed with the transactions
described above, the Borrower has requested that (i) the Banks extend the
temporary waiver period provided for in Sections 2.1 and 2.2 of that certain
Seventh Amendment and Waiver to Credit Agreement dated as of December 10, 1999,
among the Borrower, the Banks, and the Agent (the "Seventh Amendment") (as
further amended, in part, by a December 30, 1999, letter agreement, a February
29, 2000, letter agreement, a March 24, 2000, letter agreement, and an April
14, 2000, letter agreement, and a May 5, 2000, letter agreement, in each case
between the Borrower, the Banks and the Agent) and, in addition, that the Banks
temporarily waive any non-compliance by the Borrower as of December 31, 1999,
and as of March 31, 2000, with Sections 8.8 (Total
<PAGE> 2
Vision Twenty-One, Inc.
May 19, 2000
Page 2
Funded Debt/Adjusted EBITDA Ratio), 8.10 (Interest Coverage Ratio), and 8.11
(Debt Service Coverage Ratio) of the Credit Agreement and the Borrower's
non-compliance with Section 8.5(b) of the Credit Agreement with respect to the
timely delivery of the Borrower's March 31, 2000, financial statements, in each
case to the earlier of June 2, 2000, or the termination of the Merger Agreement
pursuant to its terms (the earlier of such dates being referred to herein as
the "Waiver Termination Date"), (ii) Bank of Montreal extend the Bridge Loan
Period from May 19, 2000, to the Waiver Termination Date, and (iii) postpone
the due date for the payment of principal, interest and unused commitment fees
otherwise due on or before May 19, 2000, to the Waiver Termination Date. By
signing below, the Banks (including Bank of Montreal with respect to the Bridge
Loan Commitment) hereby agree to extend the waiver period provided in Sections
2.1 and 2.2 of the Seventh Amendment from May 19, 2000, to the Waiver
Termination Date, temporarily waive any non-compliance by the Borrower as of
December 31, 1999, and March 31, 2000, with Sections 8.8 (Total Funded
Debt/Adjusted EBITDA Ratio), 8.10 (Interest Coverage Ratio), and 8.11 (Debt
Service Coverage Ratio) of the Credit Agreement and the Borrower's
non-compliance with Section 8.5(b) of the Credit Agreement with respect to the
timely delivery of the Borrower's March 31, 2000, financial statements through
the period ending on the Waiver Termination Date, agree to extend the Bridge
Loan Period to the Waiver Termination Date, and agree to postpone the due date
for the payment of principal, interest, and unused commitment fees otherwise
due on or before May 19, 2000, to the Waiver Termination Date, provided that:
(a) the Borrower agrees to promptly provide to the Banks
copies of any instruments and documents entered into or proposed to be
entered into in connection with the Merger (including, without
limitation, any executed shareholder lock-up agreements) and to
promptly advise the Banks of any termination, amendment, or waiver of
the Merger Agreement or of any material breach thereof by any party
thereto, in each case subject to its directors' fiduciary duties;
(b) until the Obligations are paid in full, the Borrower
shall provide to the Banks a weekly Budget pursuant to Section 1.14(f)
of the Credit Agreement and such Budget shall be subject to the
Approved Budget and reconciliation procedures set forth therein,
regardless of whether or not then being accompanied by a request for a
Borrowing of Bridge Loans;
(c) at all times on and after the date hereof (i) all
proceeds from the sale of any assets of the Borrower and its
Subsidiaries (including, without limitation, proceeds from the sale of
the PPM Businesses or any part thereof), and (ii) cash receipts
arising from the operation of the business of the Borrower and its
Subsidiaries not applied pursuant to an Approved Budget, shall in each
case be remitted promptly upon receipt to the Agent; and
<PAGE> 3
Vision Twenty-One, Inc.
May 19, 2000
Page 3
(d) except to the extent applied to payments pursuant to an
Approved Budget or applied to the Obligations owing to the Banks,
proceeds received pursuant to clause (c) above shall be held by the
Agent as collateral for the remaining Obligations owing to the Banks
(the Agent hereby being granted a Lien on and right of set-off for the
benefit of the Banks against all such amounts so held).
