<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER: 000-22977
VISION TWENTY-ONE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
FLORIDA 59-3384581
(State or jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
7360 BRYAN DAIRY ROAD
SUITE 200
LARGO, FLORIDA 33777
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (727) 545-4300
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the Registrant on December 31, 1999, was $30,063,904 based upon the closing
price of such shares on such date on the Nasdaq Stock Market's National Market.
As of December 31, 1999, there were 15,616,854 shares outstanding.
<PAGE> 2
VISION TWENTY-ONE, INC.
1999 ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C> <C> <C>
ITEM 1. BUSINESS......................................................................................... 1
ITEM 2. PROPERTIES....................................................................................... 10
ITEM 3. LEGAL PROCEEDINGS................................................................................ 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................................. 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS............................ 12
ITEM 6. SELECTED FINANCIAL DATA.......................................................................... 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS....................................................................................... 14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................... 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................... 30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND DISCLOSURE....................... 59
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................... 59
ITEM 11. EXECUTIVE COMPENSATION........................................................................... 62
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................... 68
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................... 69
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K................................ 72
</TABLE>
ii
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW
Vision Twenty-One, Inc. ("Vision Twenty-One" or the "Company") is a
vision care company that is currently focused on the management of refractive
and ambulatory surgery centers and the provision of managed care services.
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 payers.
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
payers 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.
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.
RECENT DEVELOPMENTS
Historically, Vision Twenty-One had concentrated on developing a wide
array of LADS and acquiring and managing multiple channels of distribution for
those services. During 1999, the Company shifted its strategic focus from
developing broad-based LADS and distribution to concentrating on the high
growth, high margin opportunities in the eye care industry such as the
development and management of refractive and ambulatory surgery centers and
managed care. Accordingly, Vision Twenty-One began analyzing its mix of
business units within the LADS operation and assessing the long-term strategic
value of each existing component. As a result, Vision Twenty-One sold its
buying group division and its retail optical chains and began divesting itself
of the physician practice management business. In addition, at the end of the
year, Vision Twenty-One's Board of Directors voted to explore a number of
strategic alternatives intended to maximize shareholder value, including the
sale of all or part of the Company. This subsequently resulted in the recently
announced merger transaction with OptiCare Health Systems, Inc. ("OptiCare").
1
<PAGE> 4
Merger with OptiCare. 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 $60.0 million 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 $30.0 million of equity or
mezzanine capital.
Exit of Physician Practice Management. On October 25, 1999, the
Company announced the adoption of a plan to substantially exit the business of
managing optometry and ophthalmology practices. This represented a crucial step
in the Company's strategy of redirecting its corporate resources towards the
development of refractive surgery and ambulatory surgery initiatives in these
same markets. The Company expects the majority of the affected physicians to
continue to be part of the Vision Twenty-One national eye care delivery network
and/or participate in its 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.
The process of divesting itself of each PPM practice involves the
termination of the Management Agreement in place between Vision Twenty-One and
the practice, including the termination and release of the covenant not to
compete. In addition, each party releases the other from any and all rights,
duties and claims each may have against the other. All of Vision Twenty-One's
employees providing services at the practice's office locations are terminated
and are typically rehired immediately by the practice. Vision Twenty-One sells
to the practice all tangible assets located at the practice's office(s) and
assigns the rights to the practice's trade name and telephone numbers back to
the practice. The practice assumes the outstanding liabilities which were
incurred by the Company in connection with managing the practice, such as
accounts payable and accrued compensation. Where possible, Vision Twenty-One
assigns, and the practice assumes, certain identified executory contracts
entered into by Vision Twenty-One in the course of its provision of management
services to the practice, including real estate leases and equipment leases.
Certain equipment leases are not assignable by Vision Twenty-One in which case
Vision Twenty-One enters into equipment subleases with the practice under
substantially the same terms as are contained in the Company's lease. Where
practicable, Vision Twenty-One enters into a facility access agreement with the
practice and/or its physicians whereby the practice and its physicians agree to
continue to utilize the Company's surgery centers for the treatment of their
patients on a fee-per-procedure basis for a defined period of time, typically
one year. In consideration for the termination of the Management Agreement and
the sale and assignment of the practice assets, Vision Twenty-One typically
receives at closing a combination of cash and Vision Twenty-One Common Stock.
The Common Stock is placed in the Company's treasury and is expected to be
canceled by Vision Twenty-One.
Retail Optical Chains. 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
$37.3 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
2
<PAGE> 5
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.
Discontinued Operations. As a result of the Company's announced plan to
exit the physician practice management business and its previously announced and
completed sale of the retail optical chain segment of its operation, the Company
has accounted for these business segments as discontinued operations.
Consequently, prior period financial statements have been restated to reflect
discontinued operations treatment for the results of these business segments.
Buying Group. 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.
Credit Facilities. 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. 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 Securities Credit Corporation ("Prudential
Credit") and related accrued interest and transaction costs. By 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
bank credit agreement with the Banks (the "Restated Credit Agreement"). The
Restated Credit Agreement included a seven-year term loan of $70.0 million and a
$30.0 million five-year revolving credit 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. By December 31,
1998, approximately $81.6 million was outstanding under the Restated Credit
Agreement.
During the first eight months of 1999, the Company entered into three
amendments to its credit facilities. The amendments involved the imposition of
restrictions on borrowing capacity, increased borrowing costs, covenant
modifications and increased reporting requirements. They also included waivers
for non-compliance with certain obligations under the credit facilities and
consents to the sales of the buying group division and retail optical chains.
By September 1, 1999, approximately $46.0 million was outstanding under its
amended credit facilities (the "Amended and Restated Credit Agreement").
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.
In July 1999, the Company commenced discussions with MedEquity
Investors, LLC ("MedEquity") regarding a potential capital infusion, and on
October 25, 1999, the Company announced that it had entered into a binding
letter of intent for an equity investment of $35 million by MedEquity Investors
and Chase Capital Partners. The proposed transaction was to provide for the
issuance of 9% convertible preferred stock which, if converted, would have
resulted in dilution of the Company's Common Stock of approximately 25%. If not
converted, the preferred stock would have been fully redeemable at any time
after December 31, 2005. The proceeds would have been used to reduce borrowings
under the Amended and Restated Credit Agreement and provide funding for
expansion of the Company's refractive surgery center business.
On November 12, 1999, discussions regarding the proposed equity
infusion were terminated, and the Company entered into a fourth amendment to the
Amended and Restated Credit Agreement that provided for a bridge loan facility
in the amount of $3.0 million to be made available to the Company which was to
mature on November 26, 1999. Waivers were extended on a short-term basis
regarding non-compliance with certain of the Company's loan covenants and
repayment obligations.
3
<PAGE> 6
Over the ensuing seven weeks, three additional amendments to the
Amended and Restated Credit Agreement and a waiver letter were executed which
increased availability under the bridge loan facility to $9.4 million, extended
until March 31, 2000 the repayment date of the bridge loan facility and granted
waivers regarding non-compliance with certain covenants and repayment
obligations. 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. Pursuant to a waiver letter dated as of
December 29, 1999, the Company was granted 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.
Currently, the bridge loan facility is scheduled to mature on May 19,
2000 and waivers have been granted regarding certain covenants and repayment
obligations until such date. The Company has been aggressively reducing
overhead expenses, carefully managing business unit operating cash flows and
generating cash from the PPM divestiture program to improve its liquidity
position. A portion of the liquidity improvement has been used to fund
increased levels of professional fees which have been required to complete the
PPM divestitures, resolve certain claims, negotiate with its lenders and
complete the planned merger with OptiCare. Although its liquidity position has
improved, 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 facilities 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. 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.
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 Company requested and
has received a hearing related to this matter which is scheduled for May 25,
2000. The delay in filing the Form 10-K was primarily attributable to the
Company's discontinued operations. As a result of the Company's discontinued
operations, the Company may experience difficulty in timely filing its Form 10-Q
for the first quarter of fiscal 2000 although it currently believes it will file
within the time set forth in Rule 12b-25. In addition, 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.
MANAGED CARE
As an increasing percentage of the population is covered by managed
care organizations, Vision Twenty-One believes that its success will be, in
part, dependent upon its ability to negotiate managed care contracts with HMOs,
health insurance companies and other third-party payers pursuant to which
services will be provided on a risk-sharing or capitated basis. Vision
Twenty-One also has contracts for the provision of certain financial and
administrative services related to its indemnity insurance and fee-for-service
plans. Managed care contracts are typically for one-year terms that renew
automatically, and most of the contracts are terminable by either party on sixty
days notice.
Vision Twenty-One's typical contracts with third-party health benefits
payers (insurance companies and HMOs) provide that Vision Twenty-One will
arrange and pay for eye care services that are needed by the payer's members in
exchange for payment of a fixed premium amount per-patient-per-month or a
percentage of the premiums paid on behalf of the patient, without regard to the
volume of services that the patient requires. Under these arrangements, Vision
Twenty-One accepts the risk that the cost and utilization of services may exceed
expectations in exchange for its ability to profit if cost and utilization are
kept below expected levels. Vision Twenty-One can directly benefit by
effectively managing costs and utilizing its relationships with its Affiliated
Providers. Because Vision Twenty-One assures the credentials of the providers,
establishes quality and utilization control systems and implements payment
arrangements with the providers, third-party payers are able to use their
limited resources in other areas where they have greater expertise. As of March
31, 2000, Vision Twenty-One had managed care contracts and discount
fee-for-service plans covering approximately 4.9 million exclusively contracted
patient lives.
REFRACTIVE AND AMBULATORY SURGERY CENTERS
One of the highest growth areas of eye care services is the provision
of refractive surgery. This involves the utilization of a specialized laser to
correct common vision problems such a nearsightedness, farsightedness and
astigmatism. The most common procedure performed today is LASIK which uses an
excimer laser in a refractive surgery center ("RSC") and is performed on an
outpatient basis. Most other ophthalmic surgical procedures, including cataract
surgery, are also performed on an outpatient basis in an ambulatory surgery
center ("ASC"). ASC's are generally Medicare certified and designed to handle
invasive procedures as well as anesthesia. The Company provides various
operations and support services, equipment and facilities (RSCs or ASCs) to
affiliated ophthalmologists in order that they may successfully provide these
surgical procedures.
The primary business model employed by the Company involves owning
and/or managing the RSC or ASC where the surgery is performed. The Company earns
a facility access fee from the providers who perform the procedures. Alternative
models employed by the Company include: a) providing only equipment, such as the
excimer laser, on a fee-per-procedure basis augmented in certain cases by
specific support services and b) providing management and support
4
<PAGE> 7
services for the surgery center on a negotiated fee basis usually with a
portion of the fee tied to profitability of the surgery center. As of March 31,
2000, the Company had 7 RSC's and 6 ASC's under one or more of these models.
MANAGEMENT AGREEMENTS
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.
As previously disclosed, Vision Twenty-One has adopted a plan to exit
the PPM business. See the discussion under "Recent Developments."
BUYING GROUP
The buying group division provided benefits to Affiliated Providers
through the consolidation and management of purchases of optical goods. The
Company aggregated Affiliated Provider purchase orders for optical goods and
submitted, on Company purchase orders, the combined purchase orders to
suppliers for direct shipment to the Affiliated Providers. From the supplier
perspective, the Company was the purchaser and was responsible for supplier
payments. The Company assumed the credit risks of its Affiliated Providers. The
Company invoiced the Affiliated Providers for their purchases and recognized
buying group division revenues upon shipment of merchandise by the suppliers.
The business arrangements were terminable at any time by Vision Twenty-One or
its customers. As previously disclosed, Vision Twenty-One sold this division in
June 1999.
RETAIL OPTICAL CHAINS
In certain states, the Company owned and operated retail optical
chains. Revenues were generated from management and/or professional fees from
Affiliated Providers operating within or adjacent to the retail optical
locations and from the sale of optical goods such as eyeglasses and contact
lenses. As previously disclosed, Vision Twenty-One sold its retail optical
chains in August 1999.
1998 TRANSACTIONS
In addition to the acquisitions described below, the Company completed
the acquisition of the business assets of 54 optometry clinics, nine
ophthalmology clinics, 40 optical dispensaries, two RSCs and one ASC located in
Arizona, Florida, Minnesota, New Jersey, Nevada, Texas, 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, Vision Twenty-One
entered into long-term 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.
5
<PAGE> 8
In September 1998, Vision Twenty-One completed the acquisition of
American SurgiSite Centers, Inc., ("American SurgiSite") an ambulatory surgery
center developer, management and consulting company located in New Jersey.
American SurgiSite manages eight ambulatory surgery facilities. In June 1998,
Vision Twenty-One completed the acquisition of Vision World, Inc., a retail
optical chain located in Minneapolis, Minnesota. Vision World, Inc. consisted of
38 retail clinics and 30 optometrists.
In March 1998, Vision Twenty-One 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.
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.
1997 ACQUISITIONS
During 1997, the Company completed the acquisition of the business
assets of one optometry clinic, 19 ophthalmology clinics, nine optical
dispensaries and five ASCs. Concurrent with these acquisitions, the Company
entered into Management Agreements with the related professional associations
employing nine optometrists and 29 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 acquired all of the issued and outstanding stock of BBG-COA, Inc.
("Block Vision"), LSI Acquisition, Inc. ("LSI") and MEC Health Care, Inc.
("MEC"). The Block Vision transaction is referred to herein as the "Block
Acquisition" and the LSI and MEC transactions are collectively referred to
herein as the "LaserSight Acquisitions". The Company also completed the
acquisition of substantially all the business assets of a managed care company
servicing two capitated managed care contracts covering over 134,000 patient
lives. Excluding the Block and LaserSight Acquisitions, such acquisitions are
collectively referred to herein as the "1997 Acquisitions."
GOVERNMENTAL AND STATE REGULATIONS
General Overview
The health care industry is highly regulated, and there can be no
assurance that the regulatory environment in which Vision Twenty-One operates
will not change significantly and adversely in the future. In general,
regulation of health care providers and companies is increasing.
There are currently several federal and state initiatives designed to
amend regulations relating to the provision of health care services, the access
to health care, the costs of health care and the manner in which health care
providers are reimbursed for their services. However, it is not possible to
predict whether any such initiatives will be enacted as legislation or, if
enacted, what their form, effective dates or impact on Vision Twenty-One will
be.
Every state imposes licensing requirements on ophthalmologists,
optometrists and opticians and on their facilities and services. In addition,
many states require regulatory approval, including certificates of need, before
establishing certain types of health care facilities, offering certain services
or making expenditures in excess of statutory thresholds for health care
equipment, facilities or programs.
Much of Vision Twenty-One's revenue is derived from payments made by
government-sponsored health care programs (principally Medicare). These
programs are subject to substantial regulation. Any change in reimbursement
regulations, policies, practices, interpretations or statutes that places
material limitations on reimbursement amounts or practices could adversely
affect the operations of Vision Twenty-One. Increasing budgetary pressures at
both the federal and state level and the rapidly escalating costs of health
care and reimbursement programs have led, and may continue to lead, to
significant reductions in government reimbursements for certain medical charges
and elimination of coverage for certain individuals under these programs.
Federal legislation could result in a reduction of Medicare funding. Vision
Twenty-One cannot predict at this time whether or when any of such proposals
will be adopted or, if adopted and implemented, what effect such proposals
would have on Vision Twenty-One.
The following is a description of some of the various laws that affect
Vision Twenty-One's business.
Corporate Practice of Optometry and Ophthalmology. The laws of many
states prohibit corporations that are not owned entirely by eye care
professionals from employing eye care professionals, having control over
clinical decision-making, or engaging in other activities that are deemed to
constitute the practice of optometry and ophthalmology. Vision Twenty-One
contracts with professional associations (which are owned by one or more
licensed optometrists or ophthalmologists), which in turn employ or contract
with other licensed optometrists or ophthalmologists to provide professional
services. Vision Twenty-One performs only non-professional services, does not
represent to the public or its customers that it provides professional eye care
services, and is not exercising influence or control over the practices of the
eye care practitioners employed by the professional associations.
In 1999, the Attorney General of North Carolina issued a formal opinion
that the following arrangements evidence improper control of a professional
entity by a management entity owned by non-professionals: percentage of revenue
6
<PAGE> 9
management fees, ownership of patient records by the manager, restrictive
covenants prohibiting competition with the manager, the manager's right to
approve professional employment contracts, or an agreement by which the manager
is able to direct ownership interests in the practice entity to be transferred
to parties it selects. If this opinion is upheld and adopted in other states in
which the Company manages practices, it could require restructuring of the
management arrangements in a manner that has an adverse effect on the Company.
Fee-Splitting and Anti-kickback Laws. Most states have anti-kickback
laws prohibiting paying or receiving any remuneration, direct or indirect, that
is intended to induce referrals for health care products or services. In
addition, federal law prohibits a physician or optometrist from referring
Medicare or Medicaid patients to an entity providing "designated health
services" in which they have a financial interest. Many states also prohibit
"fee-splitting" by eye care professionals with any party except other eye care
professionals in the same professional corporation or practice association. In
most cases, these laws apply to the paying of a fee to another person for
referring a patient or otherwise generating business, and do not prohibit
payment of reasonable compensation for facilities and services (other than the
generation of business), even if the payment is based on a percentage of the
practice's revenues.
The Florida Board of Medicine has determined that a management fee
charged by a publicly held national management company based upon a percentage
of revenue constitutes illegal fee-splitting, and this determination has been
affirmed by a Florida appellate court. In that particular case, the management
fee was based in part on a percentage of the increase in net revenues of the
practice after the management arrangement commenced. In a subsequent case, the
Florida Board affirmed a management fee based on a percentage of net revenues
with a monthly maximum of $10,000. It distinguished the prior case based on the
fact that the management company had no contractual obligation "to add patients
to the practice," and the presence of the fixed maximum fee. The Company
believes that its arrangements are also distinguishable from the first Board
ruling. However, there is a risk that Vision Twenty-One's arrangements with
physicians in the State of Florida could be determined to be in violation of the
fee-splitting statute, which could have a material adverse effect on Vision
Twenty-One's results of operations if they cannot be restructured to obtain
substantially similar financial benefits. Since the same statute applies to
optometrists, the same risk exists with respect to Vision Twenty-One's
arrangements with optometrists.
The federal anti-kickback law prohibits the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of patients covered by federally funded health care programs such as Medicare
and Medicaid, or in return for purchasing, leasing, ordering or arranging for
the purchase, lease or order of any item or service that is covered by a
federal program. The federal agency responsible for enforcing this law recently
stated that arrangements between ophthalmologists and optometrists for
co-management of patients may, in some cases, violate this law. Depending on
the facts, such violations could include the medical need for the arrangement
and whether the services performed by the optometrists are commensurate with
the portion of the fee received. The agency made clear that it was not
questioning co-management arrangements in and of themselves.
False Claims Laws. Federal and state laws prohibit any person from
knowingly and willfully making any false statement or misrepresentation of a
material fact in seeking payment for items or services. Federal laws impose
civil monetary penalties for filing claims that the filing party "should know"
are not appropriate under rules applicable to federally funded health care
programs. The federal False Claims Act allows a private person, as well as the
government, to bring a civil action (in the name of the government) for
violation of its provisions. While Vision Twenty-One believes that its
procedures are in compliance with such laws, there can be no assurance that
Vision Twenty-One will not be deemed to be in violation.
Certificate of Need and Facilities Licensing. Some states require a
certificate of need ("CON") to be obtained prior to the construction or
expansion of refractive and ambulatory surgery centers, the acquisition of major
equipment or the introduction of certain new services. There can be no assurance
that Vision Twenty-One will be able to obtain CONs which could affect its
ability to develop RSCs and ASCs. In addition, some states may require the
Company to obtain certain licenses to operate facilities including refractive
surgery centers. While Vision Twenty-One has no reason to believe that it will
be unable to obtain necessary facility licenses without unreasonable expense or
delay, there can be no assurance that it will be able to obtain any required
license.
Insurance Licensure. Most states impose strict licensure requirements
on health insurance companies, HMOs, and other companies that engage in the
business of insurance. In the event that Vision Twenty-One is required to
become licensed under these laws, the licensure process can be lengthy and time
consuming and, unless the regulatory authority permits Vision Twenty-One to
continue to operate while the licensure process is progressing, Vision
Twenty-One could
7
<PAGE> 10
experience a material adverse change in its business while the licensure process
is pending. In addition, many of the licensing requirements mandate strict
financial regulation and other requirements which Vision Twenty-One may not
immediately be able to meet. Once licensed, Vision Twenty-One would be subject
to continuing oversight by, and reporting to, the respective regulatory agency.
Limited Health Service Plans and Third Party Administration Licensing.
Some states permit managed care networks that assume insurance risk for a
limited class of health services to be licensed as limited health service
plans. This avoids the need to be licensed as an insurer or HMO even if the
managed care network's arrangements are with individual subscribers or
self-insured employers. Additionally, some states require licensing for
companies providing administrative services in connection with managed care
business. Vision Twenty-One intends to seek such licenses in those states where
it is available for eye care networks. However, Vision Twenty-One may not be
able to meet such requirements in all cases and, should this result in the loss
of any material business (individually or in the aggregate), it could have a
material adverse effect on Vision Twenty-One's business and operating results.
Physician Incentive Plans. Medicare regulations impose certain
disclosure requirements on managed care networks that compensate eye care
providers in a manner that is related to the volume of services provided to
Medicare patients (other than services personally provided by the provider). If
such incentive payments exceed twenty-five percent of the provider's potential
payments, the network is also required to show that the providers have certain
"stop loss" financial protections and to conduct certain Medicare enrollee
surveys.
"Any Willing Provider" Laws. Some states have adopted, and others are
considering, legislation that requires managed care networks to include any
provider who is willing to abide by the terms of the network's contracts and/or
prohibit termination of providers without cause. Such laws would limit the
ability of Vision Twenty-One to develop effective managed care networks in such
states.
Antitrust Laws. Vision Twenty-One's business is also subject to a
range of antitrust laws that prohibit anti-competitive conduct, including price
fixing, concerted refusals to deal and divisions of markets. Among other
things, these laws limit the ability of Vision Twenty-One to enter into
business arrangements with separate practice groups that compete in the same
geographic market.
Electronic Record Privacy and Security Regulations. Recently proposed
federal regulations will, if finalized, strictly regulate health care providers
and plans that transmit health information electronically. Under the
regulations, providers and plans must limit access to health information to
employees who have a business need. They must install computer security
hardware and software to ensure that access is appropriately limited. Further,
a patient's written consent would be required to release personally
identifiable health information for any purpose other than treatment, payment
and certain specified purposes (e.g., public health). Patients are granted
rights to obtain an accounting of all disclosures of personally identifiable
information, access their health information upon request, and amend or correct
their health information. Providers and plans would have to adopt numerous
security and privacy policies to implement the regulations. They would also
have to identify a privacy official and a person responsible for security and
provide employee training programs regarding the security and privacy
requirements.
The privacy and security regulations are expected to be issued in
final form sometime this year. Providers and plans will have two years to
comply with the regulations. The regulations could have an adverse impact on
the cost of providing vision care-related services, including the types of
services furnished by the Company.
The several laws described above have civil, criminal and
administrative penalties and have been subject to limited judicial and
regulatory interpretation. They are enforced by regulatory agencies that are
vested with broad discretion in interpreting their meaning. While Vision
Twenty-One believes that its agreements and activities are in compliance with
these laws, Vision Twenty-One's agreements and activities have not been
examined by federal or state authorities under these laws and regulations. For
these reasons, there can be no assurance that a review of Vision Twenty-One's
business arrangements will not result in determinations that adversely affect
Vision Twenty-One's operations or that certain agreements between Vision
Twenty-One and eye care providers or third party payers will not be held
invalid and unenforceable. In addition, these laws and their interpretation
vary from state to state. The regulatory framework of certain jurisdictions may
limit Vision Twenty-One's expansion into, or ability to continue operations
within, such jurisdictions if Vision Twenty-One is unable to modify its
operational structure to conform with such regulatory framework. Any limitation
on Vision Twenty-One's ability to expand could have an adverse effect on Vision
Twenty-One.
8
<PAGE> 11
COMPETITION
General
The health care industry is highly competitive and subject to
continual changes in the method in which services are provided and the manner
in which health care providers are selected and compensated. Vision Twenty-One
believes that the economics of private and public reforms in the health care
industry emphasizing cost containment and accountability will result in an
increasing shift of eye care from highly fragmented, small providers to larger
providers or other eye care delivery services. Companies in other health care
industry segments, some of which have financial and other resources greater
than those of Vision Twenty-One, may become competitors. Increased competition
could have a material adverse effect on Vision Twenty-One's financial condition
and results of operations. The basis for competition includes service, price,
strength of Vision Twenty-One's delivery network (where applicable),
experience, reputation, strength of operational systems, strength of
informational systems, the degree of cost efficiencies and synergies, marketing
strength, managed care expertise, patient access and quality assessments and
assurances programs. The future success of Vision Twenty-One will be directly
related to its ability to expand the managed eye care delivery network
geographically, attract reputable providers, expand the scope of services
offered to associated practices, and dedicate resources to an active sales team
focused exclusively on Vision Twenty-One's sales effort.
Refractive Surgery
The market for providing access to refractive surgery through
utilization of excimer lasers is highly competitive. Vision Twenty-One competes
with laser centers operated by local operators and eye surgeons who have
purchased their own lasers. Vision Twenty-One also competes with several other
companies, including at least two manufacturers of laser equipment, in
providing access to excimer lasers in the U.S. Other companies are currently in
the process of gaining FDA approval for their lasers, and these companies may
elect to enter the laser center business. Other companies which have indicated
they intend to operate or already operate laser centers in the U.S. are Clear
Vision Laser Centers, Inc., LCA Vision, Inc., NovaMed Eyecare Management, LLC,
Vision America, Inc., Gimbel Vision International, Inc., Lasik Vision Corp.,
ICON Eye Laser Centers, OptiCare Health Systems, Inc., TLC The Laser Center,
Inc. and Laser Vision Centers, Inc. The services and equipment Vision
Twenty-One offers also compete with other forms of treatment for refractive
disorders including eyeglasses, contact lenses, radial keratotomy, corneal
rings and other technologies currently under development.
SEASONALITY
Vision Twenty-One does not experience significant seasonal
fluctuations in its business.
SERVICE MARKS
Vision Twenty-One believes that its trademarks and service marks are
important and, accordingly, has registered "Vision 21," Vision Twenty-One" with
its design logo, "Eye Care for the 21st Century," "A Different Point of View,"
"LADS" and "VIPA Vision Insurance Plan of America" with the United States Patent
and Trademark Office."
EMPLOYEES
At December 31, 1999, the Company had approximately 1,200 employees,
of which 81 were employed at the Company's headquarters, 97 were employed by
the managed care division, 126 by the refractive and ambulatory surgery center
division, and the remaining 896 were employed in the Company's PPM business
which is being discontinued. The Company believes that its relationship with
its employees is good.
9
<PAGE> 12
ITEM 2. PROPERTIES
The Company's corporate headquarters are located in Largo, Florida and
consist of approximately 25,700 square feet. The lease for this facility
expires September 15, 2004. The Company believes that such facility is adequate
for its current needs.
The Company leases 10,586 square feet of office space in Boca Raton,
Florida for Block Vision's corporate office under a lease expiring May 31,
2001. The Company believes that the facility is adequate for Block Vision's
current needs.
The Company leased or subleased the clinic locations it managed
pursuant to the Management Agreements with the Managed Professional
Associations. As previously disclosed, Vision Twenty-One assigns, and each
practice assumes, the obligations under the real estate leases for the practice
location(s) being divested as part of the exit from the physician practice
management business.
The Company also leases and subleases the ASC and RSC facilities it
manages. The Company does not expect that the current ASCs and RSCs will need
to be expanded.
The Company also leases minimal, but adequate, facilities in certain
business regions for regional support.
ITEM 3. 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
10
<PAGE> 13
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Common Stock of the Company has been trading publicly under the
symbol "EYES" on the Nasdaq National Market since the Company's initial public
offering on August 18, 1997. Prior to the Company's initial public offering,
there was no active trading market for the Company's Common Stock. The following
table sets forth the high and low closing sale price of the Company's Common
Stock as reported in the Nasdaq National Market (rounded up to the nearest whole
cent) for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
----- ----
1998
<S> <C> <C>
First Quarter........................................................................... 11.75 8.25
Second Quarter.......................................................................... 11.63 6.38
Third Quarter........................................................................... 7.00 4.63
Fourth Quarter.......................................................................... 7.13 3.63
1999
First Quarter........................................................................... 5.25 3.50
Second Quarter.......................................................................... 8.69 3.44
Third Quarter........................................................................... 10.06 4.88
Fourth Quarter.......................................................................... 6.06 1.38
</TABLE>
HOLDERS
On April 28, 2000, the last reported sales price of the Company's
Common Stock as reported by the Nasdaq National Market was $0.59 per share and
there were 243 stockholders of record. The number of record holders was
determined from the records of the Company's transfer agent and does not include
beneficial owners of Common Stock whose shares are held in the names of various
securities brokers, dealers and registered clearing agencies.
DIVIDENDS
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain all cash for use in the operation and
expansion of the Company's business and does not anticipate paying any cash
dividends in the near future. In addition, the Company's Amended and Restated
Credit Agreement restricts the declaration or payment of cash dividends on its
Common Stock.
12
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues:
Refractive and ambulatory surgery centers, net ... $ -- $ -- $ -- $ 4,084 12,508
Managed care ..................................... 3,229 8,192 18,762 54,980 56,743
Buying group ..................................... -- -- 7,261 58,959 19,151
------- -------- -------- --------- ---------
Total revenue .............................. 3,229 8,192 26,023 118,023 88,402
------- -------- -------- --------- ---------
Operating expenses:
Refractive and ambulatory surgery center operating
expenses ...................................... -- -- -- 3,688 11,478
Medical claims ................................... 3,350 9,475 14,090 42,159 42,444
Cost of buying group sales ....................... -- -- 6,882 55,926 18,261
General & administrative ......................... 1,342 3,114 7,807 18,434 27,889
Depreciation & amortization ...................... 23 81 519 2,500 3,047
Special items:
Restructuring and other charges (credits)...... -- -- -- 6,463 (1,413)
Start-up and software development costs ....... -- -- -- 932 511
Merger costs .................................. -- -- -- 718 --
Business development .......................... -- 1,927 -- -- --
------- -------- -------- --------- ---------
Total operating expenses ................... 4,715 14,597 29,298 130,820 102,217
------- -------- -------- --------- ---------
Loss from operations ................................ (1,486) (6,405) (3,275) (12,797) (13,815)
Amortization of loan fees ........................... -- -- 179 314 2,401
Interest expense, net ............................... 12 147 934 4,085 5,551
Gain on sale of assets .............................. -- -- -- -- (518)
------- -------- -------- --------- ---------
Loss from continuing operations
before income taxes and minority interest ....... (1,498) (6,552) (4,388) (17,196) (21,249)
Income taxes ........................................ -- -- -- -- --
Minority interest ................................... -- -- -- -- 63
------- -------- -------- --------- ---------
Income from continuing operations ................... (1,498) (6,552) (4,388) (17,196) (21,312)
Discontinued operations:
Income from discontinued operations .............. 682 905 4,794 11,127 3,951
Loss on disposal of discontinued operations ...... -- -- -- -- (65,722)
------- -------- -------- --------- ---------
Income (loss) before extraordinary charge ........... (816) (5,647) 406 (6,069) (83,083)
Extraordinary item-gain on sale of EyeCare One Corp. -- -- -- -- 3,770
Extraordinary item-early extinguishment of debt ..... -- -- (323) (1,886) --
------- -------- -------- --------- ---------
Net income (loss) ................................... $ (816) $ (5,647) $ 83 $ (7,955) $ (79,313)
======= ======== ======== ========= =========
Income (loss) from continuing operations ............ $ (0.43) $ (1.65) $ (0.55) $ (1.20) $ (1.39)
Discontinued operations:
Income from discontinued operations .............. 0.19 0.23 0.60 0.78 0.26
Loss on disposal of discontinued operations ...... -- -- -- -- (4.28)
------- -------- -------- --------- ---------
Income (loss) before extraordinary charge ........... (0.24) (1.42) 0.05 (0.42) (5.41)
Extraordinary item-gain on sale of EyeCare One Corp. -- -- -- -- 0.25
Extraordinary item-early extinguishment of debt ..... -- -- (0.04) (0.13) --
------- -------- -------- --------- ---------
Net earnings (loss) per common share ................ $ (0.24) $ (1.42) $ 0.01 $ (0.55) $ (5.16)
======= ======== ======== ========= =========
Weighted average number of common
shares outstanding ............................... 3,434 3,978 8,571 14,385 15,309
======= ======== ======== ========= =========
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1):
Working capital (deficit) ........................... $(1,237) $ (2,303) $ 4,868 $ 7,134 $ (57,108)
Total assets ........................................ 3,485 20,576 119,380 191,677 84,879
Long-term debt and capital lease
obligations, including current maturities ........ 363 5,196 24,475 83,530 58,534
Total stockholders' equity (deficit) ................ (289) 3,624 67,731 73,722 (2,750)
</TABLE>
(1) Data has been restated as a result of the use of the pooling of
interests method of accounting for the March 1998 acquisitions of
EyeCare One Corp. and Vision Insurance Plan of America, Inc. and the
use of discontinued operations treatment of accounting for the
financial condition and results of operation of the retail optical
chains and physician practice management businesses.
ITEM 7. 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 payers.
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.
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.
14
<PAGE> 17
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
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 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 proceeds 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 Company requested and has received a
hearing related to this matter which is scheduled for May 25, 2000. The delay in
filing the Form 10-K was primarily attributable to the Company's discontinued
operations. As a result of the Company's discontinued operations, the Company
may experience difficulty in timely filing its Form 10-Q for the first
15
<PAGE> 18
quarter of fiscal 2000 although it currently believes it will file within the
time set forth in Rule 12b-25. In addition, 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 payer. 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.
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
16
<PAGE> 19
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.
The Company completed the acquisition of Vision World, Inc. ("Vision
World"), a retail optical chain located in Minneapolis, Minnesota, effective
June 30, 1998. Vision World consisted of 38 retail clinics and 30 optometrists.
In connection with this transaction, the Company paid $16.1 million in cash, net
of cash acquired. Vision World was sold effective August 31, 1999.
In March 1998, the Company completed a transaction with EyeCare One
Corp. ("EyeCare One") and Vision Insurance Plan of America, Inc. ("VIPA").
EyeCare One, 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.
1997 ACQUISITIONS
During 1997, the Company completed the acquisition of the business
assets of one optometry clinic, 19 ophthalmology clinics, nine optical
dispensaries and five ASCs. Concurrent with these acquisitions, the Company
entered into Management Agreements with the related professional associations
employing nine optometrists and 29 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 acquired all of the issued and outstanding stock of BBG-COA, Inc.
("Block Vision"), LSI Acquisition, Inc. ("LSI") and MEC Health Care, Inc.
("MEC"). The Block Vision transaction is referred to herein as the "Block
Acquisition" and the LSI and MEC transactions are collectively referred to
herein as the "LaserSight Acquisitions". The Company also completed the
acquisition of substantially all the business assets of a managed care company
servicing two capitated managed care contracts covering over 134,000 patient
lives. Excluding the Block and LaserSight Acquisitions, such acquisitions are
collectively referred to herein as the "1997 Acquisitions." In connection with
the Block Acquisition and LaserSight Acquisitions, the Company provided
aggregate consideration of $68.1 million, consisting of 2,758,572 shares of
Common Stock, $38.8 million in cash and $364,000 in promissory notes. In
connection with the Block and 1997 Acquisitions, the Company was required to
provide additional contingent consideration to certain sellers consisting of
approximately 393,654 shares of Common Stock, approximately $821,000 in cash and
approximately $467,000 of Common Stock value if specified post-acquisition
performance targets were met.
In connection with the 1997 and 1998 Acquisitions, the Company issued
approximately 146,000 additional shares of Common Stock and approximately
$463,000 in cash in 1999.
17
<PAGE> 20
1998 RESTRUCTURING PLAN AND CERTAIN ACCOUNTING MATTERS
The Company recognized various accounting impacts in the fourth quarter
of 1998 relative to a restructuring plan announced in 1998 (the "Restructuring
Plan"). The Restructuring Plan initiatives, which consisted of a number of
specific projects, were designed to position the Company to take full
operational and economic advantage of various key acquisitions and allow the
Company to complete the consolidation and deployment of necessary infrastructure
for the future. The total restructuring and other charges and business
integration costs recorded in 1998 were $8.9 million. (See Note
13--Restructuring Plan to the Consolidated Financial Statements). The
Restructuring Plan resulted in the accrual of a reserve for restructuring costs
at December 31, 1998 in the amount of approximately $2.8 million. These
initiatives included: a) the integration of managed care service centers and
business lines, b) the consolidation of retail back office functions, and c) the
consolidation of certain corporate functions. As provided for in the
Restructuring Plan, the Company also expensed other charges and related business
integration costs during the fourth quarter of 1998. These costs represented
incremental or redundant costs as well as internal costs that resulted directly
from the development and initial implementation of the Restructuring Plan, but
were required to be expensed as incurred. These other charges and business
integration costs totaled approximately $6.1 million in 1998 and consisted
primarily of: a) write-offs related to exiting certain markets, b) write-offs of
capitalized costs that would not be realized as a result of the Restructuring
Plan and c) redundant employee costs and expenses for severed employees through
the date of severance. Also included were training costs, re-branding costs,
relocation costs, retention payments, and lease costs for facilities that were
planned for closure.
Several unusual accounting items occurred in 1998 which specific costs
related thereto were not expected to occur again in the future. These unusual
items consisted of restructuring and other charges and business integration
costs of $8.9 million related to the previously announced Restructuring Plan
discussed above, merger costs of $0.7 million, start-up and software development
costs of $0.9 million, an extraordinary charge of $1.3 million related to early
extinguishment of debt and expenses for the Company's previously disclosed
intercompany reconciliation and other items totaling $3.6 million. The $3.6
million consisted of $1.6 million of expenses related to the results of the
Company's previously announced unreconciled item and $2.0 million of one time
items related to revenue recognition of acquisition integration fees and
receivable write-offs. As a result of the Company's reconciliation of
intercompany accounts, change in accounting for start-up and software
development costs and the change in accounting treatment for revenue recognition
regarding acquisition integration fees in 1998, the Company restated its 1998
Form 10-Q's.
The unreconciled items referenced above required extensive analysis of
the financial statements from fiscal years 1996, 1997 and 1998 for many of the
Company's acquired entities, resulting in a delay in filing the Company's 1998
Form 10-K. The identified items substantially resulted from the different
accounting systems used for each entity during the prior periods. Currently,
these entities are operating on a single accounting management information
system using thin client server technology to connect them to corporate
headquarters over a private intranet network.
18
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total revenues,
certain items in the Company's Consolidated Statements of Operations for the
periods indicated. As a result of the 1997 Acquisitions, 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 1997, 1998 and 1999
reflect the Company's expected future operations.
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Revenues:
Refractive and ambulatory surgery centers, net ................................ --% 3.5% 14.1%
Managed care .................................................................. 72.1 46.6 64.2
Buying group .................................................................. 27.9 49.9 21.7
----- ----- -----
Total revenues ............................................................. 100.0 100.0 100.0
----- ----- -----
Operating expenses:
Refractive and ambulatory surgery center operating expenses ................... -- 3.1 13.0
Medical claims ................................................................ 54.1 35.7 48.0
Cost of buying group sales .................................................... 26.4 47.4 20.7
General & administrative ...................................................... 30.0 15.6 31.5
Depreciation & amortization ................................................... 2.0 2.1 3.4
Special items:
Restructuring and other charges (credits) .................................. -- 5.5 (1.6)
Start-up and software development costs .................................... -- 0.8 0.6
Merger costs ............................................................... -- 0.6 --
----- ----- -----
Total operating expenses ................................................... 112.5 110.8 115.6
----- ----- -----
Loss from operations ................................................................ (12.5) (10.8) (15.6)
Amortization of loan fees ........................................................... 0.7 0.3 2.7
Interest expense .................................................................... 3.6 3.4 6.3
Gain on sale of assets, net ......................................................... -- -- (0.6)
----- ----- -----
Loss from continuing operations before income taxes and minority interest ........... (16.8) (14.5) (24.0)
Income taxes ........................................................................ -- -- --
Minority interest ................................................................... -- -- 0.1
----- ----- -----
Loss from continuing operations ..................................................... (16.8) (14.5) (24.1)
Discontinued operations:
Income from discontinued operations ........................................ 18.4 9.4 4.4
Loss on disposal of discontinued operations ................................ -- -- (74.3)
----- ----- -----
Income (loss) before extraordinary item ............................................. 1.6 (5.1) (94.0)
Extraordinary item-gain on sale of EyeCare One Corp. ................................ -- -- 4.3
Extraordinary item-early extinguishment of debt ..................................... (1.3) (1.6) --
----- ----- -----
Net income (loss) ................................................................... 0.3% (6.7)% (89.7)%
===== ===== =====
Medical Claims Ratio ................................................................ 75.1% 76.7% 74.8%
</TABLE>
19
<PAGE> 22
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
Revenues. Revenues decreased 25.1% from $118.0 million for the year
ended December 31, 1998 to $88.4 million for the year ended December 31, 1999.
This decrease was primarily due to the Company's sale of the buying group
division, offset by an increase in refractive eye laser and surgery center net
revenues attributable to certain of the 1998 Acquisitions and to internal
growth. Managed care revenues on a comparable basis increased 3.2% over 1998.
Refractive and Ambulatory Surgery Center Operating Expenses. As a
percentage of refractive and ambulatory surgery revenue, operating expenses of
the centers increased from 90.3% for the year ended December 31, 1998 to 91.8%
for the year ended December 31, 1999. The increase is due, in large part, to
the costs associated with opening new refractive centers.
Medical Claims. Medical claims expense increased .7% from $42.2 million
for the year ended December 31, 1998 to $42.4 million for the year ended
December 31, 1999. The Company's medical claims ratio decreased from 76.7% for
the year ended December 31, 1998 to 74.8% for the year ended December 31, 1999.
The decrease was caused by a higher percentage of vision care wellness contracts
which typically have lower utilization rates than medical/surgical contracts and
improved performance in 1999 on vision care wellness contracts at Block Vision.
The Company terminated one of its managed care contracts effective December 31,
1999. Medical claims expense consists of payments by the Company to its
Affiliated Providers for vision care wellness services, medical and surgical eye
care services and facility services. These payments are based on fixed payments
received (as determined by the number of eye care procedures performed relative
to other Affiliated Providers) or negotiated fee-for-service schedules.
Cost of Buying Group Sales. 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 51.3% from $18.4 million for the year ended December 31, 1998 to $27.9
million for the year ended December 31, 1999. 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. The $9.5 million increase in general
and administrative expenses consisted primarily of severance costs of
approximately $1.1 million, headcount costs (officer, department managers and
contract labor) of approximately $2.1 million and professional fees (legal,
accounting, and consulting) of approximately $4.5 million. More than $4.0
million of the total increase has been specifically identified as non-recurring
due to known job eliminations, termination of a consulting contract, and the
one-time nature of the costs associated with the intercompany accounts
reconciliation effort. 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 first six months
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 21.9% from $2.5 million for the year ended December 31, 1998 to $3.0
million for the year ended December 31, 1999. As a percentage of revenues,
depreciation and amortization expense increased from 2.1% for the year ended
December 31, 1998 to 3.4% for the year ended December 31, 1999 due to the
reduction of revenues resulting from the sale of the Company's buying group
division.
The restructuring credit of approximately $1.4 million resulted from
lease termination costs of $0.9 million that were reversed out of the accrual as
a result of the sale of the Retail Optical Chains and approximately $0.5 million
of severance costs that were reversed out of the accrual as a result of employee
resignations and a change in estimate.
Start-up and Software Development Costs. For the years ended December
31, 1998 and 1999, start-up costs relate to start-up activities associated
primarily with refractive surgery centers initiatives. For the year ended
December 31,1998, software development costs are associated with the Company's
implementation of the Great Plains accounting software system.
Merger Costs. Merger costs were incurred in 1998 as a result of the
pooling of interests method of accounting for the EyeCare One and VIPA
acquisitions and consisted primarily of professional fees.
20
<PAGE> 23
Interest Expense. Interest expense increased 35.9% from $4.1 million
for the year ended December 31, 1998 to $5.6 million for the year ended December
31, 1999. The increase was caused by higher borrowing costs and an increase in
the average debt outstanding for year ended December 31, 1999 compared to the
year ended December 31, 1998. During 1999, the Company repaid $30.8 million of
the outstanding term debt on its credit facilities as a result of the sale of
its Retail Optical Chains on August 31, 1999.
Gain on Sale of Assets. In connection with the sale of assets, the
Company realized a gain of $0.5 million.
Discontinued Operations. Discontinued operations represents the income
from the Company's Retail Optical Chains and PPM businesses previously
discussed. The Company's Retail Optical Chains were sold on August 31, 1999.
Additionally, the Company has allocated a portion of its interest expense to
discontinued operations in 1998 and 1999 based on the net assets attributed to
the Retail Optical Chains operations.
Extraordinary Item. The sale of EyeCare One on August 31, 1999 resulted
in a gain of $3.8 million which was recorded as an extraordinary item for the
year ended December 31, 1999.
21
<PAGE> 24
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Revenues. Revenues increased 354% from $26.0 million for the year ended
December 31, 1997 to $118.0 million for the year ended December 31, 1998. The
increase was caused primarily by an increase in buying group revenues
attributable to the Block Acquisition which accounted for $51.7 million of the
increase, an increase in managed care revenues attributable to the Block Vision
and MEC acquisitions, the addition of three capitated contracts and the
expansion of an existing contract which accounted for $36.2 million of the
increase. Managed care revenues on a comparable basis increased 35% over 1997
levels for business units operated by the Company for the entire year. The
Company's revenue mix changed from 1997 to 1998, as a full year of revenue was
recognized for the Company's buying group in 1998 compared to three months in
1997.
Refractive and Ambulatory Surgery Center Operating Expenses. Refractive
and ambulatory surgery center operating expenses increased from $0 for the year
ended December 31, 1997 to $3.7 million for the year ended December 31, 1998.
Refractive and ambulatory surgery center operating expenses consisted of
salaries, wages and benefits of certain clinic staff, professional fees, medical
supplies, advertising, building and occupancy costs, operating lease expenses
and other general and administrative costs related to the operation of RSCs and
ASC's. This increase was caused primarily by the 1998 Acquisitions.
Medical Claims. Medical claims expense increased 199% from $14.1
million for the year ended December 31, 1997 to $42.2 million for the year ended
December 31, 1998. The Company's medical claims ratio increased from 75.1% for
the year ended December 31,1997 to 76.7% for the year ended December 31, 1998.
This increase was primarily attributed to higher utilization under basic vision
care plans. As a percentage of managed care revenues, vision care wellness
service contracts increased to 45% of managed care revenues for the year ended
December 31, 1998. Medical claims expense consists of payments by the Company to
its Affiliated Providers for vision care wellness services, medical and surgical
eye care services and facility services. These payments are based on fixed
payments received (as determined by the number of eye care procedures performed
relative to other Affiliated Providers) or negotiated fee-for-service schedules.
Cost of Buying Group Sales. Cost of buying group sales were incurred by
the Company as a result of its acquisition of Block Vision. 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 division in 1999.
General and Administrative Expenses. General and administrative
expenses increased 136.1% from $7.8 million for the year ended December 31, 1997
to $18.4 million for the year ended December 31, 1998. This increase was caused
primarily by the 1998 Acquisitions, staff necessary to support the Company's
retail optical division, practice management and managed care businesses and
increases in travel expenses, professional fees and occupancy costs. General and
administrative expenses consisted primarily 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 general and administrative costs related to the maintenance
of a headquarters operation. As a percentage of revenues, general and
administrative expenses decreased from 30.0% for the year ended December 31,
1997 to 15.6% for the year ended December 31, 1998. This decrease was caused
primarily by increased economies of scale resulting from the Company's expanding
business. General and administrative expenses for the year ended December 31,
1998 include approximately $2.5 million of business integration costs discussed
above, which are expected to be eliminated throughout 1999. General and
administrative expenses for the year ended December 31, 1998 included
approximately $0.5 million in intercompany amounts which remained unreconciled
at December 31, 1998 and were written off in 1998.
Depreciation and Amortization. Depreciation and amortization expense
increased 382.0% from $0.5 million for the year ended December 31, 1997 to $2.5
million for the year ended December 31, 1998. As a percentage of revenues,
depreciation and amortization expense remained relatively constant at 2.0% and
2.1% for the years ended December 31, 1997 and 1998, respectively.
Restructuring and Other Charges. Restructuring and other charges were
incurred as a result of the Company's Restructuring Plan previously discussed.
Start-up and Software Development Costs. Start-up costs were incurred
due to the Company's early adoption of the provisions of AICPA Statement of
Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities" and
AICPA Statement of Position 98-1 ("SOP 98-1") "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." Start-up costs relate
to start-up activities associated primarily with refractive surgery center
initiatives in 1998, and
22
<PAGE> 25
software development costs are associated with the Company's implementation of
the Great Plains accounting software system in 1998.
Merger Costs. Merger costs were incurred as a result of the EyeCare One
and VIPA pooling of interests and consist primarily of professional fees.
Interest Expense. Interest expense increased 337.3% from $0.9 million
for the year ended December 31, 1997 to $4.1 million for the year ended December
31, 1998. The increase was caused by an increase in the debt outstanding from
$27.3 million at December 31, 1997 to $84.4 million at December 31, 1998.
Discontinued Operations. Income from discontinued operations for the
year ended December 31, 1998 represented the results of operations of the
Company's Retail Optical Chains and PPM businesses. Income from discontinued
operations for the year ended December 31, 1997 represented the results of
operations of EyeCare One and the PPM businesses. The Company's Retail Optical
Chains were sold effective August 31, 1999. Additionally, the Company has
allocated a portion of its interest expense to discontinued operations in 1998
based on the net assets attributed to the Retail Optical Chain operations.
Extraordinary Charges. The Company incurred extraordinary charges of
$1.9 million for the year ended December 31, 1998 in connection with amendments
to its credit facility. These extraordinary charges represented the write-off of
unamortized deferred loan costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically funded its working capital and capital
expenditure requirements primarily through institutional borrowings and private
debt and equity financings. Net cash used in operating activities for the year
ended December 31, 1999 was $6.4 million as compared to net cash used in
operating activities of $9.0 million for the year ended December 31, 1998. The
improvement in 1999 was attributable to favorable working capital changes
resulting from the collection of buying group division receivables which were
retained by the Company when the division was sold. Cash consumed by operations
before working capital changes increased $2.5 million in 1999 due to
significantly higher professional fees.
Net cash provided by investing activities for the year
ended December 31, 1999 was $30.6 million and resulted primarily from the sales
of the Company's Retail Optical Chains and buying group division.
This was offset by purchases of medical equipment and office furniture related
to the Company's new laser surgery centers as well as purchases in the normal
course of business. Net cash used in investing activities for the year ended
December 31, 1998 was $48.7 million and resulted from payments for acquisitions,
medical equipment, office furniture and capitalized acquisition costs.
Net cash used in financing activities for the year ended December 31,
1999 was $24.1 million and was primarily attributable to payments on the
Company's credit facility as a result of the sales of the Company's Retail
Optical Chains and the buying group division. Net cash provided by financing
activities for the year ended December 31, 1998 was $53.2 million and was
primarily attributable to increased borrowings under the Company's credit
facilities.
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.
23
<PAGE> 26
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.
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.
24
<PAGE> 27
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.
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 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
25
<PAGE> 28
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
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 eleven 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
26
<PAGE> 29
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.