The Borrower hereby acknowledges and agrees to the foregoing conditions. The
Borrower also hereby acknowledges and agrees that (i) the consummation of the
Merger and of any restructuring of the terms and conditions relating to the
Obligations shall in each case be subject to the Banks' consent, which may be
given or withheld in their discretion and (ii) any sale of the Borrower's or
its Subsidiaries' assets or businesses shall be subject to the prior written
consent of the Banks, and all proceeds from any such sale represent proceeds of
the Banks' Collateral, to be held by the Agent or applied to the Obligations
pursuant to the terms of the Credit Agreement as modified hereby.
Except as specifically modified hereby, all of the terms and
conditions of the Credit Agreement and the other Loan Documents shall stand and
remain unchanged and in full force and effect. This waiver shall become
effective upon the execution and delivery hereof by each of the Banks and the
Borrower as set forth below. This waiver may be executed in counterparts and by
different parties on separate counterpart signature pages, each of which shall
be an original and all of which taken together shall constitute one and the
same instrument. This waiver shall be governed by, and construed in accordance
with, the laws of the State of Illinois.
[SIGNATURE PAGES TO FOLLOW]
<PAGE> 4
Vision Twenty-One, Inc.
May 19, 2000
Page 4
This waiver letter is entered into by and among the parties hereto as
of the date first above written.
BANK OF MONTREAL, in its individual BANK ONE TEXAS, N.A.
capacity as a Bank and as Agent
By: /s/ Jack J. Kane By: /s/ Ronnie Kaplan
- ---------------------------------- -------------------------------------
Name: Jack J. Kane Name: Ronnie Kaplan
Title: Director Title: Vice President
PACIFICA PARTNERS I, L.P. PILGRIM PRIME RATE TRUST
By: Imperial Credit Asset Management, By: Pilgrim Investments, Inc.,
as its Investment Manager as its Investment Manager
By: /s/ Dean K. Kawai By: /s/ Charles E. LeMieux
- ---------------------------------- -------------------------------------
Name: Dean K. Kawai Name: Charles E. LeMieux, CFA
Title: Vice President Title: Assistant Vice President
PILGRIM AMERICA HIGH INCOME MERRILL LYNCH BUSINESS FINANCIAL
INVESTMENTS LTD. SERVICES, INC.
By: Pilgrim Investments, Inc.,
as its Investment Manager By: /s/ Gary L. Stewart
-------------------------------------
Name: Gary L. Stewart
Title: Vice President
By: /s/ Charles E. LeMieux
- ----------------------------------
Name: Charles E. LeMieux, CFA
Title: Assistant Vice President
Acknowledged and agreed to as of the date first above written.
VISION TWENTY-ONE, INC.
By: /s/ Bruce Maller
-------------------------------------
Name: Bruce Maller
Title: Chairman
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VISION TWENTY-ONE, INC. FOR THE THREE MONTHS ENDED MARCH
31, 2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 5,378,669
<SECURITIES> 0
<RECEIVABLES> 3,032,740
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,704,092
<PP&E> 7,500,762
<DEPRECIATION> 2,540,246
<TOTAL-ASSETS> 77,306,881
<CURRENT-LIABILITIES> 84,946,522
<BONDS> 283,660
0
0
<COMMON> 15,617
<OTHER-SE> (8,959,739)
<TOTAL-LIABILITY-AND-EQUITY> 77,306,881
<SALES> 0
<TOTAL-REVENUES> 17,872,797
<CGS> 0
<TOTAL-COSTS> 13,531,431
<OTHER-EXPENSES> 6,054,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,855,626
<INCOME-PRETAX> (3,607,220)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,607,220)
<DISCONTINUED> (7,152)
<EXTRAORDINARY> (1,016,263)
<CHANGES> 0
<NET-INCOME> (4,630,635)
<EPS-BASIC> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VISION TWENTY-ONE, INC. FOR THE THREE MONTHS ENDED MARCH
31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,942,515
<SECURITIES> 0
<RECEIVABLES> 8,688,973
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37,796,811
<PP&E> 5,552,076
<DEPRECIATION> 1,392,811
<TOTAL-ASSETS> 193,741,520
<CURRENT-LIABILITIES> 20,399,346
<BONDS> 80,716,701
0
0
<COMMON> 15,071
<OTHER-SE> 73,812,677
<TOTAL-LIABILITY-AND-EQUITY> 193,741,520
<SALES> 14,777,744
<TOTAL-REVENUES> 31,528,637
<CGS> 14,062,211
<TOTAL-COSTS> 12,618,873
<OTHER-EXPENSES> 5,774,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,454,366
<INCOME-PRETAX> (2,381,148)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,381,148)
<DISCONTINUED> 2,397,325
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,177
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