ITEM 7A. 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 in
1999.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K, 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 10K, the annual
report 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 grow our refractive and ambulatory
surgery center business;
27
<PAGE> 30
(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;
(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
(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;
28
<PAGE> 31
(xiii) our inability to successfully and profitably operate
our managed care business or for existing managed
care contracts to positively impact gross profit;
(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-K and annual report or to reflect the occurrence of unanticipated
events.
29
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(A) FINANCIAL STATEMENTS
(1) Financial Statements. The Company's Financial Statements included
in Item 8 hereof, as required, including the report of the Independent Auditors,
are as follows:
<TABLE>
<S> <C>
Report of Independent Auditors.................................................................................... 31
Consolidated Balance Sheets--December 31, 1998 and 1999........................................................... 32
Consolidated Statements of Operations--Years Ended December 31, 1997, 1998 and 1999............................... 34
Consolidated Statements of Stockholders' Equity (Deficit)--Years Ended December 31, 1997, 1998
and 1999....................................................................................................... 35
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1998 and 1999............................... 36-37
Notes to Consolidated Financial Statements........................................................................ 38-58
</TABLE>
30
<PAGE> 33
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Vision Twenty-One, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Vision
Twenty-One, Inc. and Subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Vision
Twenty-One, Inc. and Subsidiaries at December 31, 1998 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
described in Note 17, the Company has incurred recurring operating losses and
has a working capital deficiency. In addition, the Company has not complied
with certain covenants in connection with its credit agreement which have been
waived by the banks to the earlier of May 19, 2000 or the termination of a
merger agreement. Further, the Company is currently dependent upon the
cooperation, approvals and availability of waivers from the banks as parties to
its credit facilities for operating capital. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 17. The
consolidated financial statements and financial statement schedule do not
include any adjustments to reflect the possible future effects on the
recoverability and classification of assets or the amounts and classification
of liabilities that may result from the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
Tampa, Florida
April 7, 2000, except for paragraph 2
of Note 16, as to which the date is
April 21, 2000 and except for paragraph
3 of Note 16, as to which the date is
May 5, 2000
31
<PAGE> 34
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
------------ -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................... $ 1,514,670 $ 5,032,399
Accounts receivable due from:
Buying group members, net of allowances for
doubtful accounts of approximately $30,000
at December 31, 1998................................................... 6,288,923 --
Physicians, patients and surgery centers ................................ 687,100 1,852,091
Managed health benefits payers........................................... 1,573,799 810,606
Other.................................................................... 48,165 --
Prepaid expenses and other current assets................................... 2,194,509 1,405,321
Current assets of discontinued operations................................... 22,553,628 20,102,763
------------ -----------
Total current assets................................................... 34,860,794 29,203,180
Fixed assets, net.............................................................. 4,076,940 5,131,658
Excess of purchase price over fair values of
net assets acquired, net of accumulated
amortization of $1,910,826 and $3,500,266 at
December 31, 1998 and 1999, respectively.................................... 52,278,292 47,703,490
Deferred income taxes.......................................................... 6,300,000 --
Other assets................................................................... 1,747,597 205,059
Restricted cash................................................................ 500,000 500,000
Non current assets of discontinued operations.................................. 91,913,501 2,135,300
------------ -----------
Total assets........................................................... $191,677,124 $84,878,687
============ ===========
</TABLE>
32
<PAGE> 35
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Accounts payable ........................................ $ 4,855,197 $ 5,687,289
Medical claims payable .................................. 4,713,995 4,870,837
Accrued expenses ........................................ 3,576,486 4,327,040
Accrued compensation .................................... 692,154 1,848,511
Accrued restructuring charge ............................ 2,796,000 663,305
Accrued acquisition costs ............................... 165,752 --
Amount due to ECCA ...................................... -- 4,031,870
Current portion of long-term debt ....................... 1,969,345 58,135,205
Current portion of obligations under capital leases ..... 55,523 90,292
Current liabilities of discontinued operations .......... 9,402,156 6,657,260
------------- ------------
Total current liabilities .......................... 28,226,608 86,311,609
Obligations under capital leases, less current portion ..... 287,651 195,902
Long-term debt, less current portion ....................... 81,217,396 112,500
Deferred income taxes ...................................... 7,512,000 --
Long-term liabilities of discontinued operations ........... 711,856 598,946
------------- ------------
Total liabilities .................................. 117,955,511 87,218,957
Minority interest .......................................... -- 409,822
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;
15,067,025 (1998) and 15,616,854 (1999) shares
issued and outstanding .................................. 15,067 15,617
Additional paid-in capital ................................. 89,196,292 92,981,946
Common stock to be issued (105,164 shares at
December 31, 1998) ...................................... 1,053,664 --
Deferred compensation ...................................... (300,435) (192,135)
Note receivable ............................................ (172,984) (172,984)
Accumulated deficit ........................................ (16,069,991) (95,382,536)
------------- ------------
Total stockholders' equity (deficit) ............... 73,721,613 (2,750,092)
------------- ------------
Total liabilities and stockholders' equity (deficit) $ 191,677,124 $ 84,878,687
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 36
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Refractive and ambulatory surgery centers, net ........ $ -- $ 4,084,052 $ 12,507,820
Managed care .......................................... 18,762,158 54,980,006 56,743,696
Buying group .......................................... 7,260,797 58,959,195 19,150,982
------------- ------------- -------------
26,022,955 118,023,253 88,402,498
Operating expenses:
Refractive and ambulatory surgery center operating
expenses .......................................... -- 3,688,315 11,477,811
Medical claims ........................................ 14,090,250 42,159,210 42,444,111
Cost of buying group sales ............................ 6,882,199 55,926,173 18,260,819
General and administrative ............................ 7,807,133 18,433,625 27,889,302
Depreciation and amortization ......................... 518,683 2,500,383 3,046,922
Special items:
Restructuring and other charges (credits) .......... -- 6,462,595 (1,413,389)
Start-up and software development costs ............ -- 932,494 511,768
Merger costs ....................................... -- 717,835 --
------------- ------------- -------------
29,298,265 130,820,630 102,217,344
------------- ------------- -------------
Loss from operations ..................................... (3,275,310) (12,797,377) (13,814,846)
Amortization of loan fees ................................ 178,677 314,208 2,400,831
Interest expense, net .................................... 934,190 4,084,891 5,551,542
Gain on sale of assets, net .............................. -- -- (517,841)
------------- ------------- -------------
Loss from continuing operations before income taxes and
minority interest ..................................... (4,388,177) (17,196,476) (21,249,378)
Income taxes ............................................. -- -- --
Minority interest ........................................ -- -- (63,398)
------------- ------------- -------------
Loss from continuing operations .......................... (4,388,177) (17,196,476) (21,312,776)
Discontinued operations:
Income from discontinued operations, net of income tax
benefit of $3,017,000 in 1998 ...................... 4,794,399 11,127,191 3,951,838
Loss on disposal of discontinued operations, net of
income tax benefit of $1,096,931 in 1999 ........... -- -- (65,722,430)
------------- ------------- -------------
Income (loss) before extraordinary items ................. 406,222 (6,069,285) (83,083,368)
Extraordinary item-gain on sale of EyeCare One Corp. ..... -- -- 3,770,823
Extraordinary item-loss on early extinguishment of debt .. (323,346) (1,885,512) --
------------- ------------- -------------
Net income (loss) ........................................ $ 82,876 $ (7,954,797) $ (79,312,545)
============= ============= =============
Basic and diluted income (loss) per common share:
Loss from continuing operations ....................... $ (0.55) $ (1.20) $ (1.39)
Income from discontinued operations ................... 0.60 0.78 0.26
Loss on disposal of discontinued operations............ -- -- (4.28)
------------- ------------- -------------
Income (loss) before extraordinary items ................. 0.05 (0.42) (5.41)
Extraordinary item-gain on sale of EyeCare One Corp.... -- -- 0.25
Extraordinary item-loss on early extinguishment of debt (0.04) (0.13) --
------------- ------------- -------------
Net income (loss) per common share ....................... $ 0.01 $ (0.55) $ (5.16)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 37
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON
COMMON STOCK ADDITIONAL STOCK TOTAL
---------------- PAID-IN TO BE DEFERRED NOTE ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL ISSUED COMPENSATION RECEIVABLE DEFICIT EQUITY (DEFICIT)
------ ------ ---------- ------ ------------ ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996...... 4,825,431 $ 4,825 $ 5,987,335 $5,905,965 $(517,035) $ (164,075) $(7,593,283) $ 3,623,732
Initial and second public
offering of common shares..... 4,400,000 4,400 37,618,793 -- -- -- -- 37,623,193
Issuance of shares of common
stock for business
combinations.................. 4,298,740 4,299 31,826,620 (5,905,965) -- -- -- 25,924,954
Issuance of detachable stock
purchase warrants............. -- -- 301,500 -- -- -- -- 301,500
Sale of detachable stock
purchase warrants............. -- -- 548,021 -- -- -- -- 548,021
Compensatory stock options
accounted for under SFAS 123 -- -- 124,949 -- -- -- -- 124,949
Exercise of warrants and options 5,721 6 2,751 -- -- -- -- 2,757
Amortization of deferred
compensation.................. -- -- -- -- 108,300 -- -- 108,300
Issuance of note receivable -- -- -- -- -- (11,409) -- (11,409)
Net income...................... -- -- -- -- -- -- 82,876 82,876
Reclassify undistributed
earnings in S corporation
to additional paid-
in capital.................... -- -- 604,787 -- -- -- (604,787) --
Capital distribution............ -- -- (598,280) -- -- -- -- (598,280)
---------- ------- ----------- --------- ---------- ----------- ------------ ------------
Balance at December 31, 1997...... 13,529,892 $13,530 $76,416,476 $ -- $(408,735) $ (175,484) $ (8,115,194) $ 67,730,593
Issuance of shares of
common stock for
business combinations......... 1,666,351 1,666 14,109,907 -- -- -- -- 14,111,573
105,164 shares of common
stock to be issued in 1999
as additional consideration
for acquisitions consummated
in 1997 and 1998.............. -- -- -- 1,053,664 -- -- -- 1,053,664
Sale and issuance of detachable
stock purchase warrants....... -- -- 128,109 -- -- -- -- 128,109
Purchase of common stock........ (168,270) (168) (1,547,916) -- -- -- -- (1,548,084)
Compensatory stock options
accounted for under
SFAS 123...................... -- -- 202,479 -- -- -- -- 202,479
Exercise of options............. 39,052 39 132,784 -- -- -- -- 132,823
Amortization of deferred
compensation.................. -- -- -- -- 108,300 -- -- 108,300
Collection of note receivable -- -- -- -- -- 2,500 -- 2,500
Net loss........................ -- -- -- -- -- -- (7,954,797) (7,954,797)
Capital distribution............ -- -- (245,547) -- -- -- -- (245,547)
---------- -------- ----------- --------- ---------- ----------- ------------ ------------
Balance at December 31, 1998...... 15,067,025 $15,067 $89,196,292 $1,053,664 $(300,435) $ (172,984) $(16,069,991) $ 73,721,613
Issuance of shares of
common stock for
business combinations......... 117,409 117 617,297 -- -- -- -- 617,414
Issuance of shares of
common stock as additional
consideration for acquisitions
consummated in 1997 and 1998 145,594 146 1,238,657 (1,053,664) -- -- -- 185,139
Sale of shares to directors 177,099 177 1,062,671 -- -- -- -- 1,062,848
Compensatory stock options
accounted for under
SFAS 123...................... -- -- 443,956 -- -- -- -- 443,956
Exercise of options............... 71,204 71 291,651 -- -- -- -- 291,722
Issuance of shares for employee
stock purchase plan........... 38,523 39 131,422 -- -- -- -- 131,461
Amortization of deferred
compensation.................. -- -- -- -- 108,300 -- -- 108,300
Net loss.......................... -- -- -- -- -- -- (79,312,545) (79,312,545)
---------- ------- ----------- --------- ---------- ---------- ------------ ------------
Balance at December 31, 1999...... 15,616,854 $15,617 $92,981,946 $ -- $(192,135) $ (172,984) $(95,382,536) $(2,750,092)
========== ======== =========== ========= ========== ========== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 38
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ................................. $ 82,876 $ (7,954,797) $(79,312,545)
Adjustments to reconcile net income
(loss) to net cash used in operating activities:
Net (gain) loss from discontinued operations ...... (4,794,399) (11,127,191) 61,770,592
Extraordinary item ................................ 323,346 1,885,512 (3,770,823)
Depreciation and amortization ..................... 518,683 2,500,383 3,046,922
Amortization of loan fees ......................... 178,677 314,208 2,400,831
Other amortization ................................ -- 662,391 --
Non-cash compensation expense ..................... 124,949 310,779 552,256
Gain on sale of assets, net........................ -- -- (517,841)
Interest accretion ................................ 50,260 -- --
Minority interest ................................. -- -- 63,398
Changes in operating assets and liabilities,
net of effects from business combinations:
Accounts receivable, net ....................... 107,017 (1,576,141) 5,935,290
Prepaid expenses and other current assets ...... (626,605) (633,258) 789,188
Other assets ................................... (260,262) 141,111 209,538
Accounts payable ............................... (2,743,964) 799,089 832,092
Medical claims payable ......................... (552,064) 1,158,800 156,842
Accrued expenses ............................... 1,415,303 1,319,557 (1,400,384)
Accrued compensation ........................... 142,024 361,337 1,156,357
Accrued restructuring charge ................... -- 2,796,000 (2,132,695)
Accrued acquisition costs ...................... (522,963) -- (165,752)
Amount due to ECCA.............................. -- -- 4,031,870
------------ ------------ ------------
Net cash used in operating activities .......... (6,557,122) (9,042,220) (6,354,864)
INVESTING ACTIVITIES
Payments for fixed assets, net .................... (121,240) (3,019,932) (2,321,789)
Payments for acquisitions, net of
cash acquired .................................. (35,452,640) (41,491,787) (614,469)
Payments for capitalized acquisition costs ........ (6,170,767) (3,445,854) (67,878)
Net proceeds from sale of Block Buying Group ...... -- -- 4,340,103
Net proceeds from sale of Retail Optical Chains ... -- -- 29,281,327
Other ............................................. (394,603) (709,882) --
------------ ------------ ------------
Net cash provided by (used in) investing activities (42,139,250) (48,667,455) 30,617,294
</TABLE>
36
<PAGE> 39
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
------------ ------------- ------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net proceeds from sale of common stock ............................. 42,850,000 -- --
Payments for offering costs ........................................ (4,385,413) -- --
Proceeds from long-term debt ....................................... 33,913,727 124,684,112 15,832,397
Payments on long-term debt and capital
lease obligations ............................................... (19,261,978) (67,301,133) (40,891,774)
Proceeds from credit facility ...................................... 4,874,000 -- --
Payments on credit facility ........................................ (4,874,000) -- --
Payments for financing fees ........................................ (717,882) (2,771,822) (851,729)
Payments to acquire treasury stock ................................. -- (1,548,084) --
Proceeds from sale of stock to directors ........................... -- -- 1,062,848
Sale of detachable stock purchase
warrants and exercise of options ................................ 550,778 148,893 291,722
Proceeds from sale of stock issued under an employee
stock purchase plan ............................................. -- -- 131,461
Proceeds from limited partner for minority interest ................ -- -- 346,424
Decrease in notes receivable, officers
and shareholders ................................................ 152,080 2,500 --
------------ ------------- ------------
Net cash provided by (used in) financing activities ................ 53,101,312 53,214,466 (24,078,651)
------------ ------------- ------------
DISCONTINUED OPERATIONS
Operating activities ............................................ 2,680,882 6,385,746 7,560,404
Investing activities ............................................ (1,920,509) (1,788,750) (3,816,707)
Financing activities ............................................ (1,718,198) (2,250,424) (409,747)
------------ ------------- ------------
Cash provided by (used in) discontinued operations .............. (957,825) 2,346,572 3,333,950
------------ ------------- ------------
Increase (decrease) in cash and cash equivalents ................... 3,447,115 (2,148,637) 3,517,729
Cash and cash equivalents at
beginning of year ............................................... 216,192 3,663,307 1,514,670
------------ ------------- ------------
Cash and cash equivalents at end of year ........................... $ 3,663,307 $ 1,514,670 $ 5,032,399
============ ============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest ............................. $ 1,039,606 $ 5,490,964 $ 5,939,356
============ ============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of detachable stock
purchase warrants ............................................... $ 301,500 $ -- $ --
============ ============= ============
Assets purchased under capital leases .............................. $ 41,000 $ -- $ 21,140
============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 40
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. DESCRIPTION OF BUSINESS
Vision Twenty-One, Inc. and Subsidiaries ("Vision Twenty-One" or the
"Company") is a Florida corporation formed in May 1996 as a holding company.
The Company's initial subsidiaries were Vision 21 Physician Practice Management
Company (MSO) and Vision 21 Managed Eye Care of Tampa Bay, Inc. (MCO).
Vision Twenty-One, Inc. is a vision care company that is currently
focused on the management of refractive and ambulatory surgery centers and the
provision of managed care services.
REFRACTIVE AND AMBULATORY SURGERY CENTERS
The Company owns, or operates under management agreements, refractive
and ambulatory surgery centers and provides various operational and support
services, equipment, and facilities to local ophthalmologists so that they may
perform refractive and other ophthalmic surgical procedures, including cataract
surgery. Refractive surgery utilizes a specialized laser to correct common
vision problems such as nearsightedness, farsightedness and astigmatism and is
typically performed in a refractive surgery center on an outpatient basis. Most
other ophthalmic surgical procedures, including cataract surgery, are also
performed on an outpatient basis in an ambulatory surgery center.
MANAGED CARE
The Company's managed care organization contracts with third-party
health benefits payers (insurance companies and HMOs) to provide eye care
services through a network of associated optometrists and ophthalmologists,
retail optical companies and ambulatory surgery centers. The Company's managed
care contracts involve the receipt by the Company of vision care premiums from
health benefits payers on a fixed amount per-patient-per- month or a percentage
of the premiums paid basis. The Company pays the health care providers and bears
the risk that the cost and utilization of eye care services by patients may
exceed the premiums received. Vision Twenty-One also has contracts for the
provision of certain financial and administrative services related to indemnity
insurance and fee-for-service plans.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133
establishes accounting and reporting standards for derivative financial
instruments and hedging activities and requires the Company to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
them at fair value. Gains and losses resulting from changes in fair value would
be accounted for depending on the use of the derivative and whether it is
designated and qualifies for hedge accounting.
In June 1999, the FASB issued Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133 which defers the
implementation of SFAS 133 until years beginning after June 15, 2000. The
Company does not anticipate that the adoption of SFAS 133 will have a
significant effect on its results of operations or financial position.
38
<PAGE> 41
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ
from those estimates.
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 financial statements have
been restated to show these divisions as discontinued operations.
REVENUE RECOGNITION
Refractive and Ambulatory Surgery Centers
Net revenues from refractive and ambulatory surgery centers are
reported at the estimated realizable amounts from patients, third-party payers
and others for services rendered. Revenue under certain third-party payer
agreements is subject to retroactive adjustments. Provisions for estimated
third-party payer adjustments are estimated in the period the related services
are rendered and are adjusted in future periods as final payments are
determined.
Managed Care
Managed care revenues are derived principally from monthly capitation
payments from health benefits payers which contract with the Company for the
delivery of eye care services. The Company records this revenue on the accrual
basis at contractually agreed-upon rates.
Most of the managed care contracts are for one-year terms that
automatically renew and most of the contracts are terminable by either party on
sixty days notice.
Buying Group
The buying group division provided benefits to local optometrists and
ophthalmologists (the "Affiliated Providers") through the consolidation and
management of purchases of optical goods. The Company aggregated Affiliated
Provider purchase orders for optical goods and submitted, on Company purchase
orders, the combined purchase orders to suppliers for direct shipment to the
Affiliated Providers. From the supplier perspective, the Company was the
purchaser and was responsible for supplier payments. The Company assumed the
credit risks of its Affiliated Providers. The Company invoiced the Affiliated
Providers for their purchases and recognized buying group division revenues
upon shipment of merchandise by the suppliers.
MEDICAL CLAIMS PAYABLE
In accordance with the capitation contracts entered into with certain
managed health benefits payers, the Company is responsible for payment of
providers' claims. Medical claims payable represent provider claims reported to
the Company and an estimate of provider claims incurred but not reported to the
Company (IBNR).
The Company estimates the amount of IBNR using standard actuarial
methodologies based upon the average interval between the date services are
rendered and the date claims are reported and other factors considered relevant
by the Company.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates its fair
value.
The fair value of substantially all of the Company's long-term debt
approximates its carrying amount as the interest rates on substantially all of
the Company's long-term debt change with market interest rates.
39
<PAGE> 42
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of the various classes of
assets, which range from three to ten years. Leasehold improvements are
amortized using the straight-line method over the shorter of the term of the
lease or the estimated useful life of the improvements. Routine maintenance and
repairs are charged to expense as incurred while betterments and renewals are
capitalized.
GOODWILL
In connection with certain of its business combinations, the Company
recognized the excess of the purchase price over the fair values of the net
assets acquired ("goodwill") from the business combinations, which is being
amortized on a straight-line method over 25 or 30 years.
Amortization expense with respect to Goodwill was approximately
$289,000, $1,630,000 and $1,737,000 for the years ended December 31, 1997, 1998
and 1999, respectively.
IMPAIRMENT OF ASSETS
The Company utilizes Statement of Financial Accounting Standards
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ("SFAS 121") to determine whether any impairment of
value exists with respect to its fixed assets. In connection with its PPM
business which the Company is exiting (see Note 3), the Company previously
recognized the value of its long-term business management agreements
("Management Agreements") as identifiable intangible assets. The Company
previously utilized SFAS 121 to determine whether any impairment of value
existed with respect to its Management Agreements. The previously recognized
value of such Management Agreements, net of accumulated amortization, was
written off in the year ended December 31, 1999 as a component of the Company's
loss on disposal of discontinued operations.
In accordance with SFAS 121, the Company reviews the carrying value of
its fixed assets at least quarterly on an entity-by-entity basis to determine if
facts and circumstances exist which would suggest that the fixed assets may be
impaired or that the useful life needs to be modified. Among the factors the
Company considers in making the evaluation are changes in the specific
companies' market position, reputation, profitability and geographical
penetration. If indicators are present which may indicate impairments, the
Company will prepare a projection of the undiscounted cash flows of the specific
entity and determine if the fixed assets are recoverable based on these
undiscounted cash flows. If impairment is indicated, then an adjustment will be
made to reduce the carrying amount of the fixed assets to fair value.
The Company utilizes Accounting Principles Board Opinion No. 17,
Intangible Assets ("APB 17") to determine whether any impairment exists with
respect to its goodwill. In the event that facts and circumstances indicate that
goodwill may be impaired, an evaluation of recoverability would be performed. If
such an evaluation is performed, the estimated future undiscounted cash flows
would be compared to the asset's carrying value to determine if a write-down is
required. The Company did not recognize any impairment losses on goodwill during
the years ended December 31, 1997, 1998 and 1999. In connection with the sale of
the buying group division of BBG-COA, Inc. (see Note 4), the Company wrote off
goodwill of approximately $3,675,000, which is net of accumulated amortization
of $174,000. Such amount was written off as a component of the gain recognized
on the sale of the buying group division.
CONCENTRATIONS OF CREDIT RISK
The Company has accounts receivable from physicians, patients and
surgery centers. The Company does not believe that there are any substantial
credit risks associated with those receivables. The Company does not require
any form of collateral from their physicians, patients or surgery centers.
The Company places cash and cash equivalents with high-quality
financial institutions. At times, the Company maintains cash balances in excess
of amounts insured by the Federal Deposit Insurance Corporation (FDIC).
NET LOSS PER COMMON SHARE
During 1997, the Company adopted Financial Accounting Standards Board
Statement No. 128, Earnings Per Share ("SFAS 128"). SFAS 128 requires the
presentation of both basic and diluted earnings per share. Basic net income
(loss) per share is calculated by dividing net income (loss) by the weighted
average number of common shares outstanding during the period. Diluted net
income (loss) per share is calculated by dividing net income (loss) by the
weighted average number of common and potential common shares outstanding
during the period. Potential common shares consist of the dilutive effect of
outstanding options and warrants calculated using the treasury stock method.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation arrangements under
the provisions of Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB 25"). In 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), which is effective for
fiscal years beginning after December 15, 1995. Under SFAS 123, the Company may
elect to recognize stock-based compensation expense based on the fair value of
the awards or continue to account for stock-based compensation under APB 25 and
disclose in the financial statements the effects of SFAS 123 as if the
recognition provisions were adopted.
40
<PAGE> 43
The Company accounts for any stock-based compensation arrangements not
specifically addressed by APB 25 under the fair value provisions of SFAS 123,
including options granted to non-employees. The pro forma disclosures required
by SFAS 123 are provided for all stock-based compensation arrangements which are
accounted for under APB 25.
INCOME TAXES
The Company has applied the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"), which
requires an asset and liability approach for financial accounting and
reporting. Deferred income tax assets and liabilities are determined based upon
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and lives that will be
in effect when the differences are expected to reverse.
3. 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.
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. The exit of the PPM business is being
accomplished through the sale of the practice assets back to the physicians or
affiliates and the termination of the Company's long-term business management
agreements with the physician practices. As a result, the Company has
reclassified its prior period financial statements to reflect the appropriate
reporting for its PPM business, as well as the Retail Optical Chains sold during
1999, as discontinued operations. The Company expects to complete its exit of
the PPM business by June 30, 2000.
The operating results of these discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues $43,521,243 $105,393,811 $118,954,364
Operating expenses 38,726,844 97,283,620 115,002,526
----------- ------------ ------------
Income from discontinued operations before income
tax benefit 4,794,399 8,110,191 3,951,838
Income tax benefit -- 3,017,000 --
----------- ------------ ------------
Income from discontinued operations 4,794,399 11,127,191 3,951,838
----------- ------------ ------------
Loss on disposal -- -- (66,819,361)
Income tax benefit -- -- 1,096,931
----------- ------------ ------------
Net loss on disposal -- -- (65,722,430)
----------- ------------ ------------
Total income (loss) on discontinued operations $ 4,794,399 $ 11,127,191 $(61,770,592)
=========== ============ ============
</TABLE>
41
<PAGE> 44
The net loss on disposal for the year ended December 31, 1999 includes the loss
on the sale of Vision World and The Eye DRx of approximately $7,021,000, the
estimated loss on exiting the PPM business of approximately $59,798,000 and
the income tax benefit of $1,097,000. The estimated loss on exiting the PPM
business of approximately $59,798,000 includes the write-off of the net assets
of the PPM business of approximately $74,780,000 net of estimated proceeds of
approximately $14,982,000. Estimated proceeds includes approximately 1,800,000
shares of the Company's Common Stock to be received as consideration. Since the
actual proceeds could differ from estimated proceeds, the actual loss on exiting
the PPM business could differ from the estimated loss recognized by the Company.
The gain on sale of EyeCare One Corp. of approximately $3,771,000 is reported
as an extraordinary item for the year ended December 31, 1999 because this
entity previously was combined with the Company in a merger which was accounted
for using pooling of interests accounting. Since the sale of EyeCare One Corp.
to ECCA occurred within two years of the merger with the Company, the gain is
recorded as an extraordinary item. When the merger with EyeCare One Corp. was
completed in March 1998, the Company had not contemplated the sale of EyeCare
One Corp.
The operating expenses of the discontinued operations for the year ended
December 31, 1997, 1998 and 1999 include an allocation of interest expense and
amortization expense of intangible assets of approximately $808,000, $3,702,000,
and $3,896,000, respectively. Additionally, in connection with the permanent pay
down of its term debt credit facility, approximately $700,000 of capitalized
loan costs were expensed and included in operating expenses of the discontinued
operations for 1999. 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.
The assets and liabilities of the discontinued operations primarily include
cash, patient accounts receivable, fixed assets, accounts payable and accrued
liabilities.
4. BUSINESS COMBINATIONS
AMERICAN SURGISITE CENTERS, INC.
In September 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of American SurgiSite Centers, Inc., ("American
SurgiSite"), an ambulatory surgery center development, management and consulting
company located in New Jersey which operates eight ambulatory surgery
facilities. In connection with this transaction, the Company paid $1,466,000 in
cash, net of cash acquired, and issued 235,366 shares of its Common Stock. In
addition, the Company is required to provide additional contingent consideration
of up to $3,100,000 if certain post-acquisition targets are met. The acquisition
was accounted for by recording the assets and liabilities at fair value. The
excess of the purchase price over the fair values of the net assets amounted to
approximately $3,000,000 and is being amortized on a straight-line method over
25 years. The operating results of American SurgiSite have been included in the
Company's consolidated financial statements since September 1, 1998.
BBG-COA, INC. ACQUISITION
During November 1997, the Company acquired all of the outstanding
stock of BBG-COA, Inc. and all related subsidiaries and affiliated companies
("Block Vision") from Block Vision stockholders. Block Vision provided benefits
to Affiliated Providers through the consolidation and management of purchases
of optical goods through its buying group division and provides vision benefit
management services to health management organizations, preferred provider
organizations and other managed care entities through its managed care division.
The purchase price for Block Vision included 458,365 shares of the Company's
Common Stock valued at approximately $6,050,000, cash of approximately
$25,651,000 and the assumption of approximately $3,243,000 in long-term debt.
The acquisition was accounted for using the purchase method of accounting, with
the purchase price allocated to the fair value of the assets acquired and
liabilities assumed. The excess of the purchase price over the fair value of
the net assets acquired amounted to approximately $34,000,000 and is being
amortized on a straight-line method over 30 years. The operating results of
Block Vision have been included in the Company's consolidated financial
statements since November 1, 1997. On June 4, 1999, the Company completed the
sale of the buying group division. Net proceeds of $4,340,000 received by the
Company were primarily used to repay outstanding borrowings under the Company's
credit facilities. The Company recognized a gain on the sale of the buying
group division of approximately $665,000. Such amount was classified in gain on
sale of assets in the Company's consolidated statement of operations for the
year ended December 31, 1999.
ACQUISITION FROM LASERSIGHT, INCORPORATED
During December 1997, the Company acquired all of the outstanding
stock of MEC Health Care, Inc. ("MEC") and LSI Acquisition, Inc. ("LSI") from
LaserSight, Incorporated. MEC provides vision benefit management services to
health
42
<PAGE> 45
maintenance organizations, preferred provider organizations and other managed
care entities. LSI provided practice management services to an ophthalmology
practice in New Jersey. The purchase price for MEC and LSI included 820,085
shares of the Company's Common Stock valued at $6,500,000 and cash of
$6,500,000. The acquisition was accounted for using the purchase method of
accounting, with the purchase price allocated to the fair value of the assets
acquired and liabilities assumed, subject to the final determination of certain
items in connection with the acquisition. The excess of the purchase price over
the fair value of the net assets acquired amounted to approximately $13,000,000
and is being amortized on a straight-line method over 30 years. The operating
results of MEC and LSI have been included in the Company's consolidated
financial statements since December 1, 1997. The practice management services
provided by LSI are being eliminated as part of the discontinuance of the PPM
business.
5. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
DESCRIPTION 1998 1999
- ----------- ---- ----
<S> <C> <C>
Medical equipment and office furniture ......... $ 4,640,283 $ 6,228,263
Leased equipment ............................... 362,484 428,655
Leasehold improvements ......................... 178,400 706,643
----------- -----------
5,181,167 7,363,561
Less accumulated depreciation and amortization.. (1,104,227) (2,231,903)
----------- -----------
$ 4,076,940 $ 5,131,658
=========== ===========
</TABLE>
Depreciation and amortization of fixed assets totaled approximately $229,000,
$870,000 and $1,310,000 in 1997, 1998 and 1999, respectively. Amortization
expense related to capital leases is included in depreciation and amortization
in the consolidated statements of operations.
43
<PAGE> 46
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1999
---- ----
<S> <C> <C>
Revolving line of credit (limited to $7,500,000) due June 2003, bearing
interest at a rate equal to Base Rate plus
3.75% (12.25% at December 31, 1999) ....................................... $ 5,593,413 $ 7,134,415
Term loans , $40,700,000 due
June 2005, $900,000 due June 2003, bearing interest at a rate equal to Base
Rate plus 3.75%
(12.25% at December 31, 1999) ............................................. 75,970,272 41,622,572
Bridge facility (limited to $9,400,000) due May 2000,
bearing interest at a rate equal to Base Rate plus
3.75% (12.25% at December 31, 1999) ....................................... -- 7,972,400
Notes payable due through 2001, with interest at 8.50% at
December 31, 1999 ......................................................... 1,623,056 1,518,318
------------ ------------
83,186,741 58,247,705
Less current portion ......................................................... (1,969,345) (58,135,205)
------------ ------------
$ 81,217,396 $ 112,500
============ ============
</TABLE>
On January 30, 1998, the Company entered into a five-year, $50,000,000
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 $10,000,000 and a term
loan component in an aggregate amount of up to $40,000,000. 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 $26,900,000 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 $48,300,000 of its available
borrowings under the Credit Agreement.
On July 1, 1998, the Company entered into a restated $100,000,000
bank credit agreement with the Bank of Montreal as agent for a consortium of
banks (the "Restated Credit Agreement"). The Restated Credit Agreement was used,
in part, for early extinguishment of the Company's outstanding balance of
approximately $48,300,000 under its prior Credit Agreement. The remaining
balance under the Restated Credit Agreement has been accessed in the past for
working capital, general corporate purposes and acquisitions. The Restated
Credit Agreement included a seven-year term loan of $70,000,000 and a
$30,000,000 five-year revolving credit 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 $81,600,000 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 $50,000,000 term loan maturing in June 2005 with quarterly principal payments
of one percent beginning in June 1999, a $20,000,000 term loan maturing in June
2003 with quarterly principal payments of approximately $1,300,000 beginning in
September 2000, a $12,500,000 term loan which was to be utilized for
acquisitions and capital expenditures maturing in June 2003, and a $7,500,000
revolving credit facility maturing in June 2003. The First Amendment resulted
in a reduction of $10,000,000 in the total borrowing capacity of the Company.
The First
44
<PAGE> 47
Amendment also revised certain of the covenants and included a slightly higher
margin spread on the seven-year term portion. Other terms and conditions were
substantially the same as the Restated Credit Agreement.
On June 11, 1999, the Company entered into a second amendment to the
Restated Credit Agreement (the "Second Amendment" and together with the
Restated Credit Agreement and the First Amendment, the "Amended 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. Effective August 31, 1999, the sale
of the Company's retail optical chains to ECCA was consummated. Of the proceeds
received by the Company, $30,800,000 was used to permanently reduce the
Company's term loan borrowings and $2,800,000 was used to reduce the outstanding
balance under the Company's $7,500,000 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 $3,000,000 was made available
to the Company that 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
repayments 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 $3,000,000 to an aggregate of $4,400,000, the repayment date of
the bridge loan facility was extended, and waivers for violations of certain
covenants and principal and interest payment 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 $9,400,000, the repayment date of the bridge loan
facility was extended until March 31, 2000 and waivers for violations of
certain covenants and repayment 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 repayment obligations currently due until February 29,
2000 while the Company explored the possibility of the sale of the 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 Health Systems, Inc. ("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 (see Note 16).
45
<PAGE> 48
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
Waiver and February Waiver 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.
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 Company received an extension of waivers through
May 19, 2000 (see Note 16).
Long-term debt outstanding under the Amended and Restated Credit
Agreement has been classified as short-term in the consolidated balance sheet
at December 31, 1999, since the waivers received by the Company do not extend to
at least January 1, 2001.
As of December 31, 1999, the aggregate principal maturities of
long-term debt, after giving effect to the aforementioned covenant violations,
are as follows:
<TABLE>
<S> <C>
2000..................................................... $58,135,205
2001..................................................... 112,500
2002..................................................... --
2003..................................................... --
2004..................................................... --
Thereafter............................................... --
-----------
$58,247,705
===========
</TABLE>
In connection with the 1998 amendments to the Company's Credit
Agreement, the Company incurred extraordinary charges of $1,885,512 for the
year ended December 31, 1998. These extraordinary charges represented the
write-off of unamortized deferred loan costs in connection with the early
extinguishment of debt.
Amortization of loan fees for the year ended December 31, 1999 includes
approximately $2,100,000 of capitalized loan costs that were expensed because
such costs provide no future economic benefit to the Company.
46
<PAGE> 49
7. CAPITAL LEASE OBLIGATIONS
The Company leases equipment under non-cancelable capital leases (with
an initial or remaining term in excess of one year). Future minimum lease
commitments are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000................................................................................. $ 118,603
2001................................................................................. 117,035
2002................................................................................. 90,139
2003................................................................................. 2,794
----------------
Total minimum lease payments......................................................... 328,571
Less amount representing interest.................................................... (42,377)
----------------
Present value of minimum lease payments (including
current portion of $90,292)....................................................... $ 286,194
================
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company leases its facilities and certain office equipment under
non-cancelable operating lease arrangements that expire at various dates, most
with options for renewal. As of December 31, 1999, future minimum lease payments
under non-cancelable operating leases with original terms of more than one year
are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 ....................................................................................... $ 4,452,000
2001 ....................................................................................... 4,200,000
2002 ....................................................................................... 2,527,000
2003 ....................................................................................... 1,194,000
2004 ....................................................................................... 841,000
Thereafter ................................................................................. 709,000
-----------
Total minimum lease payments............................................................. $13,923,000
===========
</TABLE>
Included in total minimum lease payments is approximately $2,859,000 of
equipment lease obligations which are expected to be substantially offset by
subleases in connection with the Company's exit from the PPM business.
Rent expense in 1997, 1998 and 1999 was approximately $220,000,
$1,152,000 and $3,005,000, respectively.
ASSIGNED FACILITY LEASES
There are approximately forty facility leases which were assigned to
ECCA in connection with its purchase of the Retail Optical Chains where the
Company was not released from its liability under such leases (see Note 3). As
assignee, ECCA is responsible for the payment of rents to the various
landlords, and management is not aware of the existence of any payment or other
defaults under such leases which might give rise to a claim against the Company.
PROFESSIONAL LIABILITY
The Company is insured with respect to medical malpractice risks
primarily on a claims-made basis. Management anticipates that the claims-made
coverage currently in place will be renewed or replaced with equivalent
insurance as the term of such coverage expires. Management is not aware of any
reported medical malpractice claims pending against the Company.
Losses resulting from unreported claims cannot be estimated by
management and, therefore, are not included in the accompanying consolidated
financial statements.
47
<PAGE> 50
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.
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. The failure to consummate the OptiCare transaction could have a
material adverse effect on the Company (see Notes 16 and 17). 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.
48
<PAGE> 51
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 (see Note 17).
OTHER
Laws and regulations governing the Medicare, Medicaid and other
programs are complex and subject to interpretation. In the opinion of
management, the Company is in compliance with all applicable laws and
regulations. The Company is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing at the Company.
While no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretation as
well as significant regulatory action including fines, penalties and exclusion
from the Medicare, Medicaid and other programs.
9. INCOME TAXES
The Company did not have a current or deferred tax provision or benefit
for the years ended December 31, 1997, 1998 or 1999.
At December 31, 1998 and 1999, the Company had temporary differences
between amounts of assets and liabilities for financial reporting purposes and
such amounts measured by income tax reporting purposes. The Company also has net
operating loss (NOL) carryforwards available to offset future taxable income.
Significant components of the Company's deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
DEFERRED TAX
ASSET (LIABILITY)
DECEMBER 31,
-------------------------------
TEMPORARY DIFFERENCES/CARRYFORWARDS 1998 1999
- ----------------------------------- -------------- ---------------
<S> <C> <C>
Net operating losses.................................................................... $ 5,274,000 $ 9,901,000
Restructuring charge.................................................................... 1,116,000 250,000
Reserve on investment................................................................... 301,000 --
Accrued expenses........................................................................ 147,000 2,344,000
Book: tax differences in leases......................................................... 220,000 --
Difference in book: tax depreciation.................................................... -- 2,268,000
Merger costs............................................................................ -- 1,636,000
Difference in book: tax amortization.................................................... -- 10,256,000
Deferred loan costs..................................................................... -- 782,000
Other................................................................................... 101,000 360,000
Valuation allowance..................................................................... (859,000) (27,144,000)
-------------- --------------
Total deferred tax assets...................................................... 6,300,000 653,000
-------------- --------------
Identifiable intangible assets not deductible for tax purposes.......................... 5,369,000 136,000
Merger costs............................................................................ 1,003,000 --
Accrual to cash conversions............................................................. 73,000 126,000
Difference in book: tax amortization.................................................... 628,000 --
Deferred sales proceeds................................................................. -- 319,000
Other deferred tax liabilities.......................................................... 439,000 72,000
-------------- --------------
Total deferred tax liabilities................................................. 7,512,000 653,000
-------------- --------------
Net deferred taxes...................................................................... $ (1,212,000) $ --
============== ==============
</TABLE>
Management believes, considering all available information, including
the Company's history of earnings from continuing operations (after adjustments
for nonrecurring items, restructuring charges, permanent differences and other
appropriate adjustments) and after considering appropriate tax planning
strategies, that a valuation allowance of $27,144,000 is necessary to offset the
deferred tax assets at December 31, 1999. The increase in the valuation
allowance for 1999 is $26,285,000.
Income taxes on continuing operations are different from the amount
computed by applying the United States statutory rate to income before income
taxes for the following reasons:
49
<PAGE> 52
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
--------------- -------------- --------------
<S> <C> <C> <C>
Income tax expense (benefit) at the statutory rate ............... $ (1,492,000) $ (5,847,000) $ (7,246,000)
Permanent differences ............................................ 101,000 260,000 1,399,000
Effect of purchase price allocation .............................. 877,000 -- --
S corporation (income) loss ...................................... (198,000) -- --
State taxes, net of federal benefit .............................. (148,000) (596,000) (624,000)
Other ............................................................ 77,000 (97,000) --
Change in valuation allowance .................................... 783,000 6,280,000 6,471,000
--------------- -------------- --------------
Income taxes...................................................... $ -- $ -- $ --
=============== ============== ==============
</TABLE>
The Company has net operating loss carryforwards of approximately $26,313,000 at
December 31, 1999 that expire in various amounts from 2009 to 2019.
50
<PAGE> 53
10. STOCKHOLDERS' EQUITY (DEFICIT)
PUBLIC OFFERINGS
During 1997, the Company completed its initial public offering and a
secondary offering (collectively referred to as the Offerings) of 2,100,000 and
2,300,000 shares of Common Stock, respectively. The Offerings resulted in gross
proceeds of $42,850,000 and net proceeds to the Company, net of underwriters'
discounts and other offering expenses, of approximately $37,623,000. The net
proceeds of the offerings were used to repay outstanding indebtedness, finance
the Block Vision acquisition and for other general corporate uses. In connection
with the early extinguishment of certain indebtedness repaid from the net
proceeds of the initial public offering, the Company incurred an extraordinary
charge of $323,346 during the year ended December 31, 1997.
PRIVATE PLACEMENT
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.
STOCK OPTION PLANS
In July 1996, the Board of Directors adopted, and the stockholders of
the Company approved, two stock option plans: the Stock Incentive Plan (the
"Incentive Plan") and the Affiliated Professionals Stock Plan (the
"Professionals Plan" and together with the Incentive Plan, the "Plans"). The
purpose of the Plans was to provide directors, officers, key employees, advisors
and professionals employed by the Managed Professional Associations with
additional incentives increasing their proprietary interest in the Company or
tying a portion of their compensation to increases in the price of the Company's
Common Stock. The aggregate number of shares of Common Stock reserved for
issuance related to the Incentive Plan and the Professionals Plan was 3,000,000.
Compensation expense under SFAS No. 123 for the options issued to non-employees
was approximately $125,000, $202,000 and $444,000 for the years ended December
31, 1997, 1998 and 1999, respectively. The options vest over three to four-year
periods.
Pro forma information regarding net income is required by SFAS 123 and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 1998 and 1999,
respectively: risk-free interest rates of 5.50% and 5.70%; a dividend yield of
zero; volatility factors of the expected market price of the Company's Common
Stock based on industry trends of .947 and .640; and a weighted-average expected
life of the options of 3 to 4 years. In addition, for pro forma purposes, the
estimated fair value of the options is amortized to expense over the options'
vesting period. Based on these assumptions, the pro forma net loss and basic and
diluted net loss per common share for the years ended December 31, 1997, 1998
and 1999 would be approximately ($387,000) and ($0.05), ($8,931,000) and ($0.62)
and ($80,897,000) and ($5.26), respectively.
A summary of the Company's stock option activity and related
information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
-------- ---------- ----------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of the year .... 562,000 $ 4.48 940,799 $ 6.90 1,153,835 $ 7.12
Granted ............................ 381,465 10.33 313,865 8.46 1,476,472 3.91
Exercised .......................... (888) 3.11 (39,052) 3.44 (70,703) 4.10
Forfeited .......................... (1,778) 3.11 (61,777) 10.85 (269,440) 6.52
-------- ---------- ---------- ---------- ---------- ----------
Outstanding--end of year .............. 940,799 $ 6.90 1,153,835 $ 7.12 2,290,164 $ 5.27
======== ========== ========== ========== ========== ==========
Exercisable at end of year............. 107,999 $ 3.21 399,723 $ 6.16 1,012,035 $ 5.96
======== ========== ========== ========== ========== ==========
Weighted-average fair value of
options granted during the year .... $ 4.90 $ 5.30 $ 1.71
========== ========== ==========
</TABLE>
51
<PAGE> 54
Significant option groups outstanding at December 31, 1999 and related
price and life information are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED AVERAGE REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$3.11-$5.48............... 1,679,411 $ 3.85 $ 8.96 571,330 $ 3.54
$6.00-$9.87............... 439,988 8.35 7.70 295,771 8.07
$10.00-$11.63............. 150,765 10.95 8.10 134,934 11.01
$13.20.................... 20,000 13.20 8.00 10,000 13.20
---------- ---------- ---------- -----------
2,290,164 $ 5.27 1,012,035 $ 5.96
========== ========== ========== ===========
</TABLE>
STOCK COMPENSATION
In May 1996, the Company granted 144,705 shares of Common Stock to a
consultant as compensation for prior service (the "Grant"). In October 1996, the
Company entered into advisory and services agreements (the "Agreements") with
the consultant and the Company's Chief Medical Officer whereby they would be
entitled to 233,760 shares of common stock as compensation over the term of the
Agreements. The Company recorded the issuance of the Common Stock at its fair
value on the dates of the Agreements and Grant. The expense was recognized in
1996 for the Grant and over the related terms for the Agreements. For each of
the years ended December 31, 1997, 1998 and 1999, the Company amortized
approximately $108,000 of deferred compensation under the Agreements. Such
amount was capitalized and included in acquisition costs in 1997 and 1998 and
was expensed in 1999.
WARRANTS
From time to time, the Company has issued detachable stock purchase
warrants ("warrants"). Each warrant enables the holder to purchase one share of
the Company's Common Stock. The warrants generally are issued in connection with
debt financings or as advisory fees. Certain of the warrants are sold and others
are issued for no consideration. Warrants issued for no consideration are
recorded at their fair value at the time of issuance. Fair value is determined
by the Company in consultation with its investment bankers based on certain
facts and circumstances at the time of issuance. A summary of warrants
outstanding at December 31, 1999 is as follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF PRICE
WARRANTS GRANT DUE EXPIRATION DATE PER SHARE
- --------- --------- --------------- ---------
<S> <C> <C> <C>
200,000 December 1996 December 2003 $6.00
333,333 February 1997 December 2003 $6.00
210,000 August 1997 August 2002 $10.00
35,000 October 1997 October 2002 $13.25-$13.63
50,000 November 1997 November 2002 $11.50
100,722 November-December 1997 November-December 2002 $8.25-$12.38
45,753 January 1998 January 2003 $8.75-$9.19
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In 1998, the Company adopted the Vision Twenty-One, Inc. Employee Stock
Purchase Plan ("ESPP"), under which 200,000 shares of the Company's Common Stock
are available for purchase by employees. The ESPP was approved by the Company's
shareholders at the 1999 Annual Shareholder Meeting. Eligible employees may
elect to withhold up to 10 percent of their salary to purchase shares of the
Company's Common Stock at a price equal to the lesser of: (a) 85 percent of the
closing market price on the first day of each fiscal quarter; or (b) 85 percent
of the closing market price on the purchase date. For the year ended December
31, 1999, 38,523 shares were issued under the ESPP.
52
<PAGE> 55
STATUTORY REQUIREMENTS
Dividends paid by VIPA are restricted by regulations of the Officer of
the Commissioner of Insurance ("OCI"). The payment of cash dividends is limited
to available shareholders' equity derived from realized net profits. Based upon
the regulatory formula, no amount was available for dividends in 1999 without
regulatory approval.
VIPA is subject to regulation by the OCI, which requires, among other
matters, the maintenance of a minimum shareholders' equity. At December 31,
1999, approximately $129,000 of available letters of credit were outstanding to
satisfy VIPA's minimum shareholders' equity requirements.
OTHER
On June 6, 1997, the Company's Board of Directors approved a l-for-1.5
reverse stock split pursuant to the Company's initial public offering of Common
Stock. All share and per share amounts in the accompanying consolidated
financial statements have been restated to retroactively reflect the reverse
split.
As required in the purchase agreement with LaserSight, the Company
repurchased approximately 168,000 shares of its Common Stock from LaserSight on
March 10, 1998 for approximately $1,548,000. These shares were reissued as part
of the consideration for the acquisition of certain assets of The Eye DRx.
11. LOSS PER SHARE
The following table sets forth the computation of basic and diluted
loss per share for loss from continuing operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Numerator for basic and diluted loss
per share - loss available to common
stockholders.................................................. $ (4,388,177) $ (17,196,476) $ (21,312,776)
Denominator for basic and diluted loss per share -
weighted-average shares....................................... 7,975,671 14,385,359 15,377,673
----------------- ------------- ---------------
Basic and diluted loss per share................................. $ (0.55) $ (1.20) $ (1.39)
================== ============== ===============
</TABLE>
There were no dilutive securities included in the computations of loss
per share in any of the years ended December 31, 1997, 1998 and 1999 because the
Company incurred a loss from continuing operations in all such years. Options
and warrants to purchase approximately 3,265,000 shares of Common Stock were
outstanding at December 31, 1999, but were not included in the computation of
diluted loss per share because the effect would have been anti-dilutive.
53
<PAGE> 56
12. EMPLOYEE BENEFIT PLAN
The Company sponsors the Vision-Twenty One Retirement Savings Plan, a
defined contribution plan established under Section 401(k) of the U.S. Internal
Revenue Code (the "Plan"). Employees are eligible to contribute voluntarily to
the Plan after one-year of continued service and attaining age 21. At its
discretion, the Company may contribute 25% of the first 6% of the employee's
contribution. Employees are always vested in their contributed balance and vest
ratably in the Company's contribution over five years. For the years ended
December 31, 1998 and 1999, the expenses related to the Plan were approximately
$53,000 and $109,000, respectively. The expense to the Company related to the
Plan in 1997 was not material.
13. 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 restructuring charge
of $2,796,000 for 1998 is included in restructuring and other charges (credits)
in the consolidated statements of operations.
For the year ended December 31, 1998, other charges included in
restructuring and other charges (credits) in the consolidated statements of
operations totaling approximately $3,667,000, included the write-off of certain
amounts due from shareholders of managed physician practices related to markets
which had been exited under the Restructuring Plan (approximately $1,911,000),
an impairment charge related to one business management agreement (approximately
$662,000), professional fees associated with the development of the
Restructuring Plan (approximately $521,000) and other charges to write-off or
write-down assets that would not be realized as a result of the Restructuring
Plan (approximately $573,000).
The accrued restructuring charge of $2,796,000 at December 31, 1998 was reduced
during 1999 as follows: severance costs of approximately $720,000 were paid and
charged to the accrual; severance costs of approximately $531,000 were reversed
out of the accrual as a result of employee resignations and a change in
estimate; and lease termination costs of $882,000 were reversed out of the
accrual as a result of the sale the Retail Optical Chains. The aforementioned
reversals of the accrued restructuring charge resulted in a credit to
restructuring and other charges (credits) of approximately $1,413,000 in the
Company's consolidated statement of operations for the year ended December 31,
1999.
A summary of restructuring and other charges (credits) as described
above is as follows:
<TABLE>
<CAPTION> Year Ended December 31,
----------------------------------------
1997 1998 1999
------ ---------- -----------
<S> <C> <C> <C>
Restructuring charge (credit) $ -- $2,796,000 $(1,413,389)
Write-off of certain receivables pertaining to markets to be
exited under the Restructuring Plan -- 1,910,402 --
Write-off of identified intangibles for practice affiliations
to be abandoned -- 662,391 --
Professional fees incurred prior to December 31, 1998 in
connection with the development of the Restructuring Plan -- 521,000 --
Other charges or write-offs associated with the Restructuring
Plan -- 572,802 --
------ ---------- -----------
$ -- $6,462,595 $(1,413,389)
====== ========== ===========
</TABLE>
Prior to implementing the initiatives developed in the Restructuring
Plan, the Company expensed other business integration costs of approximately
$2,501,000 that were incurred during the fourth quarter of 1998. Such amount was
included in general and administrative expenses in the consolidated statements
of operations. These business integration costs represented incremental or
redundant costs, as well as internal costs, that resulted directly from the
development and initial implementation of the Restructuring Plan, but were
required to be expensed as incurred. These business integration costs consisted
primarily of redundant employee costs and expenses for severed employees through
the date of severance, training costs, re-branding costs, relocation costs,
retention payments and lease costs for facilities that had been planned for
future closure.
14. 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 includes the operations consisting primarily of Block
Vision, MEC and the MCO. The buying group segment includes the operations of the
buying group division
54
<PAGE> 57
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 Note 2. The Company evaluates the performance of its
operating segments based on income before income taxes, depreciation and
amortization, accounting changes, unusual items and interest expense. Summarized
financial information concerning the Company's reportable segments for 1997,
1998 and 1999 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1998 1999
---- ---- ----
Revenues:
<S> <C> <C> <C>
Refractive and ambulatory surgery centers..................... $ -- $ 4,084,052 $ 12,507,820
Managed care.................................................. 18,762,158 54,980,006 56,743,696
Buying group.................................................. 7,260,797 58,959,195 19,150,982
--------------- -------------- ---------------
Total segments.......................................... 26,022,955 118,023,253 88,402,498
Corporate..................................................... -- -- --
--------------- -------------- ---------------
Total revenues.......................................... $ 26,022,955 $ 118,023,253 $ 88,402,498
=============== ============== ===============
Segment profit:
Refractive and ambulatory surgery centers..................... $ -- $ 438,239 $ 630,455
Managed care (a).............................................. 1,516,837 2,794,837 4,853,878
Buying group (b).............................................. 378,598 3,033,022 890,163
--------------- -------------- ---------------
Total segments................................................... 1,895,435 6,266,098 6,374,496
Corporate..................................................... (4,652,062) (8,450,168) (18,044,041)
--------------- -------------- ---------------
Total (loss)............................................ $ (2,756,627) $ (2,184,070) $ (11,669,545)
=============== ============== ===============
</TABLE>
(a) Managed care segment profit includes general and administrative
expenses related to the buying group division 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.
55
<PAGE> 58
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1998 1999
------------- -------------- --------------
<S> <C> <C> <C>
Depreciation and amortization:
Refractive and ambulatory surgery centers..................... $ -- $ 111,856 $ 167,808
Managed care.................................................. 67,509 319,154 396,372
Buying group.................................................. -- -- 24,000
------------- -------------- --------------
Total segments.......................................... 67,509 431,010 588,180
Corporate..................................................... 451,174 2,069,373 2,458,742
------------- -------------- --------------
Total depreciation and amortization..................... $ 518,683 $ 2,500,383 $ 3,046,922
============= ============== ==============
Interest expense, net:
Refractive and ambulatory surgery centers..................... $ -- $ -- 28,584
Managed care.................................................. 21,375 4,445 $ (64,122)
Buying group.................................................. -- -- 0
------------- -------------- --------------
Total segments.......................................... 21,375 4,445 (35,538)
Corporate..................................................... 912,815 4,080,446 5,587,080
------------- -------------- --------------
Total interest expense.................................. $ 934,190 $ 4,084,891 $ 5,551,542
============= ============== ==============
Restructuring and other charges (credits):
Refractive and ambulatory surgery centers..................... -- -- --
Managed Care.................................................. -- -- --
Buying group.................................................. -- -- --
------------- -------------- --------------
Total segments.......................................... -- -- --
Corporate..................................................... -- $ 6,462,595 $ (1,413,389)
------------- ------------- --------------
Total restructuring and other charges................... -- $ 6,462,595 $ (1,413,389)
============= ============= ==============
Merger costs:
Refractive and ambulatory surgery centers..................... -- -- --
Managed care.................................................. -- -- --
Buying group.................................................. -- -- --
------------- -------------- --------------
Total segments.......................................... -- -- --
Corporate..................................................... -- $ 717,835 $ --
------------- ------------- --------------
Total merger costs...................................... -- $ 717,835 $ --
============= ============= ==============
Extraordinary item:
Refractive and ambulatory surgery centers..................... -- -- --
Managed care.................................................. -- -- --
Buying group.................................................. -- -- --
------------- -------------- --------------
Total segments.......................................... -- --
Corporate..................................................... $ 323,346 $ 1,885,512 $ (3,770,823)
------------- -------------- --------------
Total extraordinary item................................ $ 323,346 $ 1,885,512 $ (3,770,823)
============= ============= ==============
</TABLE>
56
<PAGE> 59
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
Total assets:
Refractive and ambulatory surgery centers................................... $ 1,753,668 $ 4,900,535
Managed care................................................................ 6,211,105 6,083,683
Buying group................................................................ 6,288,923 --
----------------- -----------------
Total segments........................................................ 14,253,696 10,984,218
----------------- -----------------
Corporate................................................................... 62,956,299 51,656,406
----------------- -----------------
Total assets of continuing operations................................. $ 77,209,995 $ 62,640,624
================= =================
</TABLE>
15. OTHER RELATED PARTY TRANSACTION
In 1996, the Company entered into a five-year services agreement with a
consulting company which assists the Company with its operational and management
development. One of the Company's directors is an employee and sole owner of the
consulting company. For the years ended December 31, 1997, 1998 and 1999, the
Company paid to the consulting company approximately $600,000, $720,000 and
$420,000, respectively. Included in accounts payable at December 31, 1999 was
approximately $305,000 owed to the consulting company.
16. SUBSEQUENT EVENTS
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.
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.
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.
17. ABILITY TO CONTINUE AS A GOING CONCERN
The Company incurred operating losses in each of the years ended
December 31, 1998 and 1999. At December 31, 1999, the Company had negative
working capital and a deficit in stockholders' equity. Additionally, in 1999 the
Company violated a number of covenants in its Amended and Restated Credit
Agreement with its Banks and had not made certain required payments under the
Amended and Restated Credit Agreement as of December 31, 1999. Because of the
covenant violations, the amounts due at December 31, 1999 under the Amended and
Restated Credit Agreement of approximately $56,729,000 has been classified as a
current liability in the Company's consolidated balance sheet at December 31,
1999.
The Company has undertaken a number of initiatives to address these
matters. As more fully described in Notes 6 and 16, the Company has received
waivers on the covenant violations and non-payment of amounts due under the
Amended and Restated Credit Agreement. However, such waivers expire upon the
earlier of May 19, 2000 or the termination of the Merger Agreement with OptiCare
pursuant to its terms. While the Agent and the Banks previously have
demonstrated a willingness to provide further waivers to the Company until the
merger with OptiCare can be completed, there can be no assurances that
additional waivers may be obtained. Under the terms of the Amended and Restated
Credit Agreement, the Banks have the right to demand full payment of the amounts
owed under the Amended and Restated Credit Agreement if such further waivers are
not granted to the Company. The Company's existing financial resources may not
be sufficient to enable the Company to repay the entire amount outstanding under
the Amended and Restated Credit Agreement if the Banks require payment in 2000.
Recognizing the need for additional capital to implement its refractive
surgery strategy, the Company began to explore a number of strategic
alternatives in 1999. Those alternatives included potential capital infusions as
well as a sale of
57
<PAGE> 60
all or part of the Company. Exploration of those alternatives led to the Company
announcing its proposed merger with OptiCare (see Note 16). If the merger is
completed pursuant to the terms of the Merger Agreement, then the Company's
shareholders will receive shares in OptiCare and OptiCare will assume
approximately $60,000,000 of the Company's outstanding debt. Management of the
Company expects the merger to be completed in 2000; however, there can be
assurances that the merger will be completed. Termination of the merger could
have a material adverse effect on the Company's future operations and financial
position.
In connection with the Restructuring Plan, the discontinuance of the
Company's operations related to its Retail Optical Chains and PPM business and
the Company's plans to seek a potential buyer for all or part of the remaining
businesses, management undertook a number of initiatives to reduce its corporate
general and administrative expenses. The success of these initiatives is
expected to result in less general and administrative expenses in 2000 as
compared to prior years. Coupled with cash proceeds received from the sale of
practice assets back to the physicians (see Note 3) in connection with the
Company's exiting its PPM business, management believes that the Company will
generate sufficient cash flow to continue the Company's remaining operations
while negotiating the final terms of the OptiCare merger. However, there can be
no assurances that this strategy will be achieved.
All of these factors raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying consolidated financial
statements do not reflect any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
58
<PAGE> 61
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
VISION TWENTY-ONE MANAGEMENT
VISION TWENTY-ONE DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth (i) the names, ages and positions of
the directors and executive officers of Vision Twenty-One as of April 28, 2000.
Each director will hold office until the annual meeting of stockholders
following the expiration of his three year term, or until his successor has
been elected or qualified. Vision Twenty-One executive officers are appointed
by and serve at the discretion and pleasure of the board of directors, subject
to the terms of any applicable employment agreements.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Bruce S. Maller............................... 46 Chairman of the Board of Directors and Treasurer
Theodore N. Gillette.......................... 46 Chief Executive Officer, President, Secretary and
Director(1)(2)
Richard L. Lindstrom, M.D..................... 51 Chief Medical Officer and Director
Peter J. Fontaine............................. 46 Director(1)(2)
Jeffrey I. Katz, M.D.......................... 53 Director
Howard S. Hoffmann............................ 45 Interim Chief Financial Officer
Andrew Alcorn ................................ 44 Senior Vice President
</TABLE>
(1) Member of Compensation Committee
(2) Member of Audit Committee
BRUCE S. MALLER, CHAIRMAN OF THE BOARD OF DIRECTORS AND TREASURER. Mr.
Maller has served as a Chairman of the Board of Directors and Treasurer of
Vision Twenty-One since November 20, 1999 and as a Director since November 1996
and is a vision care consultant to Vision Twenty-One. He is the founder of, and
has been the President of, the BSM Consulting Group of Incline Village, Nevada
since 1978. BSM provides consulting services in the field of ophthalmology to
individual physicians and corporate clients such as Allergan, Inc. and Vision
Twenty-One. Mr. Maller has served as a Director of Gimbel Vision International,
Inc., a public company since 1996. Mr. Maller is a frequent lecturer for
various medical societies, including the American Academy of Ophthalmology and
the American Society of Cataract and Refractive Surgery. Mr. Maller also heads
BSM Healthcare Publications, which produces works related to the field of
medical practice management. Mr. Maller received his Bachelor of Arts degree
from the University of Colorado in 1975.
THEODORE N. GILLETTE, CHIEF EXECUTIVE OFFICER, PRESIDENT, SECRETARY,
AND DIRECTOR. Mr. Gillette has served as Chief Executive Officer, President,
and Director of Vision Twenty-One since its inception and has served as
Secretary since July 8, 1999. From inception to November 20, 1999, Mr. Gillette
served as Chairman of the Board. Mr. Gillette has served as President and
Director of Vision Twenty-One's wholly-owned subsidiaries, Vision 21 Physician
Practice Management Company and Vision 21 Managed Eye Care of Tampa Bay, Inc.
since 1984 and 1993, respectively. He obtained his Doctorate of Optometry from
Southern California College of Optometry in 1979 and his Bachelor of Science
from Florida State University in 1975.
RICHARD L. LINDSTROM, M.D., CHIEF MEDICAL OFFICER AND DIRECTOR. Dr.
Lindstrom has served as Chief Medical Officer of Vision Twenty-One since
September 1996 and has served as a Director since January 1997. Since October
1989, Dr. Lindstrom has maintained a private practice adjacent to the Phillips
Eye Institute in Minneapolis where he serves as the Medical Director for
Research and Teaching. Dr. Lindstrom holds 22 patents in ophthalmology and has
given numerous presentations throughout the world including thirteen named
lectures. He is active on multiple educational and advisory boards including
chief medical editor of Ocular Surgery News. He has co-authored two books,
published fifty chapters in other books and
59
<PAGE> 62
published over three hundred articles in referred journals. Dr. Lindstrom
graduated from the University of Minnesota Medical School in 1972 followed by a
research residency and cornea fellowship at the University of Minnesota, an
Anterior Segment fellowship at Mary Shields Eye Hospital in Dallas and a third
fellowship in Glaucoma/Anterior Segment at University Hospitals in Salt Lake
City. Dr. Lindstrom has served as a Director of Laser Vision Centers, Inc., a
public company, since 1995.
PETER J. FONTAINE, DIRECTOR. Mr. Fontaine has served as a Director of
Vision Twenty-One since July 1996. Mr. Fontaine is currently the Chairman of
the Board of Directors and Chief Executive Officer of Discount Auto Parts,
Inc., a public company engaged in the business of retail automotive replacement
parts, maintenance items and accessories for the Do-It-Yourself ("DIY")
consumer and commercial sales. He has been employed by Discount Auto Parts,
Inc. in various capacities since 1975. Mr. Fontaine has served on the Board of
Directors of Discount Auto Parts, Inc. since 1996 and as its Chief Executive
Officer since 1978. From 1994 to January 1997, Mr. Fontaine also served as its
President.
JEFFREY KATZ, M.D., DIRECTOR. Dr. Katz has served as a Director of
Vision Twenty-One since January 1997. Dr. Katz has operated an ophthalmology
practice at the Eye Institute of Southern Arizona in Tucson since 1984. He also
serves as a clinical associate professor in the Department of Ophthalmology at
the University of Arizona in Tucson and is the past president of the Tucson
Ophthalmologic Society. Dr. Katz graduated from George Washington University
Medical School in 1972. He was chief of ophthalmic surgery at El Dorado
Hospital in Tucson and has served as the Medical Director for the Tucson
Laboratory of the Arizona Lions Eye Bank since 1978.
HOWARD S. HOFFMANN, INTERIM CHIEF FINANCIAL OFFICER. Mr. Hoffmann has
served as Interim Chief Financial Officer of the Company since November 29,
1999. He is currently a principal of Nightingale & Associates, LLC, a
management consulting firm which specializes in turnaround situations. Mr.
Hoffmann has over twenty years of financial, operational and general management
experience in a wide range of industries including computer hardware and
software, consumer products, financial services, health care, distribution and
transportation. Mr. Hoffmann joined Nightingale & Associates in 1990 after
serving as Interim Chief Financial Officer of two privately held businesses. He
began his career with Irving Trust Company as a commercial lending officer and
later served as Vice President Corporate Lending at Bank of America. Mr.
Hoffmann is presently serving as a director of Illinois Superconductor
Corporation, a publicly traded telecommunications equipment supplier.
ANDREW ALCORN, SENIOR VICE PRESIDENT. Mr. Alcorn has served as Senior
Vice President of Vision Twenty-One since August 1999 and has provided oversight
of the Company's managed care business unit since November 1999. Mr. Alcorn has
also served in various executive positions at Block Vision, Inc. since 1993 and
currently serves as Block Vision's President.
Pursuant to the terms of Vision Twenty-One's Articles of Incorporation
and Bylaws, the Board of Directors has the power to set the number of
directors. The number of directors is presently set at eight members. Currently
there are three vacancies. The directors are divided into three classes. Each
director in a particular class is elected to serve a three-year term or until
his or her successor is duly elected and qualified. The classes are staggered
so that their terms expire in successive years resulting in the election of
only one class of directors each year. The Class I director is Dr. Katz, with
two seats left open due to the resignation of Richard T. Welch as a director on
November 20, 1999, and the resignation of Mr. Martin F. Stein as a director on
February 11, 2000. The Class II director is Mr. Fontaine, with one seat left
open due to Mr. Richard Sanchez's desire not to seek re-election at the
Company's 1999 annual meeting of stockholders. The Class III directors are Drs.
Gillette and Lindstrom and Mr. Maller. The terms of the current Class III
directors will expire at the annual meeting of the stockholders of Vision
Twenty-One in 2000. The terms of the current Class I and Class II directors
will expire at the annual meetings in 2001 and 2002, respectively. The Vision
Twenty-One Board of Directors is considering candidates to fill the vacancies
left in Classes I and II.
60
<PAGE> 63
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees, the Audit and
Compensation Committees. Vision Twenty-One's two independent directors, Messrs.
Peter J. Fontaine and Martin F. Stein served on Vision Twenty-One's Audit and
Compensation Committees. As a result of Mr. Stein's resignation, Vision
Twenty-One currently has a vacancy on both the Audit and Compensation
Committees. The Board of Directors does not have a Nominating Committee. The
entire Board of Directors functions as a Nominating Committee, and the Board
will consider written recommendations from stockholders for nominations to the
Board of Directors in accordance with the procedures set forth in the By-Laws
of Vision Twenty-One. There are no arrangements or understandings between any
director or nominee and any other person concerning service or nomination as a
director. The Board of Directors held four formal meetings during 1999.
The Audit Committee consisted of Director Theodore N. Gillette and
Vision Twenty-One's two independent Directors, Messrs. Fontaine and Stein. As a
result of Mr. Stein's resignation from the Board of Directors, the Company
anticipates that Mr. Katz will become a member of the Audit Committee to fill
the vacancy caused by Mr. Stein's departure. The Audit Committee recommends the
appointment of the independent public accountants of Vision Twenty-One,
discusses and reviews the scope and fees of the prospective annual audit and
reviews the results thereof with the independent public accountants, reviews
and approves non-audit services of the independent public accountants, reviews
compliance with existing major accounting and financial policies of Vision
Twenty-One, reviews the adequacy of the financial organization of Vision
Twenty-One, reviews management's procedures and policies relative to the
adequacy of Vision Twenty-One's internal accounting controls and compliance
with federal and state laws relating to accounting practices, and reviews and
approves (with the concurrence of the majority of the disinterested directors
of Vision Twenty-One) transactions, if any, with affiliated parties.
The Compensation Committee consisted of Director Theodore N. Gillette
and Vision Twenty-One's two independent directors, Messrs. Fontaine and Stein.
The Company expects to fill the vacancy in the Compensation Committee caused by
Mr. Stein's departure. The Compensation Committee's principal function is to
make recommendations to the Board of Directors with respect to the compensation
and benefits to be paid to key executive officers, and perform other duties
prescribed by the Board with respect to employee stock plans and benefit
programs.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, officers and holders of more than 10% of the Company's
Common Stock to file with the Securities and Exchange Commission initial
reports of ownership and reports of changes in ownership of Common Stock and
any other equity securities of the Company. To the Company's knowledge, all of
such reports were timely filed for 1999 except for the following: Dr. Lindstrom
filed a Form 4 three days late resulting from his June 1999 purchase of shares
from the Company and eight days late resulting from purchases of Company stock
in September 1999. Dr. Katz filed a timely Form 4 for September 1999 purchases
which also added, by way of amendment, previously omitted purchases and
corrected and erroneous Form 4 filed for his June 1999 purchases.
61
<PAGE> 64
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table is a summary of the compensation paid or accrued
by Vision Twenty-One for the last three fiscal years for services rendered in
all capacities to Vision Twenty-One by the Chief Executive Officer and each of
the persons who qualified as a "named executive officer" (as defined in Item
402(a)(3) of Regulation S-K under the Securities Exchange Act of 1934) during
fiscal year 1999 ("Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------ ------------
SECURITIES
UNDERLYING/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY $ OPTIONS COMPENSATION $
- --------------------------- ---- -------- ---------- --------------
<S> <C> <C> <C> <C>
Theodore N. Gillette
Chief Executive Officer.................. 1997 220,000 -- 11,138
.................................... 1998 220,000 -- 15,062
.................................... 1999 220,000 -- 21,525(1)
Robert P. Collins
Chief Operating Officer and Executive
Vice President........................... 1999 187,932 150,000 52,141(2)
Andrew Alcorn
Senior Vice President.................... 1997 18,333 20,000 1,205
.................................... 1998 220,000 10,000 8,600
.................................... 1999 220,000 50,000 8,676(3)
FORMER OFFICERS
- ---------------
Richard L. Sanchez
Executive Vice President................. 1997 180,000 -- 8,368
.................................... 1998 180,000 -- 15,169
.................................... 1999 180,000(4) -- 17,157(5)
Richard T. Welch
Chief Financial Officer.................. 1997 150,000 70,000 --
.................................... 1998 180,000 -- 10,891
.................................... 1999 180,000(4) -- 11,541(6)
</TABLE>
- -------------------------
(1) Amounts for fiscal year 1999 represent an automobile allowance of
$8,374, premiums paid by Vision Twenty-One for a life insurance policy
of $7,475, premiums paid by Vision Twenty-One for a disability policy
of $3,176, and $2,500 in matching 401K contributions.
(2) Mr. Collins commenced employment with the Company in February 1999,
and the amount includes relocation payments made to Mr. Collins in the
amount of $45,776 and an automobile allowance of $6,365. Mr. Collins'
position was eliminated on April 21, 2000 resulting in his departure
from the Company.
(3) Amount represents an automobile allowance of $6,464 and matching 401K
contributions of $2,212.
(4) Represents the salaries paid by the Company to Mr. Welch and Mr.
Sanchez for the portion of the year in which they were employed by
Vision Twenty-One and includes severance payments paid or accrued
during the year pursuant to severance agreements of $13,846 and
$48,475, respectively.
(5) Amount represents an automobile allowance of $9,030, premiums paid by
Vision Twenty-One for a life insurance policy of $6,155 and Vision
Twenty-One's matching portion of 401K contributions of $1,972.
(6) Amount represents an automobile allowance of $9,049 and Vision
Twenty-One's matching portion of 401K contributions of $2,492.
62
<PAGE> 65
EMPLOYMENT AGREEMENTS WITH CERTAIN VISION TWENTY-ONE OFFICERS
Vision Twenty-One and Theodore N. Gillette have each entered into an
Employment Agreement (the "Gillette Employment Agreement"), pursuant to which
Mr. Gillette has agreed to serve as Vision Twenty-One's Chief Executive
Officer. The Gillette Employment Agreement is for a term of five years ending
on September 30, 2001 and is renewable for subsequent one-year terms by mutual
agreement of the parties. Mr. Gillette will receive an annual base salary which
is subject to review by the Compensation Committee of the Board of Directors at
annual intervals and may be adjusted from time to time as the Compensation
Committee deems to be appropriate. Mr. Gillette is eligible for an annual
incentive bonus, up to 50% of his annual base salary, in an amount to be
determined by the Compensation Committee to the extent that Vision Twenty-One
achieves certain performance measures set by the Committee. Mr. Gillette
received no increase in his base compensation and waived his bonus for fiscal
year 1999 in order that Vision Twenty-One's resources could be channeled toward
Vision Twenty-One's growth strategy. Mr. Gillette is also entitled to receive
stock options or other stock awards under Vision Twenty-One's Stock Incentive
Plan to the extent that the Compensation Committee determines such awards to be
appropriate. The Gillette Employment Agreement provides that in the event that
Mr. Gillette's employment is terminated by Vision Twenty-One other than (i) for
cause, (ii) upon death or disability, or (iii) upon voluntary termination by
the employee, Mr. Gillette will be entitled to receive from Vision Twenty-One
monthly payments equal to one-twelfth of the employee's annual base salary for
each month during the remaining term of the Gillette Employment Agreement, but
not less than twenty-four months. The Gillette Employment Agreement provides
that if Mr. Gillette's employment is terminated other than for cause within
twelve months following a change of control of Vision Twenty-One (as defined in
the agreement), Vision Twenty-One shall pay Mr. Gillette thirty-six monthly
payments of one-twelfth of the sum of such employee's base salary plus his
previous year's bonus, if any. The Gillette Employment Agreement also contains
a covenant not to compete with Vision Twenty-One for a period of twenty-four
months following termination of employment.
Vision Twenty-One and Robert P. Collins are parties to an Employment
Agreement (the "Collins Employment Agreement"), pursuant to which Mr. Collins
agreed to serve as the Executive Vice President and Chief Operating Officer of
Vision Twenty-One. The term of the Collins Employment Agreement is five years
and is renewable for subsequent one-year terms by mutual agreement of the
parties. Under the Collins Employment Agreement, Mr. Collins will receive an
initial annual base salary of $215,000 which is subject to review by the
Compensation Committee of the Board of Directors at annual intervals and may be
adjusted from time to time as the Compensation Committee deems to be
appropriate. Under the Collins Employment Agreement, Mr. Collins has agreed to
devote his best efforts and substantially all of his business time and services
to the business and affairs of Vision Twenty-One. Mr. Collins will be eligible
for annual incentive bonuses, up to 50% of his annual base salary, in an amount
to be determined by the Compensation Committee of the Board of Directors to the
extent that Vision Twenty-One achieves certain performance measures set by the
Committee. Under the Collins Employment Agreement, Mr. Collins received
non-statutory stock options to purchase 75,000 shares of Common Stock pursuant
to Vision Twenty-One's Stock Incentive Plan. The options are exercisable at a
price of $3.88 per share and vest pro rata over a five-year period on the
anniversary date of the grant. Mr. Collins is also entitled to receive such
additional stock options or other stock awards under Vision Twenty-One's Stock
Incentive Plan to the extent the Compensation Committee determines such awards
to be appropriate. The Collins Employment Agreement provides that in the event
that Mr. Collins' employment is terminated by Vision Twenty-One other than (i)
for cause, (ii) upon death or disability, or (iii) upon voluntary termination
by the employee, Mr. Collins will be entitled to receive from Vision Twenty-One
monthly payments equal to one-twelfth of the employee's annual base salary for
each month during the remaining term of the Collins Employment Agreement, but
not less than twenty-four months. In the event of a change in control (as
defined in the Employment Agreement), each Employment Agreement provides that
if such employee's employment is terminated other than for cause within twelve
months following a change of control of Vision Twenty-One (as defined in the
agreement), Vision Twenty-One shall pay such employee twenty-four monthly
payments of one-twelfth of the sum of such employee's base salary plus his
previous year's bonus, if any. The Collins Employment Agreement also contains a
covenant not to compete with Vision Twenty-One for a period of twelve months
following termination of employment. Mr. Collins left the employment of Vision
Twenty-One on April 21, 2000.
Vision Twenty-One and Andrew Alcorn are parties to an Employment
Agreement (the "Alcorn Employment Agreement"), pursuant to which Mr. Alcorn has
agreed to serve as President of the Company's Managed Care Division. The term
of the Alcorn Employment Agreement is two years, and is renewable for
subsequent one-year terms by mutual agreement of the parties. Under the Alcorn
Employment Agreement, Mr. Alcorn will receive an initial annual base salary of
$225,000 which is subject to review by the Compensation Committee of the Board
of Directors at annual intervals and may be adjusted from time to time as the
Compensation Committee deems to be appropriate. Under the Alcorn Employment
Agreement, Mr. Alcorn has agreed to devote his best efforts and substantially
all of his business time and services to the business and affairs of Vision
Twenty-One. Mr. Alcorn will be eligible for annual incentive bonuses, up to 40%
of his annual base salary, in an
63
<PAGE> 66
amount to be determined by the Compensation Committee of the Board of Directors
to the extent that Vision Twenty-One achieves certain performance measures set
by the Committee. Under the Alcorn Employment Agreement, Mr. Alcorn received
non-statutory stock options to purchase 50,000 shares of Common Stock pursuant
to Vision Twenty-One's Stock Incentive Plan. The options are exercisable at a
price of $3.50 per share. The shares vest pro rata on an equal basis over a
three-year period beginning December 31, 2000. Mr. Alcorn is also entitled to
receive such additional stock options or other stock awards under Vision
Twenty-One's Stock Incentive Plan to the extent the Compensation Committee
determines such awards to be appropriate. The Alcorn Employment Agreement
provides that in the event Mr. Alcorn's employment is terminated by Vision
Twenty-One other than (i) for cause, (ii) upon death or disability, or (iii)
upon voluntary termination by the employee, Mr. Alcorn will be entitled to
receive from Vision Twenty-One monthly payments equal to one-twelfth of the
employee's annual base salary for each month during the remaining term of the
Alcorn Employment Agreement, but not less than twelve months. The Alcorn
Employment Agreement provides that if Mr. Alcorn's employment is terminated
other than for cause within twelve months following a change of control of
Vision Twenty-One (as defined in the agreement), Vision Twenty-One shall pay
Mr. Alcorn twelve equal monthly payments of one-twelfth of the sum of such
employee's base salary plus his previous year's bonus, if any. The Alcorn
Employment Agreement also contains a covenant not to compete with Vision
Twenty-One for a period of twelve months following termination of employment.
NIGHTINGALE AGREEMENT
Vision Twenty-One and Nightingale & Associates, LLC ("Nightingale")
are parties to a consulting services agreement dated November 24, 1999 (the
"Nightingale Agreement") pursuant to which Nightingale provides certain
consulting services including, but not limited to, the services of Mr. Hoffmann
as Interim Chief Financial Officer reporting directly to the Board of
Directors. The Nightingale Agreement may be terminated by either party at any
time. Under the Nightingale Agreement, Nightingale is paid based upon hourly
rates for individuals performing services for the Company and out of pocket
expenses. Mr. Hoffmann's hourly rate is $325.00. Vision Twenty-One is also
obligated to pay Nightingale a performance fee under certain circumstances,
including but not limited to the consummation of a merger transaction. Under
the Nightingale Agreement, Nightingale received options to purchase 150,000
shares of Vision Twenty-One Common Stock at an exercise price of $1.13 per
share, 50,000 of which are fully vested and 100,000 of which vest pro rata over
the four quarters of 2000 and become immediately vested upon the consummation
of a merger transaction.
BSM AGREEMENT
Vision Twenty-One entered into an agreement with BSM Consulting Group
("BSM") effective November 23, 1999. This agreement contracted with Mr. Maller
through BSM to be Chairman of the Board and to assume overall control of the
operations of the Company. The fees payable under this agreement are up to
$6,250 per week, plus expenses. The use of any other BSM services other than
Mr. Maller's time would be billed at customary rates less a 20% discount.
Additionally, Mr. Maller was awarded an additional 100,000 stock options in
February 2000 that vest pro rata over the four quarters of 2000 and become
immediately vested upon the consummation of a merger transaction. The strike
price would be based on the 5 day average closing price prior to the date of
issue.
STOCK OPTIONS
Vision Twenty-One has options outstanding under its 1996 Stock
Incentive Plan (the "Stock Incentive Plan"). Options granted are for the right
to acquire Vision Twenty-One's Common Stock. The following tables provide
information concerning the option grants during 1999 to Named Executive
Officers, aggregate share option exercises in 1999 and year-end option values
for unexercised stock options held by each of the Named Executive Officers. The
options were granted under the Company's Stock Incentive Plan. In addition, no
grants of stock appreciation rights ("SARS") were made by the Company in fiscal
year 1999. Pursuant to the Securities Exchange rules, the options granted table
also shows the potential realizable value of the options granted at the end of
the option terms (ten years) assuming the stock price were to appreciate
annually by 5% and 10%, respectively. There is no assurance that the stock
price will appreciate at the rates shown in the table. The table also indicates
that if the stock price does not appreciate, the potential realizable value of
the options granted will be zero.
64
<PAGE> 67
OPTION/SAR GRANTS IN LAST FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
---------------------------------------------------------- --------------------------------------------
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE
NAME GRANTED FISCAL YEAR ($/SH) EXPIRATION DATE 0% 5% 10%
---- ---------- ------------ ----------- --------------- -- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Andrew Alcorn 50,000 5.2 3.50 May 31, 2009 $.00 $49,000 $182,000
Robert P. Collins(1) 75,000 7.8 3.88 July 20, 2000 $.00 $ 0 $ 0
75,000 7.8 3.50 July 20, 2000 $.00 $ 0 $ 0
</TABLE>
- ---------------------
(1) Due to the elimination of Mr. Collins' position, these options remain
exercisable only through July 20, 2000.
(2) Based upon Vision Twenty-One's closing stock price of $2.75 on
December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS AT OPTIONS AT
ACQUIRED DECEMBER 31, 1999 DECEMBER 31, 1999(2)
ON VALUE ----------------------- --------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(3)
- ---- ----------- ----------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Andrew Alcorn -- 12,500 67,500 $ .00 $ .00
Robert P. Collins -- 25,000 125,000 $ .00 $ .00
Richard T. Welch -- 150,000 -- $ .00 $ .00
</TABLE>
- -------------
(1) There were no options exercised during fiscal year 1999 by any Named
Executive Officer.
(2) Based upon Vision Twenty-One's closing stock price of $2.75 at
December 31, 1999.
(3) The unexercisable portion of shares issuable pursuant to stock options
were not in-the-money at December 31, 1999.
(4) Pursuant to Mr. Welch's severance agreement, these options are
exercisable until November 30, 2002.
COMPENSATION PLANS
Vision Twenty-One maintains the following plans for the benefit of
employees, directors and executive officers
THE STOCK INCENTIVE PLAN. Vision Twenty-One does not maintain a
defined benefit pension plan or other actuarial retirement plan for named
executive officers or otherwise. The Stock Incentive Plan authorizes Vision
Twenty-One to grant eligible officers, employees, consultants and directors of
Vision Twenty-One awards consisting of options to purchase shares of Common
Stock, stock appreciation rights, shares of restricted stock or performance
shares. The Compensation Committee has the discretion to select the particular
officers, employees and consultants who will receive awards. On March 31, 2000,
approximately 550 officers and employees of Vision Twenty-One were eligible to
participate. The particular terms of the stock options and other awards granted
to eligible employees will be established by the Compensation Committee within
the limitations set forth in the provisions of the Stock Incentive Plan.
Eligible employees and other participants generally are not required to provide
Vision Twenty-One with consideration for the awards (other than their
services), but stock options will require the optionees to pay an option
exercise price based on the fair market value of the shares of Common Stock at
the time the grant of the options was approved by the Compensation Committee.
Stock options granted to employees under the Stock Incentive Plan may be either
Stock Options intended to qualify as Incentive Stock Options under Section 422
of the Internal Revenue Code or nonstatutory Stock Options which do not so
qualify. Stock Options will expire no later than the tenth anniversary of the
date of grant and become exercisable under such vesting schedules as may be
established by the Compensation Committee. Vesting of the awards granted under
the Stock Incentive Plan may be accelerated in the event of a change in
corporate control, as defined in and upon the terms of the Stock Incentive
Plan. The Compensation Committee has
65
<PAGE> 68
discretionary authority to accelerate the vesting of stock options and other
awards in any other circumstances it determines to be appropriate, and the
stock option agreements under the Stock Incentive Plan may provide for
accelerated vesting upon death, disability, and, in some cases, termination of
employment without cause.
The Stock Incentive Plan can be amended by the Board from time to time
in any manner the Board deems to be advisable, except that the Board must
obtain shareholder approval for amendments that require shareholder approval
under the federal tax or securities laws or the NASDAQ National Market System
stock exchange, including amendments to increase the aggregate number of shares
available for issuance under the Stock Incentive Plan.
THE EMPLOYEE STOCK PURCHASE PLAN. On October 19, 1998, the Board of
Directors adopted an Employee Stock Purchase Plan, which was subsequently
approved by Shareholders at the 1998 annual meeting, in order to encourage
Company employees to have an ownership interest in Vision Twenty-One. The
Employee Stock Purchase Plan is intended to provide employees of Vision
Twenty-One and its subsidiaries with an opportunity to acquire shares of Vision
Twenty-One's Common Stock at an advantageous price, with savings accumulated
through payroll deductions. The purpose of the Employee Stock Purchase Plan is
to secure for Vision Twenty-One and its shareholders the benefits inherent in
employee stock ownership. The Employee Stock Purchase Plan is administered by
the Board of Directors. Subject to adjustment upon changes in the
capitalization of Vision Twenty-One, the maximum number of shares of Common
Stock available for purchase under the Employee Stock Purchase Plan is 200,000
shares.
All employees of Vision Twenty-One and its subsidiaries who have been
employed for at least sixty (60) days as of the first day of any quarter are
eligible to participate in the Employee Stock Purchase Plan, provided that no
employee will be eligible if such employee: (i) owns, immediately after any
option to acquire Common Stock pursuant to provisions of the Employee Stock
Purchase Plan, stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of Company stock, (ii) is a member of the
Board of Directors or an executive officer of Vision Twenty-One whose
compensation must be reported in Vision Twenty-One's proxy statements, or (iii)
is an employee whose customary employment is twenty hours or less per week or
whose customary employment is for not more than five months in any calendar
year.
The price to eligible employees for each share to be purchased under
the Employee Stock Purchase Plan is the lesser of: (i) eighty-five percent
(85%) of the Closing Market Price (as hereinafter defined) on the first day of
any calendar quarter (the "Offering Date"), or (ii) eighty five percent (85%)
of the Closing Market Price (as hereinafter defined) on the first trading day
of the third calendar month following the immediately preceding Offering Date
(the "Purchase Date"). On each Purchase Date, payroll deductions made in
accordance with the Employee Stock Purchase Plan are applied to the purchase of
Common Stock from Vision Twenty-One. "Closing Market Price" means the last sale
price of the Common Stock as reported on the NASDAQ/National Market System (or
any other exchange or quotation system, if applicable) on the date specified;
or if no sales occurred on such day, at the last sale price reported for the
Common Stock; but if there should be any material alteration in the present
system of reporting sales prices of such Common Stock, or if such Common Stock
should no longer be listed on the NASDAQ/National Market System (or other
exchange or quotation system), or if the last sale price reported shall be on a
date more than 30 days from the date in question, the market value of the
Common Stock as of a particular date shall be determined in such a method as
shall be specified by the Employee Stock Purchase Plan. The foregoing
discussion of the Employee Stock Purchase Plan is qualified in its entirety by
reference to the copy of the Employee Stock Purchase Plan included with Vision
the Twenty-One's Proxy Statement for 1998.
OTHER PLANS. The Company also maintains a 401K plan and provides
health and other insurance benefits to its employees.
VISION TWENTY-ONE DIRECTOR'S COMPENSATION
Directors are reimbursed for expenses in connection with attendance at
Board and Committee meetings. Directors who are not officers of Vision
Twenty-One or affiliates of major stockholders are paid $1,000 per meeting plus
expenses. In addition, non-employee directors may be awarded options under
Vision Twenty-One's 1996 Stock Incentive Plan. See "Vision Twenty-One Certain
Relationships and Related Transactions" for additional information on certain
directors and members of management.
66
<PAGE> 69
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Vision Twenty-One's Articles of Incorporation (the "Articles") provide
that a Director will not be personally liable to Vision Twenty-One or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except: (i) for any breach of duty of loyalty; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violations of
laws; (iii) for liability under the Florida Business Corporation Act (relating
to certain unlawful dividends, stock repurchases or stock redemptions); or (iv)
for any transaction from which the director derived any improper personal
benefit. Vision Twenty-One's Bylaws provide that Vision Twenty-One will
indemnify each director and such of Vision Twenty-One's officers, employees and
agents as the Board of Directors shall determine from time to time to the
fullest extent provided by the Florida Business Corporation Act.
Vision Twenty-One has entered into indemnification agreements (the
"Indemnification Agreements") with all of its directors and certain of its
officers. Similar Indemnification Agreements may from time to time be entered
into with additional officers of Vision Twenty-One or certain other employees
or agents of Vision Twenty-One. Vision Twenty-One is empowered under its
Articles to purchase and maintain insurance or furnish similar protection on
behalf of any person who is required or permitted to be indemnified, and Vision
Twenty-One has acquired such insurance in connection with such individuals that
Vision Twenty-One believes is warranted.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of Vision Twenty-One's Compensation Committee through
February 11, 2000, the date of Mr. Stein's resignation from the Board of
Directors of Vision Twenty-One, were Theodore N. Gillette, Martin F. Stein and
Peter Fontaine. Mr. Stein was appointed to the Committee to replace the
position vacated by the resignation of Herbert Pegues. Neither Mr. Stein nor
Mr. Fontaine has at any time been an officer of Vision Twenty-One. See "Certain
Relationships and other Related Transactions" with respect to the Company's
practice management agreement with Mr. Gillette's practices.
67
<PAGE> 70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
VISION TWENTY-ONE PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 28, 2000, information as
to the beneficial ownership of Vision Twenty-One's Common Stock by (i) each
person known to Vision Twenty-One as having beneficial ownership of more than
5% of Vision Twenty-One's Common Stock, (ii) each person serving Vision
Twenty-One as a Director on such date and each nominee for Director, (iii) each
person serving Vision Twenty-One as an executive officer on such date who
qualifies as a "named executive officer" as defined in Item 402(a)(3) of
Regulation S-K under the Securities Exchange Act of 1934, and (iv) all of the
Directors and executive officers of Vision Twenty-One as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OWNED(2)
- --------------------------------------- ------------------- --------------------
<S> <C> <C>
Theodore N. Gillette(3)..................................................... 298,158 2.0%
Peter J. Fontaine(4)........................................................ 461,775 3.2
Richard L. Lindstrom, M.D.(5)............................................... 810,833 5.5
Jeffrey I. Katz, M.D.(6).................................................... 589,474 4.1
Bruce S. Maller(7).......................................................... 427,664 2.9
Howard Hoffmann(8).......................................................... 26,574 *
Andrew Alcorn(9)............................................................ 12,500 *
All directors and executive officers as a group (6 persons)................. 2,626,978 17.5
</TABLE>
- ------------------------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the beneficial
owners identified is 7360 Bryan Dairy Road, Largo, Florida 33777.
(2) Based on 14,526,617 shares of Common Stock outstanding (excluding
certain contingent shares held in escrow in conjunction with certain
acquisitions). Pursuant to the rules of the Securities and Exchange
Commission (the "Commission"), certain shares of Common Stock which a
person has the right to acquire within 60 days of the date hereof
pursuant to the exercise of stock options are deemed to be outstanding
for the purpose of computing the percentage ownership of such person
but are not deemed outstanding for the purpose of computing the
percentage ownership of any other person.
(3) Includes (a) the 235,894 shares owned by the Gillette Family Limited
Partnership, a Nevada Limited Partnership, over which Mr. Theodore
Gillette has voting and investment control as the sole shareholder of
the corporate general partner, (b) 9,077 shares owned by Optometric
Associates of Florida, P.A. (c) 15,287 shares owned individually and
(d) 38,000 shares owned by The Ted and Raena Gillette Foundation,
which Mr. Gillette has shared voting and investment control.
(4) Includes 460,442 shares owned by the Fontaine Industries Limited
Partnership over which Peter Fontaine has voting and investment
control and 1,333 shares issuable upon the exercise of stock options
granted, pursuant to Vision Twenty-One's 1996 Stock Incentive Plan,
which have vested and are fully exercisable.
(5) Includes (a) 111,333 shares issuable upon the exercise of stock
options granted pursuant to Vision Twenty-One's 1996 Stock Incentive
Plan, which have vested and are fully exercisable and (b) 130,136
shares held individually of which 59,433 shares were purchased from
the Company in a private placement and (c) 569,364 shares owned by the
Lindstrom Family Limited Partnership II over which Dr. Lindstrom has
voting and investment control.
(6) Includes (a) 268,666 shares owned by JKK Holdings, LLP over which Dr.
Katz has voting and investment control of which 117,666 shares were
purchased from the Company in a private placement and (b) 150,306
shares owned individually and (c) 100,000 shares held indirectly
through Katz family trusts and (d) 1,333 shares issuable upon the
exercise of stock options granted pursuant to Vision Twenty-One's 1996
Stock Incentive Plan, which have vested and are fully exercisable and
(e) includes 69,169 shares held in escrow pending conclusion of
certain outstanding contingencies related to an ASC acquisition.
68
<PAGE> 71
(7) Includes (a) 108,976 shares owned by BSM Investment, Ltd. over which
Bruce Maller has voting and investment control and (b) 151,333 shares
issuable upon the exercise of stock options granted pursuant to Vision
Twenty-One's 1996 Stock Incentive Plan which have vested and are fully
exercisable and (c) 163,355 shares owned individually and (d) 4,000
shares held indirectly by Maller children and a family trust.
(8) Includes 26,574 shares issuable upon the exercise of stock options
granted pursuant to Vision Twenty-One's 1996 Stock Incentive Plan
which have vested and are fully exercisable.
(9) Includes 12,500 shares issuable upon the exercise of stock options
granted pursuant to Vision Twenty-One's 1996 Stock Incentive Plan
which have vested and are fully exercisable.
Merger with OptiCare. 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. The officers and directors of the Company have agreed to vote their
shares in favor of the proposed transaction with OptiCare.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
VISION TWENTY-ONE CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth herein briefly describes transactions since
the beginning of Vision Twenty-One's last fiscal year between Vision Twenty-One
and its directors, officers and 5% stockholders. These transactions have been
approved by a majority of Vision Twenty-One's independent directors and were on
terms no less favorable to Vision Twenty-One than those that could be obtained
from unaffiliated parties.
Vision Twenty-One entered into a five-year Advisory Agreement in 1996
with Mr. Bruce S. Maller, Chairman of the Board of Vision Twenty-One (the
"Advisory Agreement"), pursuant to which Mr. Maller renders certain advisory
services to Vision Twenty-One, including the identification and integration of
eye care practices and the provision of assistance to Vision Twenty-One with
its strategic planning, growth and development. In consideration for such
services, Vision Twenty-One issued to Mr. Maller 125,627 shares of Common
Stock. The shares issued to Mr. Maller pursuant to the Advisory Agreement are
subject to certain piggyback and demand registration rights. In 1995, Vision
Twenty-One also entered into a five-year services agreement with the BSM
Consulting Group ("BSM"), a consulting company of which Mr. Maller is an
employee and the sole owner (the "BSM Services Agreement"), pursuant to which
BSM agreed to provide substantial consulting services to assist Vision
Twenty-One with its operational and management development. These agreements
were terminated effective November 23, 1999 with full vesting of any remaining
restricted shares. Payments earned by BSM under the BSM Services Agreement were
approximately $725,000 in the year ended December 31, 1999.
Vision Twenty-One entered into an agreement with BSM effective
November 23, 1999. This agreement contracted with Mr. Maller through BSM to be
Chairman of the Board and to assume overall control of the operations of the
Company. The fees payable under this agreement are up to $6,250 per week, plus
expenses. The use of any other BSM services other than Mr. Maller's time would
be billed at customary rates less a 20% discount. Additionally, Mr. Maller was
awarded, on behalf of BSM, an additional 100,000 stock options in February 2000
that vest pro rata over the four quarters of 2000 and become immediately vested
upon the consummation of a merger transaction. The strike price would be based
on the 5 day average closing price prior to the date of issue.
69
<PAGE> 72
In May 1999, Bruce Maller, a director of the Company, was granted
options to purchase 100,000 shares of common stock at an exercise price of
$3.44 per share.
Theodore Gillette, the Chief Executive Officer and a director of
Vision Twenty-One, owns a majority interest in Optometric Associates of
Florida, P.A. ("OAF"), a Florida professional association located in Tampa,
Florida and engaged in the provision of optometry services. Vision Twenty-One
earned fees of approximately $562,000 in the year-ended December 31, 1999 under
its Management Agreement with OAF.
Richard L. Lindstrom, M.D., a director of Vision Twenty-One, owns a
majority interest in Lindstrom, Samuelson and Hardten Ophthalmology Associates,
P.A. ("Lindstrom P.A."), a professional association located in Minneapolis,
Minnesota and engaged in the provision of ophthalmology services. Vision
Twenty-One earned fees of approximately $1,593,000 in the year ended December
31, 1999 under its Management Agreement with Lindstrom P.A. On December 15,
1999, a letter of understanding was executed between the Company and Lindstrom
P.A. This letter contemplates the termination of the Management Agreement
effective November 30, 1999 and the subsequent sale of the practice assets back
to Lindstrom P.A. On January 1, 2000, Lindstrom P.A. assumed the employment of
its respective associates who were formerly employees of Vision Twenty-One. It
is anticipated that a sale of the assets, formal termination of the Management
Agreement and related releases will be completed by June 30, 2000.
Vision Twenty-One entered into a services agreement in 1996 with Dr.
Richard L. Lindstrom (the "Lindstrom Services Agreement"), a director of Vision
Twenty-One, pursuant to which Dr. Lindstrom provides certain consulting and
advisory services primarily related to assisting Vision Twenty-One in the
identification and integration of Affiliated Providers into Vision Twenty-One's
managed eye care delivery network and assistance in the development of
Affiliated Provider practices. In consideration for his services, Dr. Lindstrom
is paid $60,000 annually and received 108,133 shares of Common Stock of which
40% is non-forfeitable and the remaining 60% is subject to forfeiture in
various amounts if the Lindstrom Services Agreement is terminated by Vision
Twenty-One for cause or by Dr. Lindstrom prior to August 31, 2000. The shares
issued to Dr. Lindstrom pursuant to the Lindstrom Services Agreement are
subject to certain piggyback and demand registration rights. Payments earned by
Dr. Lindstrom under the Lindstrom Services Agreement were $60,000 in the year
ended December 31, 1999.
Vision Twenty-One entered into three year regional service agreements
with the shareholders of Midwest Eye Care Alliance, Inc. ("MECA"), which
included Dr. Richard L. Lindstrom, following its acquisition by Vision
Twenty-One on May 29, 1997 (collectively the "Regional Agreements"). The
Regional Agreements provide for Dr. Lindstrom and the other former MECA
shareholders to render advisory services to Vision Twenty-One in connection
with identifying potential ophthalmology and optometry practices in the
Midwestern region of the United States for acquisition or affiliation and
assisting Vision Twenty-One in negotiating agreements with such practices in
exchange for specific cash compensation that varies among the Regional
Agreements. Dr. Lindstrom was due a total of $13,333 related to 1999 pursuant
to his Regional Agreement. This liability will be discharged in connection with
the termination of the Management Agreement discussed above.
In June 1999, Dr. Richard L. Lindstrom, a director of the Company, was
granted options to purchase 100,000 shares of Common Stock at an exercise price
of $3.69 per share. In September 1999, Mr. Lindstrom was granted an option to
purchase 10,000 shares of Common Stock at an exercise price of $4.88 per share.
Jeffrey I. Katz, M.D., a director of Vision Twenty-One, owns a 50%
interest in Vital Sight P.C. ("Vital Sight"), an Arizona professional
corporation located in Tucson, Arizona and engaged in the provision of
ophthalmology services. Vision Twenty-One earned fees of $338,000 in the
year-ended December 31, 1999 under its Management Agreement with Vital Sight.
Vision Twenty-One, the former shareholders of Eye Institute, including
Dr. Katz, and certain other related entities also closed in escrow an agreement
dated as of July 31, 1997 to transfer certain ASC assets from Vital Sight and
such shareholders' limited liability company to Vision 21 of Southern Arizona,
Inc. When all outstanding contingencies associated with the escrow have been
satisfied, the income associated with such ASC business shall be subject to the
business management fee. Until such time, however, Vision Twenty-One receives a
fee approximately equal to the business management fee. Vision Twenty-One
received fees of approximately $177,000 for the year ended December 31, 1999.
Vision Twenty-One's obligation to purchase the ASC business shall terminate if
the outstanding contingencies related to the escrow are not satisfied. As
consideration for this ASC transaction, Dr. Katz would be entitled, subject to
post-closing adjustments, to receive 69,169 shares of Common Stock.
70
<PAGE> 73
The Company and Vital Sight have reached an agreement in principle
which contemplates the termination of the Management Agreement effective
December 31, 1999, the subsequent sale of the assets back to Vital Sight and
the termination of the ASC escrow agreement and related transaction. On January
1, 2000 Vital Sight assumed the employment of its respective associates who
were formerly employees of Vision Twenty-One. It is anticipated that a sale of
the assets, formal termination of the Management Agreement and related releases
will be completed by June 30, 2000.
On June 11, 1999, the Company entered into Subscription Agreements
with J.K.K. Holdings, LLP ("J.K.K.") and Richard L. Lindstrom for the purchase
of Vision Twenty-One Common Stock. Dr. Lindstrom purchased 59,433 shares of
Vision Twenty-One Common Stock at a price of $356,598 and J.K.K. purchased
117,666 shares of Vision Twenty-One Common Stock at a price of $706,000. Dr.
Katz, a director of the Company, has a voting and investment control of J.K.K.
In September 1999, the Company entered into Agreements of Separation
and Release with Mr. Richard Sanchez and Mr. Richard Welch, former officers of
the Company.
71
<PAGE> 74
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following Financial Statements of the Registrant are included in
Part II, Item 8:
<TABLE>
<S> <C>
Report of Independent Auditors....................................................... 31
Consolidated Balance Sheets--December 31, 1998 and 1999.............................. 32
Consolidated Statements of Operations--Years Ended December 31, 1997,
1998 and 1999 ....................................................................... 34
Consolidated Statements of Stockholders' Equity--Years Ended December
31, 1997, 1998 and 1999 ............................................................. 35
Consolidated Statements of Cash Flows--Years Ended December 31, 1997, 1998
and 1999............................................................................. 36-37
Notes to Consolidated Financial Statements........................................... 38-55
</TABLE>
(b) Reports on Form 8-K: During the last quarter of the year ended
December 31, 1999, the Company filed the following Form 8-K's: (i)
Form 8-K dated October 14, 1999 announcing that it had entered into a
binding Letter of Intent for a capital investment of $35.0 million
from private investors co-led by MedEquity Investors, LLC and Chase
Capital Partners; (ii) Form 8-K dated November 23, 1999 announcing
amendments to the Company's credit facility, the appointment of Bruce
S. Maller as Chairman of the Board of Directors and strategic
initiative updates; and (iii) Form 8-K dated December 29, 1999
announcing a waiver of certain provisions of the Company's credit
facility and updates to the Company's strategic alternatives and
practice management unwind initiative.
(c) Exhibits: See Exhibit Index.
(d) Financial Statements Schedules of the Registrant: The following
valuation and qualifying accounts schedule is provided, all other
financial statement schedules are omitted because of the absence of
the conditions under which they are required.
72
<PAGE> 75
VISION TWENTY-ONE, INC. AND SUBSIDIARIES
SCHEDULE I--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
---------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER DEDUCTIONS BALANCE AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DESCRIBE OF PERIOD
- ----------- ------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts ..... $ -- $ -- $ 33,000(1) $ -- $ 33,000
========== ========== ========== ========== ==========
For the year ended December 31, 1998
Deducted from asset accounts:
Allowance for doubtful accounts ..... $ 33,000 $ -- $ -- $ 3,000 $ 30,000
========== ========== ========== ========== ==========
For the year ended December 31, 1999
Deducted from asset accounts:
Allowance for doubtful accounts ..... $ 30,000 $ -- $ -- $ 30,000(2) $ --
========== ========== ========== ========== ==========
</TABLE>
(1) Amount represents allowance for doubtful accounts acquired in
connection with the 1997 purchases of substantially all of the assets
and certain liabilities of the buying group division.
(2) Amount represents allowance for doubtful accounts sold in connection
with the 1999 sale of the buying group division.
73
<PAGE> 76
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company 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 5, 2000.
VISION TWENTY-ONE, INC.
By: /s/ THEODORE N. GILLETTE
----------------------------------------------------
Theodore N. Gillette
Chief Executive Officer
(Principal Executive Officer)
By: /s/ HOWARD S. HOFFMANN
----------------------------------------------------
Howard S. Hoffmann
Interim Chief Financial Officer
(Acting Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities
indicated on May 5, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ THEODORE N. GILLETTE Chief Executive Officer and Director
- --------------------------------------- (Principal Executive Officer)
Theodore N. Gillette
/s/ HOWARD S. HOFFMANN Interim Chief Financial Officer (Acting Principal Financial and
- --------------------------------------- Accounting Officer)
Howard S. Hoffmann
/s/ RICHARD L. LINDSTROM Chief Medical Officer and Director
- ---------------------------------------
Richard L. Lindstrom
/s/ BRUCE S. MALLER Chairman of the Board
- ---------------------------------------
Bruce S. Maller
/s/ PETER J. FONTAINE Director
- ---------------------------------------
Peter J. Fontaine
/s/ JEFFREY I. KATZ Director
- ---------------------------------------
Jeffrey I. Katz
</TABLE>
74
<PAGE> 77
1999 FORM 10-K
VISION TWENTY-ONE, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS DESCRIPTION
- ------- --------------------
<S> <C>
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)
</TABLE>
75
<PAGE> 78
<TABLE>
<S> <C>
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)
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.
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.
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.
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.
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.
(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)
</TABLE>
76
<PAGE> 79
<TABLE>
<S> <C>
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, filed as Exhibit 4.10 to this
Report and incorporated herein by reference.
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, filed as Exhibit 4.11 to this Report
and incorporated herein by reference.(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, filed as
Exhibit 4.13 to this Report and incorporated herein
by reference.(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, filed as Exhibit 4.14 to this Report and
incorporated herein by reference.(16)
</TABLE>
77
<PAGE> 80
<TABLE>
<S> <C>
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, filed as Exhibit 4.15
to this report and incorporated herein by reference.
10.62* -- Second Amendment to the Amended and Restated Credit
Agreement dated as of June 11, 1999 among Vision
Twenty-One, Inc., the Banks who are a party thereto
and Bank of Montreal as Agent, filed as Exhibit 4.16
to this Report and incorporated herein by reference.
10.63* -- Subscription Agreement dated June 11, 1999 by and
among J.K.K. Holdings, LLP and Vision Twenty-One,
Inc.(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, filed as
Exhibit 4.17 to this report and incorporated herein
by reference.
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, filed as Exhibit 4.18
to this report and incorporated herein by reference.
10.67* -- Fourth Amendment and Waiver to the Amended and
Restated Credit Agreement dated as of November 12,
1999 by and among Vision Twenty-One, Inc., the Banks
who are a party thereto and Bank of Montreal as
Agent, filed as Exhibit 4.19 to this report and
incorporated herein by reference.
10.68* -- Asset Purchase Agreement entered into as of July 7,
1999 by and among Eye Care Centers of America, Inc.,
Vision Twenty-One, Inc. and The Complete Optical
Laboratory, Ltd., Corp., a wholly-owned subsidiary
of the Company.(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, filed as Exhibit 4.20
to this report and incorporated herein by reference.
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, filed as Exhibit 4.21
to this report and incorporated herein by reference.
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, filed as Exhibit 4.22
to this report and incorporated herein by reference.
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, filed as Exhibit 4.23
to this report and incorporated herein by
reference.(23)
</TABLE>
78
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS DESCRIPTION
- ------- --------------------
<S> <C>
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, filed as Exhibit 4.24
to this report and incorporated herein by reference.
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, filed as Exhibit 4.25
to this report and incorporated herein by reference.
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.
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.
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, filed as Exhibit 4.26
to this report and incorporated herein by reference.
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, filed as Exhibit 4.27 to this
report and incorporated herein by reference.
21 -- List of the subsidiaries of Vision Twenty-One, Inc.
23 -- Consent of Ernst & Young, LLP, independent auditors.
27.1 -- Financial Data Schedule for the year ended December
31, 1999 (for SEC use only).
27.2 -- Restated Financial Data Schedule for the year ended
December 31, 1998 (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)
</TABLE>
* 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.
(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.
79
<PAGE> 1
Exhibit 4.24
February 29, 2000
Vision TwentyOne, Inc.
7360 Bryan Dairy Road, Suite 200
Largo, FL 33777
Attention: Theodore Gillette, Chief Executive Officer
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 whollyowned 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
a substantial number of the 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 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 between the Borrower,
the Banks and the Agent) from February 29, 2000, to the earlier of March 24,
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")
and postpone the due date for the payment of principal and interest otherwise
due on February 29, 2000, and of interest otherwise due on February 29, 2000, to
the Waiver Termination Date. By signing below, the Banks hereby agree
<PAGE> 2
Vision Twenty-One, Inc.
February 29, 2000
Page 2
to extend the waiver period provided in Sections 2.1 and 2.2 of the Seventh
Amendment from February 29, 2000, to the Waiver Termination Date, and agree to
postpone the due date for the payment of principal and interest otherwise due on
February 29, 2000, and of interest otherwise due on February 29, 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
(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.
<PAGE> 3
Vision Twenty-One, Inc.
February 29, 2000
Page 3
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.
February 29, 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/ Ronnie Kaplan
By: /s/ Jack J. Kane Name: Ronnie Kaplan
Name: Jack J. Kane Title: Vice President
Title: Director
PACIFICA PARTNERS I, L.P. PILGRIM PRIME RATE TRUST
By: Imperial Credit Asset Management, as By: Pilgrim Investments, Inc.,
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 By: /s/ Gary L. Stewart
Investment Manager 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/ Theodore N. Gillette
Name: Theodore N. Gillette
Title: CEO
<PAGE> 1
Exhibit 4.25
March 24, 2000
Vision TwentyOne, Inc.
7360 Bryan Dairy Road, Suite 200
Largo, FL 33777
Attention: Theodore Gillette, Chief Executive Officer
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 whollyowned 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
a substantial number of the 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 and a
February 29, 2000, letter agreement, in each case between the Borrower, the
Banks and the Agent) to the earlier of April 14, 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 March 31, 2000, to the Waiver
<PAGE> 2
Vision Twenty-One, Inc.
March 24, 2000
Page 2
Termination Date, and (iii) postpone the due date for the payment of principal,
interest and unused commitment fees otherwise due on or before March 31, 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
February 29, 2000, to 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 March 31, 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
(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
<PAGE> 3
Vision Twenty-One, Inc.
March 24, 2000
Page 3
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 TwentyOne, Inc.
March 24, 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/ Ronnie Kaplan
By: /s/ Jack J. Kane Name: Ronnie Kaplan
Name: Jack J. Kane Title: Vice President
Title: Director
PACIFICA PARTNERS I, L.P. PILGRIM PRIME RATE TRUST
By: Imperial Credit Asset Management, By: Pilgrim Investments, Inc., as its
as its Investment Manager Investment Manager
By: /s/ Dean K. Kawai By: /s/ Michel Prince
Name: Dean K. Kawai Name: Michel Prince, CFA
Title: Vice President Title: Vice President
PILGRIM AMERICA HIGH INCOME MERRILL LYNCH BUSINESS FINANCIAL
INVESTMENTS LTD. SERVICES, INC.
By: Pilgrim Investments, Inc., as its By: /s/ Gary L. Stewart
Investment Manager Name: Gary L. Stewart
Title: Vice President
By: /s/ Michel Prince
Name: Michel Prince, CFA
Title: 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: Board Chairman
<PAGE> 1
Exhibit 4.26
April 14, 2000
Vision Twenty-One, Inc.
7360 Bryan Dairy Road, Suite 200
Largo, FL 33777
Attention: Theodore Gillette, Chief Executive Officer
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 a substantial number of the 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, and a March 24, 2000, letter agreement, in each
case between the Borrower, the Banks and the Agent) to the earlier of May 5,
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 April 14,
2000, to the Waiver Termination Date, and (iii) postpone the due date for the
payment
<PAGE> 2
Vision Twenty-One, Inc.
April 14, 2000
Page 2
of principal, interest and unused commitment fees otherwise due on or before
April 14, 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 April 14, 2000, to 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 April 14, 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
(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
<PAGE> 3
Vision Twenty-One, Inc.
April 14, 2000
Page 3
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.
April 14, 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/ Linda M. Thompson
-------------------------------------- --------------------------------
Name: Jack J. Kane Name: Linda M. Thompson
Title: Director
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/ Theodore N. Gillette
----------------------------------
Name: Theodore N. Gillette
Title: CEO
<PAGE> 1
Exhibit 4.27
May 5, 2000
Vision Twenty-One, Inc.
7360 Bryan Dairy Road, Suite 200
Largo, FL 33777
Attention: Theodore Gillette, Chief Executive Officer
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 a substantial number of the 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, 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 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 to the earlier of May 19, 2000
<PAGE> 2
Vision Twenty-One, Inc.
May 5, 2000
Page 2
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 5, 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 5, 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 5, 2000, to the Waiver Termination Date, temporarily waive any
non-compliance by the Borrower as of December 31, 1999, with Sections 8.8
(Total Funded Debt/Adjsuted EBITDA Ratio), 8.10 (Interest Coverage Ratio), and
8.11 (Debt Service Coverage Ratio) of the Credit Agreement 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 5, 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
(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).
<PAGE> 3
Vision Twenty-One, Inc.
May 5, 2000
Page 3
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 5, 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/ Heather L. Ture By: /s/ Ronnie Keplan
- ---------------------------------- ----------------------------------
Name: Heather L. Ture Name: Ronnie Keplan
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 By: /s/ Gary L. Stewart
Investment Manager ----------------------------------
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/ Theodore N. Gillette
----------------------------------
Name: Theodore N. Gillette
Title: CEO
<PAGE> 1
Exhibit 10.79
Nightingale & Associates, LLC
Soundview Plaza
1266 East Main Street
Stamford, Connecticut 06902
Tel: 203.359.3855
Fax: 203.359.4551
Email: [email protected]
Principals:
Stephen J. Hopkins
Michael R. D'Appolonia
Kevin I. Dowd
Dennis J. Duckett
Howard S. Hoffmann
S. Douglas Hopkins
November 24, 1999
Senior Advisors:
William J. Nightingale
Tor B. Arneberg
Mr. Theodore N. Gillette
Chief Executive Officer
Vision Twenty-One Inc.
7360 Bryan Dairy Road
Largo, FL 33777
Dear Ted:
Pursuant to various discussions, Nightingale & Associates, LLC ("N&A")
understands that the Board of Directors of Vision Twenty-One Inc. ("Vision21" or
the "Company), with the approval of the Company's secured lenders, desires to
retain N&A to assume the role of interim CFO with full responsibility for
financial oversight and reporting. The following represents in more specific
terms our understanding of the scope of such an engagement and the terms under
which we would propose to assume such responsibilities.
I. SCOPE
N&A will immediately assign Howard S. Hoffmann to assume the position
of interim CFO, reporting directly to the Board of Directors of the
Company.
Working closely in conjunction with you, Bruce Maller and other
Vision21 senior managers and staff, N&A's responsibilities will
include:
1. Manage The Implementation Of Cash Flow Forecasting And Control
Procedures And The Development Of Improved Financial And
Management Reporting.
2. Review And To The Extent Necessary Refine The Detailed
Operating Plans For Fiscal 2000.
3. Support And Actively Participate In Due Diligence And Deal
Negotiations With Potential Providers Of Long Term Capital
And/Or Potential Buyers Of The Company
a. Develop Contingency Plan In The Event That Sufficient
Long Term Capital Cannot
Finding Solutions to
Complex Business Situations
Since 1975
<PAGE> 2
Mr. Theodore N. Gillette
Vision Twenty-One Inc.
November 24, 1999
Page 2
Be Raised Or Sale Transaction Consummated In The Time
Frame Available
4. Assist With The Implementation Of The Exit From The PPM
Business
5. Oversee Financial Statement Preparation And Other
Financially-Based Reporting Requirements.
6. Assume Management Supervision Over The MIS Department. This
Will Be In Addition To the Usual Managerial Duties Associated
with the CFO Position
7. If Necessary And When Appropriate, Assist In The Recruitment
Of A Permanent CFO.
8. Provide Such Other Counsel, Assistance, And Services As ISC
May From Time To Time Request.
II. DISCUSSION
It would not be our intention to prepare extensive and detailed written
reports because such reports are both time consuming and costly to
prepare. Rather, we would submit a highly summarized bullet-point
narrative highlight report, supported by factual or pro forma exhibits,
covering preliminary findings, conclusions, and recommendations,
including recommended next steps, augmented by extensive verbal
dialogue and discussion.
N&A approaches all assignments such as the one under discussion as a
team effort with the management and employees of the Company involved.
It would be our intention and practice to utilize Company management
and employees to undertake fact finding and analysis on our mutual
behalf to the greatest extent possible.
In addition, we would utilize work done by the Company or its
professionals and other consultants, to the extent it may be available,
in order to avoid or minimize duplication of work. As noted above, with
the cooperation of the Company's bank lenders, we would also work with
the banks' professionals with the same objective.
III. RESPONSIBILITY AND STAFFING FOR THE WORK
Howard S. Hoffmann will be the Officer-In-Charge of this assignment
with overall responsibility for the N&A work on the engagement. Michael
R. D'Appolonia will provide oversight and senior guidance as needed.
Due to the accelerated, crisis nature of the project and the present
lack of information regarding the availability and/or capability of
Company personnel to assist with completion of various urgent tasks, it
may be necessary to utilize the services of additional N&A Associates
on the project. N&A agrees that it confer with the Company before
adding additional Associates to the project team.
<PAGE> 3
Mr. Theodore N. Gillette
Vision Twenty-One Inc.
November 24, 1999
Page 3
IV. ESTIMATE OF TIME AND COST
In a highly fluid situation such as is the case with Vision21, it is
difficult to provide a definitive estimate of time and cost. However,
assuming staffing of the project as indicated below, and that each N&A
staff member devotes the time ranges shown below, we estimate N&A
professional time fees will range from $62,000 to $86,000 per month. It
is N&A's intention to utilize as much as possible information and
analyses previously generated, and every effort will be made to avoid
duplication of work.
<TABLE>
<CAPTION>
TIME ESTIMATE - PER MONTH
- -------------------------------------------------------------------------------------
Hourly Billing Est. Time Est. Work
N&A Staff Members Rates % Days
- ----------------- -------------- ----------- ---------
<S> <C> <C> <C>
H. S. Hoffmann $325 80% - 100% 16 - 22
M. R. D'Appolonia $350 80% - 100% 0 - ??
Associate $225 0% - ??% 0 - ??
</TABLE>
In addition to professional time fees, out-of-pocket expenses are
billed at cost, and generally range from 10% to 20% of professional
time fees, depending on the amount of travel involved. Out-of-pocket
expenses consist primarily of travel and transportation, meals,
lodging, telephone, specifically assignable office assistance and
report production.
Invoices are submitted weekly, and are due and payable upon
presentation. Prompt payment of N&A invoices is a prerequisite for
N&A's continued work on an engagement.
Exhibit I, attached, is a summary of N&A professional time billing
rates, and terms and conditions for engagement of our firm, and is an
integral part of this Engagement Letter.
N&A fully understands that the Company desire to keep costs to a
minimum, commensurate with achieving the objectives of the assignment
and given a reasonable degree of comfort relative to the judgments,
conclusions, and recommendations involved. You should know that the
above cost estimate is just that, an estimate, and is not a guaranteed
firm professional time fee cost. Every effort will be made to keep
costs to a minimum. The work will be accomplished in less time and at
less cost than estimated if it is feasible to do so. Conversely, if
circumstances dictate that additional N&A staff is required, or that
more time than estimated above is required, the cost estimate could be
exceeded. We will advise you as far in advance as possible should we
perceive that such a situation could occur.
<PAGE> 4
Mr. Theodore N. Gillette
Vision Twenty-One Inc.
November 24, 1999
Page 4
VI. ADVANCE DEPOSIT
N&A requires an Advance Deposit for all assignments of the type
described above. Given this situation, N&A requires an Advance Deposit
of $50,000 which must be paid simultaneously with beginning project
work. At the completion of the project and at the direction of the
Company, N&A will either apply the Deposit to any outstanding invoices
or, if there are no unpaid invoices owing to N&A, promptly return the
Deposit to the Company.
VII. PERFORMANCE FEES
For information, N&A charges a Performance Fee, in addition to
professional time fees, for selected types of assignments. Assignments
where performance fees are charged include acquisitions, divestitures,
mergers, refinancing, interim management, and asset recovery
management.
Based on past practices and policies of our firm, N&A proposes a
Performance Fee equal to:
A. Options to purchase 100,000 shares of the common
stock of Vision21, at current market values. All of
the unvested options issued under this Paragraph A
will become fully vested upon the earlier of 1) the
completion of a sale transaction involving the
entire managed care division, the entire refractive
surgery/ASC division or the entire company or the
consummation of a capital infusion of at least $25
million during the term of the engagement or within
60 days following the termination of the engagement,
provided such termination occurs on or after January
31, 2000 or 2) December 31, 2000.
B. Options to purchase an additional 50,000 shares of
the common stock of Vision21, at current market
values, if the Company overcomes the immediate
liquidity crisis without the utilization of bridge
financing from potential buyers of the managed care
or refractive surgery units or their affiliates. All
of the options issued under this Paragraph B will be
fully vested upon issuance.
VIII. INDEMNIFICATION
Given the nature of this assignment, N&A will require a release in the
form of a "Release and Indemnification" agreement from Vision
Twenty-One Inc. prior to undertaking the project. A copy of the
"Release and Indemnification" agreement we require is attached as
Exhibit II.
The rationale for this requirement is that, to the extent that any
adversarial issues or proceedings occur between parties, N&A, by its
very presence and activities, could be caught in the "cross fire." Of
course, the indemnity excludes gross negligence and/or willful
misconduct on the part of N&A or any of its officers, associates or
staff.
<PAGE> 5
Mr. Theodore N. Gillette
Vision Twenty-One Inc.
November 24, 1999
Page 5
IX. CONFIDENTIALITY OF CLIENT INFORMATION
N&A recognizes and acknowledges that the firm and its officers and
staff have access to proprietary and confidential information in most,
if not all, client assignments. N&A assures clients that all such
non-public information received by the firm, its officers, and staff
from the Company will be held and treated in strict confidence, and
will not knowingly be disclosed by N&A, its officers, and staff to
third parties.
CAVEAT
Given the nature of business turnaround/crisis management and related
assignments, there can be no assurance that unforeseen problems may not
be encountered. In addition, it is likely that difficult and complex
judgments and conclusions will have to be made on a rapid basis without
full and complete information and analysis readily available.
Accordingly, N&A undertakes such assignments on a "Best Efforts" basis
only, and makes no representations, warranties or guarantees relative
to outcome, performance or results.
o o o o o o o o o o o o o o o o
<PAGE> 6
Mr. Theodore N. Gillette
Vision Twenty-One Inc.
November 24, 1999
Page 6
N&A works under an arrangement whereby our services can be terminated
by our clients or by ourselves at any time, upon verbal notice followed by
written confirmation. Of course, the Company will be responsible for
professional time and expense charges up to the time of notice of termination.
Should either party contemplate termination, reasonable advance notice is
desirable in the interest of orderly phase out and completion of work underway.
N&A will be working on other client assignments during the period we
will be working on this assignment. However, we fully expect to be able to
arrange our schedules so that work on this matter will proceed at a mutually
satisfactory pace.
If this Engagement Letter conforms to your understanding of the terms
and conditions of our retention, please have the appropriate party signify
agreement by signing and returning the enclosed extra copy of this Engagement
Letter.
We look forward to working with the Company on this challenging
assignment.
Sincerely,
Howard S. Hoffmann
cc: S. J. Hopkins
M. R. D'Appolonia
READ, UNDERSTOOD AND AGREED TO BY:
Vision Twenty-One Inc.
By: /s/ Theodore Gillette
- ------------------------------
Title: Chief Executive Officer
- ------------------------------
Date: 11-26-99
- ------------------------------
<PAGE> 7
EXHIBIT I
NIGHTINGALE & ASSOCIATES, LLC.
SUMMARY OF COMPENSATION AND FEE ARRANGEMENTS
I. PROFESSIONAL TIME FEES AND EXPENSES
Nightingale & Associates, LLC ("N&A") charges professional time fees on
an hourly basis for all assignments. Professional time fees on an
hourly basis for Principals and certain Associates of the firm are as
shown below:
<TABLE>
<S> <C> <C> <C>
Mr. Stephen J. Hopkins $400 Mr. Charles F. Kuoni $300
Mr. Michael R. D'Appolonia $350 Mr. Eugene A. Reilly $275
Mr. Howard S. Hoffmann $325 Mr. Michael C. Yeager $225
</TABLE>
Hourly time fees for Associates range from $175 to $350 per hour.
Out-of-pocket expenses are billed at cost, and generally range from 10%
to 15% of professional time fees, depending on the amount of travel
involved. Out-of-pocket expenses consist primarily of transportation
costs, meals, lodging, telephone, specific client-related office
assistance and report production and, in the case of divestiture
related assignments, advertising and mailing costs. Out-of-pocket
expenses also apply to N&A staff members who reside out of the area
when working out of N&A's office in Stamford on a client project. For
assignments undertaken for clients domiciled in the State of
Connecticut, a 6% professional service tax on professional time fees
and Performance Fees also applies.
Invoices are submitted weekly and are due and payable upon
presentation. Prompt payment of invoices is a prerequisite for N&A's
continued work on an assignment.
II. CONTINGENT PERFORMANCE FEES
For certain types of assignments, including divestitures, interim
management, asset recovery management, licensing, acquisitions,
mergers, joint ventures, and refinancing, N&A charges a contingent
Performance Fee in addition to per diem professional time fees.
The rationale for the contingent Performance Fee is that N&A can
usually materially assist a client in the achievement of more favorable
results and returns than would otherwise be the case. N&A brings unique
skills and creativity, along with proven and highly successful
experience, to those transaction and interim management oriented
assignments where Performance Fees are charged.
The Performance Fee is based upon the size, circumstances, and
complexity of each particular situation, and is established and agreed
to by mutual consent between the client and prior to formal engagement.
********************
<PAGE> 8
EXHIBIT I
III. OTHER ENGAGEMENT TERMS AND CONDITIONS
o N&A works under a policy whereby the services of our firm can
be terminated by the client, or by N&A, at any time upon verbal
notice, followed by written confirmation.
- The client is responsible for professional time fees and
expense charges up to the time of notification of
termination. In addition, Performance Fee payments, if
applicable, are due and payable on a pro rata basis in the
event of unilateral termination by the client.
- Should N&A resign during the course of an assignment, we
agree to remain active and provide every reasonable
assistance during a designated transition period to phase
in, on an orderly basis, a replacement organization of the
client's choosing.
o Given the nature and complexity of our work, there can be no
assurance that unforeseen problems and issues may not be
encountered, or that difficult and complex operating judgments
and decisions may not have to be made and recommended.
Accordingly, N&A undertakes assignments on a "Best Efforts"
basis only, and makes no representations, warranties, or
guarantees relative to operating results or other performance
achieved.
o For most types of assignments, including Company Viability Evaluations
for third parties, Interim Management, Operational Turnaround and Asset
Recovery/Liquidation Management assignments, N&A requires a broad
Indemnity Agreement from the client or other financially responsible
party.
- The rationale for requiring an Indemnity Agreement is that
by their very nature, Viability Evaluations, Interim
Management, Operational Turnaround and Asset Recovery
Management assignments require a great many decisions and
operating judgments to be made on a day to day basis, and
the firm necessarily acts as the Agent or representative
of its client. To the extent any real or potential
adversarial issues or proceedings are related to the
situation N&A, by its very presence, could be caught in
the "crossfire."
o o o o o o o o o o o o o o o o
<PAGE> 9
EXHIBIT II
RELEASE AND INDEMNIFICATION
The undersigned, Vision Twenty-One Inc. (the "Company"), acknowledging that
Nightingale & Associates, LLC ("N&A") has been engaged to render services to the
Company, for and on behalf of itself and its subsidiaries, and the successors
and assigns of the Company and its subsidiaries, hereby waives and releases any
and all claims or causes of action that it may now have or which may arise in
the future against any "Consultant Party" which shall consist of, collectively,
N&A and each of its contractors and subcontractors, and all of the employees,
officers, directors, shareholders and principals of N&A) arising out of or
relating in any way to "Covered Services" (which shall consist of services
rendered by any Consultant Party pursuant to the attached agreement relating to
the Company or any aspect of its business or assets (whether such services
consist of consulting services, management services, or any other type of
services) including, without limitation, any loss or claim thereof arising or
allegedly incurred as a result of actions taken or omitted to be taken by the
Company, its shareholders, or any other party, based in any way upon any
recommendations or suggestions by any Consultant Party relating to the Company
or any aspect of its business or assets, but excluding from the foregoing waiver
and release any claim or cause of action arising out of any act of gross
negligence or willful misconduct of any Consultant Party. The Company further
hereby agrees to indemnify and hold harmless each of the judgments, suits,
costs, expenses and disbursements of any kind or nature whatsoever which may be
imposed upon, incurred by or asserted against any of the Consultant Parties
arising out of or relating in any way to Covered Services pursuant to the
attached agreement including, without limitation, any loss or claim thereof
arising or allegedly incurred as a result of actions taken or omitted to be
taken by the Company, its shareholders, or any other party, based in any way
upon any recommendations or suggestions by any Consultant Party relating to the
Company or any aspect of its business or assets; but excluding from the
foregoing indemnification obligation any matter arising out of any act of gross
negligence or willful misconduct of any Consultant Party.
Dated: November 26, 1999
VISION TWENTY-ONE INC.
By /s/ Theodore Gillette
- --------------------------------
Theodore Gillette
- --------------------------------
Name
CEO
- --------------------------------
Title
<PAGE> 1
Exhibit 10.81
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
VISION TWENTY-ONE, INC.,
OC ACQUISITION CORP.
AND
OPTICARE HEALTH SYSTEMS, INC.
DATED AS OF FEBRUARY 10, 2000
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS .................................................. 2
SECTION 1.01 Certain Defined Terms .......................... 2
ARTICLE II
THE MERGER ................................................... 8
SECTION 2.01 The Merger ..................................... 8
SECTION 2.02 Closing ........................................ 9
SECTION 2.03 Effective Time ................................. 9
SECTION 2.04 Effect of the Merger ........................... 9
SECTION 2.05 Articles of Incorporation; Bylaws; Directors
and Officers of Surviving Corporation ......... 9
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES ........... 10
SECTION 3.01 Conversion of Shares ........................... 10
SECTION 3.02 Exchange of Shares Other than Treasury Shares .. 11
SECTION 3.03 Stock Transfer Books ........................... 13
SECTION 3.04 No Fractional Share Certificates ............... 14
SECTION 3.05 Options to Purchase Company Common Stock ....... 14
SECTION 3.06 Unvested Stock ................................. 16
SECTION 3.07 Certain Adjustments ............................ 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY .................... 17
SECTION 4.01 Organization and Qualification; Subsidiaries ... 17
SECTION 4.02 Articles of Incorporation and Bylaws ........... 18
SECTION 4.03 Capitalization ................................. 18
SECTION 4.04 Authority Relative to This Agreement ........... 19
SECTION 4.05 No Conflict; Required Filings and Consents ..... 20
SECTION 4.06 Permits; Compliance with Laws .................. 20
SECTION 4.07 SEC Filings; Financial Statements .............. 21
SECTION 4.08 Absence of Certain Changes or Events ........... 22
SECTION 4.09 Employee Benefit Plans; Labor Matters .......... 23
SECTION 4.10 Certain Tax Matters ............................ 26
SECTION 4.11 Contracts ...................................... 26
SECTION 4.12 Litigation ..................................... 27
SECTION 4.13 Environmental Matters .......................... 28
SECTION 4.14 Intellectual Property .......................... 28
SECTION 4.15 Taxes .......................................... 30
SECTION 4.16 Insurance ...................................... 31
i
<PAGE> 3
SECTION 4.17 Properties ..................................... 31
SECTION 4.18 Affiliates ..................................... 32
SECTION 4.19 Opinion of Financial Advisor ................... 32
SECTION 4.20 Brokers ........................................ 32
SECTION 4.21 Florida Business Corporation Law ............... 33
SECTION 4.22 Business Activity Restriction .................. 33
SECTION 4.23 Governmental Authorizations .................... 33
SECTION 4.24 Gifts, Political Contributions,
Unrecorded Funds............................... 34
SECTION 4.25 No Dissenters' Rights .......................... 34
SECTION 4.26 Board Recommendation ........................... 34
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT ..................... 34
SECTION 5.01 Organization and Qualification; Subsidiaries ... 35
SECTION 5.02 Certificate of Incorporation and Bylaws ........ 35
SECTION 5.03 Capitalization ................................. 35
SECTION 5.04 Authority Relative to This Agreement ........... 36
SECTION 5.05 No Conflict; Required Filings and Consents ..... 36
SECTION 5.06 Permits; Compliance with Laws .................. 38
SECTION 5.07 SEC Filings; Financial Statements .............. 38
SECTION 5.08 Absence of Certain Changes or Events ........... 39
SECTION 5.09 Employee Benefit Plans; Labor Matters .......... 40
SECTION 5.10 Certain Tax Matters ............................ 42
SECTION 5.11 Contracts ...................................... 43
SECTION 5.12 Litigation ..................................... 44
SECTION 5.13 Environmental Matters .......................... 44
SECTION 5.14 Insurance ...................................... 44
SECTION 5.15 Properties ..................................... 44
SECTION 5.16 Opinion of Financial Advisor ................... 45
SECTION 5.17 Brokers ........................................ 45
SECTION 5.18 No Interested Shareholders ..................... 45
SECTION 5.19 Governmental Authorizations .................... 45
SECTION 5.20 Intellectual Property .......................... 46
ARTICLE VI
COVENANTS .................................................... 46
SECTION 6.01 Conduct of Business by Company
Pending the Closing ........................... 46
SECTION 6.02 Notices of Certain Events ...................... 49
SECTION 6.03 Access to Information; Confidentiality ......... 50
SECTION 6.04 No Solicitation of Transactions ................ 50
SECTION 6.05 Tax-Free Transaction ........................... 52
SECTION 6.06 Control of Operations .......................... 52
SECTION 6.07 Further Action; Consents; Filings .............. 52
SECTION 6.08 Additional Reports ............................. 53
SECTION 6.09 Conduct of Business by Parent .................. 53
ii
<PAGE> 4
SECTION 6.10 Post Merger Directors and Officers ............. 55
SECTION 6.11 Bank Restructuring ............................. 55
SECTION 6.12 Disposition of Practices ....................... 56
SECTION 6.13 Financing Commitments .......................... 56
SECTION 6.14 Standstill Agreement ........................... 56
SECTION 6.15 Voting ......................................... 57
SECTION 6.16 Waiver ......................................... 57
ARTICLE VII
ADDITIONAL AGREEMENTS ........................................ 57
SECTION 7.01 Registration Statement; Joint Proxy Statement .. 57
SECTION 7.02 Stockholders' Meetings ......................... 60
SECTION 7.03 Affiliates ..................................... 60
SECTION 7.04 Directors' and Officers' Indemnification
and Insurance ................................. 60
SECTION 7.05 No Shelf Registration .......................... 62
SECTION 7.06 Public Announcements ........................... 62
SECTION 7.07 AMEX Listing ................................... 62
SECTION 7.08 Blue Sky ....................................... 62
SECTION 7.09 Acquisition of Company Capital Stock ........... 62
ARTICLE VIII
CONDITIONS TO THE MERGER ..................................... 63
SECTION 8.01 Conditions to the Obligations of Each
Party to Consummate the Merger ................ 63
SECTION 8.02 Conditions to the Obligations of Company ....... 64
SECTION 8.03 Conditions to the Obligations of Parent ........ 65
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER ............................ 66
SECTION 9.01 Termination .................................... 66
SECTION 9.02 Effect of Termination .......................... 68
SECTION 9.03 Amendment ...................................... 69
SECTION 9.04 Waiver ......................................... 69
SECTION 9.05 Termination Fee; Expenses ...................... 69
ARTICLE X
GENERAL PROVISIONS ........................................... 71
SECTION 10.01 Non-Survival of Representations
and Warranties ............................... 71
SECTION 10.02 Notices ....................................... 72
SECTION 10.03 Severability .................................. 73
SECTION 10.04 Assignment; Binding Effect; Benefit ........... 73
SECTION 10.05 Incorporation of Exhibits ..................... 73
SECTION 10.06 Governing Law ................................. 73
SECTION 10.07 Waiver of Jury Trial .......................... 74
SECTION 10.08 Headings; Interpretation ...................... 74
SECTION 10.09 Counterparts .................................. 74
SECTION 10.10 Entire Agreement .............................. 74
iii
<PAGE> 5
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of February
10, 2000 (as amended, supplemented or otherwise modified from time to time,
this "Agreement"), among OPTICARE HEALTH SYSTEMS, INC., a Delaware corporation
("Parent"), VISION TWENTY-ONE, INC., a Florida corporation ("Company"), and OC
ACQUISITION CORP., a Florida corporation and a direct wholly owned subsidiary
of Parent ("Merger Sub").
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent and Company have determined
that it is advisable and in the best interests of their respective companies
and stockholders to enter into a business combination by means of the merger of
Merger Sub with and into Company (the "Merger") and have approved and adopted
this Agreement;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent to enter into this Agreement, certain stockholders of
Company have granted an irrevocable proxy (referred to herein as the "Company
Stockholder Agreement") in the form attached hereto as Annex A;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Company to enter into this Agreement, certain stockholders of
Parent have granted an irrevocable proxy (referred to herein as the "Parent
Stockholder Agreement") in the form attached hereto as Annex B;
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the Florida Business Corporation Act, as
amended (the "FBCA"), Parent will acquire all of the common stock of Company
through the merger of Merger Sub with and into Company; and
WHEREAS, for United States Federal income tax purposes, it is intended
that the Merger shall qualify as a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the "Code"), and that this Agreement shall
be, and hereby is, adopted as a plan of reorganization for purposes of Section
368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
<PAGE> 6
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms
Unless the context otherwise requires, the following terms, when used
in this Agreement, shall have the respective meanings specified below (such
meanings to be equally applicable to the singular and plural forms of the terms
defined):
"Adjusted Financial Statements" shall mean the Company's month-ending
balance sheet and statements of income and changes in stockholders' equity as
of the latest practicable date no earlier than forty-five (45) days prior to
the Exchange Ratio Adjustment Date (defined below), which financial statements
have been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby; provided, however, that the financial
statements are subject to normal and recurring year-end adjustments and lack
footnotes and other presentation items. The "Exchange Ratio Adjustment Date"
shall be the fifth Business Day prior to the effective date of the Registration
Statement or such later date prior to the mailing of the Joint Proxy Statement
as the parties may mutually agree.
"Affiliate" shall mean, with respect to any person, any other person
that controls, is controlled by or is under common control with the first
person.
"Amex" shall mean the American Stock Exchange.
"ASCI Debt" shall mean the amount of "Contingent Consideration"
payable to American Surgicite Centers, Inc. pursuant to the Asset Purchase
Agreement dated as of September 1, 1998 among the Company and American
Surgicite Centers, Inc.
"Bank Austria" shall mean Bank Austria Creditanstaldt Corporate
Finance, Inc.
"Bank Austria Credit Agreement" shall mean the Amended and Restated
Loan and Security Agreement dated as of August 13, 1999 among the Parent,
certain of the Parent Subsidiaries and the lenders named therein, and Bank
Austria, as Agent.
"Blue Sky Laws" shall mean state securities or "blue sky" laws.
"Business Day" shall mean any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized by law or executive order to close in New York.
"Company Common Stock" shall mean the common stock, par value $.001
per share, of the Company.
2
<PAGE> 7
"Company Disclosure Schedule" shall mean the disclosure schedule
delivered by Company to Parent prior to the execution of this Agreement and
forming a part hereof.
"Company Intellectual Property" shall mean all patents (including,
without limitation, all U.S. and foreign patents, patent applications, patent
disclosures, and any and all divisions, continuations, continuations-in-part,
reissues, re-examinations and extensions thereof), design rights, trademarks,
trade names and service marks (whether or not registered), trade dress,
Internet domain names, copyrights (whether or not registered) and any renewal
rights therefor, sui generis database rights, statistical models, technology,
inventions, supplier lists, trade secrets, know-how, computer software programs
or applications in both source and object code form, databases, technical
documentation of such software programs ("Technical Documentation"),
registrations and applications for any of the foregoing and all other tangible
or intangible proprietary information or materials that were material to
Company's business or are currently used in Company's business in any product,
technology or process (i) currently being or formerly manufactured, published
or marketed by Company or (ii) previously or currently under development for
possible future manufacturing, publication, marketing or other use by Company
or (iii) used by the Company.
"Company Material Adverse Effect" shall mean any change in or effect
on the business of Company and the Company Subsidiaries that, individually or
in the aggregate (taking into account all other such changes or effects), is,
or is reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition or results of operations of Company and the
Company Subsidiaries, taken as a whole, except to the extent that any such
change in or effect results from (i) changes in general economic conditions or
changes affecting the industry generally in which Company operates (provided
that such changes do not affect Company in a materially disproportionate
manner); (ii) changes in trading prices for the Company's common stock; (iii)
disposition of Practices (as hereinafter defined), divestiture of Corporate
Optometry and termination of managed care contracts as specifically identified
on Schedule 4.08 of the Company Disclosure Schedule; (iv) ongoing professional
fees consistent with the level of professional fees incurred by the Company
during the period from January 10, 2000 to February 9, 2000; (v) Special
Charges that cause an adjustment to the Exchange Ratio per Section 3.01 hereto;
and the net writedown of certain assets associated with business operations
which are being discontinued.
"Company Stock Plans" shall mean the Company's 1996 and 1999 Stock
Incentive Plans for employees and the Company's Stock Option Plan for
Affiliated Professionals.
"Competing Transaction" shall mean any of the following involving
Company (other than the Merger):
(i) any merger, consolidation, share exchange, business
combination or other similar transaction;
(ii) any sale, exchange, transfer or other disposition of 33%
or more of the assets of the Company and/or its subsidiaries, taken as
a whole, in a single transaction or series of
3
<PAGE> 8
transactions, including, but not limited to, the assets or stock
relating to MEC Healthcare Inc. ("MEC") or the Company's laser vision
division;
(iii) any tender offer or exchange offer for 33% or more of
the outstanding voting securities of the Company or the filing of a
registration statement under the Securities Act in connection
therewith;
(iv) any person having acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined under Section 13(d) of the Exchange Act) having been formed
that beneficially owns or has the right to acquire beneficial
ownership of, 33% or more of the outstanding voting securities of the
Company other than in connection with a Financing Transaction (as
defined below);
(v) any person having acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined under Section 13(d) of the Exchange Act) having been formed
that beneficially owns or has the right to acquire beneficial
ownership of, 49% or more of the outstanding voting securities of the
Company from the Company or any of the Company's Affiliates in
connection with a transaction (a "Financing Transaction") with the
purpose of the Company obtaining bonafide financing without the
investor making such financing with the intent of exercising control
over the Company and/or management of the Company other than as may be
typical of a lender in a commercial financing transaction;
"Confidentiality Agreement" shall mean the confidentiality agreement,
dated November 24, 1999, between Parent and Company.
"Corporate Optometry" shall mean an optometric practice owned or
managed by the Company as set forth on Section 6.12 of the Company Disclosure
Schedule.
"$" shall mean United States Dollars.
"DGCL" shall mean the Delaware General Corporation Law, as amended.
"Earn-out Agreement" shall mean any merger, purchase, sale or other
business combination agreement between the Company and one or more third
parties pursuant to which the Company is obligated to pay cash or issue shares
of its capital stock subsequent to the date hereof as more specifically set
forth on Attachment 4 to Schedule 4.03 of the Company Disclosure Schedule.
"Environmental Law" shall mean any Law and any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Material, as in effect as of the date hereof.
4
<PAGE> 9
"Environmental Permit" shall mean any permit, approval, identification
number, license or other authorization required under or issued pursuant to any
applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
"Existing Credit Agreement" shall mean the Amended and Restated Credit
Agreement dated as of July 1, 1998 among the Company, the banks party thereto
and Bank of Montreal, as Agent, as amended.
"Expenses" shall mean, with respect to any party hereto, all
documented out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants
to a party hereto and its affiliates) and internal costs at commercially
reasonable rates incurred by such party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Merger, the preparation, printing, filing and mailing of the
Registration Statement and the Joint Proxy Statement, the solicitation of
stockholder approvals, the filing of HSR Act notice, if any, and all other
matters related to the transactions contemplated hereby and the closing of the
Merger.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies
with similar functions of comparable statute and authority within the U.S.
accounting profession), which are applicable to the circumstances as of the
date of determination.
"Governmental Entity" shall mean any United States Federal, state or
local or any foreign governmental, regulatory or administrative authority,
agency or commission or any court, tribunal or arbitral body.
"Governmental Order" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any Governmental
Entity.
"Hazardous Material" shall mean (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (ii) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, together with the rules and regulations promulgated
thereunder.
5
<PAGE> 10
"IRS" shall mean the United States Internal Revenue Service.
"Intangible Assets" shall have the conventional accounting meaning in
compliance with GAAP.
"Knowledge" an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of or
should reasonably be aware of such fact or other matter.
A Person (other than an individual) will be deemed to have `Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, manager, executor, or
trustee of such Person (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter.
"Law" shall mean any Federal, state, foreign or local statute, law,
ordinance, regulation, rule, code, order, judgment, decree, other requirement
or rule of law of the United States or any other jurisdiction, and any other
similar act or law.
"Long-Term Indebtedness and Equivalents" shall mean, as reflected in
the Adjusted Financial Statements, the aggregate of (i) all of the Company's
long-term obligations, indebtedness or other liabilities of any kind or nature,
fixed or contingent, which in accordance with GAAP would be classified as a
long-term liability on the consolidated balance sheet of the Company and the
Company Subsidiaries, including, but not limited to obligations under capital
leases and deferred rent payables, (ii) the Purchase Adjustment Debt and (iii)
Special Charges, but excluding deferred tax liabilities.
"Merger" shall have the meaning ascribed to such term in the first
Whereas clause of this Agreement.
"NNM", shall mean the NASDAQ National Market.
"Net Debt Equivalents" or "NDE" shall mean, as reflected in the
Adjusted Financial Statements, all of the Company's Long-Term Indebtedness and
Equivalents less the Company's cash, including any cash equivalents or
marketable securities and as otherwise having the conventional meaning in
compliance with GAAP.
"Net Worth" shall mean, as reflected in the Adjusted Financial
Statements, total shareholder's equity (including capital stock, additional
paid-in capital and retained earnings after deducting treasury stock) which
would appear on the balance sheet of the Company and the Company's Subsidiaries
prepared on a consolidated basis in accordance with GAAP.
"Ophthalmologist/Optometrist Employee" shall mean a licensed
ophthalmologist or optometrist employed by the Company or the Company
Subsidiaries or the Parent
6
<PAGE> 11
or the Parent Subsidiaries, as the case may be, or a professional corporation
to which the Company or the Company Subsidiaries or the Parent or the Parent
Subsidiaries as the case may be, provides services.
"Ophthalmology and Optometry Practices" shall mean any ophthalmology
and/or optometry practices owned or managed by the Company as set forth on
Section 6.12 of the Company Disclosure Schedule.
"Parent Common Stock" shall mean the common stock, par value $.001 per
share, of the Parent.
"Parent Disclosure Schedule" shall mean the disclosure schedule
delivered by Parent to Company prior to the execution of this Agreement and
forming a part hereof.
"Parent Material Adverse Effect" shall mean any change in or effect on
the business of Parent and the Parent Subsidiaries that, individually or in the
aggregate (taking into account all other such changes or effects), is, or is
reasonably likely to be, materially adverse to the business, assets,
liabilities, financial condition or results of operations of Parent and the
Parent Subsidiaries, taken as a whole, except to the extent that any such
change in or effect results from (i) changes in general economic conditions or
changes affecting the industry generally in which Parent operates (provided
that such changes do not affect Parent in a materially disproportionate manner)
and (ii) any changes in the trading price of Parent Common Stock.
"Parent Stock Plans" shall mean Parent's Performance Stock Program and
the Employee Stock Purchase Plan.
"Person" shall mean an individual, corporation, partnership, limited
partnership, limited liability company, limited liability partnership,
syndicate, person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Exchange Act), trust, association, entity or government
or political subdivision, agency or instrumentality of a government.
"Purchase Adjustment Debt" shall mean the amount which is claimed by
Eye Care Centers of America, Inc. to be owed to it through purchase price
adjustments and indemnities pursuant to the terms of the Asset Purchase
Agreement dated July 7, 1999 among the Company and Eye Care Centers of America,
Inc.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
"Special Charges" shall mean, as reflected in the balance sheet of the
Adjusted Financial Statements, the aggregate liability of: any one time charges
and accruals (extraordinary or otherwise) relating to matters outside of the
ordinary course of business, including but not limited to, layoffs
7
<PAGE> 12
and severance (including those individuals appropriately identified on Company
Disclosure Schedule 4.09), one time lease shutdowns, restructuring charges, the
net writedown of certain assets associated with business operations which are
being discontinued, the maximum amount of cash payable by the Company, or the
Parent after the Effective Time, as the case may be, which is reasonably likely
to be paid pursuant to the ASCI Debt and the Earn-out Agreements as of the
Exchange Ratio Adjustment Date, the Additional Premium Amount or the Excess
Projected Cumulative Amount (as defined in Section 7.04 (d)), as the case may
be, and any accrued and unpaid expenses incurred by the Company in connection
with obtaining or attempting to obtain such third party consent as agreed upon
by the Parent and the Company.
"Subsidiary" shall mean, with respect to any person, any corporation,
partnership, limited partnership, limited liability company, limited liability
partnership, joint venture or other legal entity of which such person (either
alone or through or together with any other subsidiary of such person) owns,
directly or indirectly, a majority of the stock or other equity interests, the
holders of which are generally entitled to vote for the election of the board
of directors or other governing body of such corporation or other legal entity.
"Tangible Net Worth" or "TNW" shall mean, as reflected in the Adjusted
Financial Statements, the Company's Net Worth less Intangible Assets.
"Tax" shall mean (i) any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect
thereto) imposed by any Governmental Entity or taxing authority, including,
without limitation, taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales, use,
capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs
and similar charges; (ii) any liability for the payment of any amounts of the
type described in (i) as a result of being a member of an affiliated, combined,
consolidated or unitary group for any taxable period; and (iii) any liability
for the payment of amounts of the type described in (i) or (ii) as a result of
being a transferee of, or a successor in interest to, any Person or as a result
of an express or implied obligation to indemnify any person.
"Tax Return" shall mean any return, statement or form (including,
without limitation, any estimated tax reports or return, withholding tax
reports or return and information report or return) required to be filed with
respect to any Taxes.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger
8
<PAGE> 13
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the FBCA, at the Effective Time (as defined
in Section 2.03), Merger Sub shall be merged with and into Company. As a result
of the Merger, the separate corporate existence of Merger Sub shall cease and
Company shall continue as the surviving corporation of the Merger as a wholly
owned subsidiary of Parent (the "Surviving Corporation").
SECTION 2.02 Closing
Unless this Agreement shall have been terminated and the Merger herein
contemplated shall have been abandoned pursuant to Section 9.01 and subject to
the satisfaction or waiver of the conditions set forth in Article VIII, the
consummation of the Merger shall take place as promptly as practicable (and in
any event within three Business Days) after satisfaction or waiver of the
conditions set forth in Article VIII, at a closing (the "Closing") to be held
at the offices of Kane Kessler, P.C., 1350 Avenue of the Americas, New York,
New York 10019, unless another date, time or place is mutually agreed to by
Parent and Company.
SECTION 2.03 Effective Time
At and after the time of the Closing, the parties shall cause the
Merger to be consummated by filing the articles of merger (the "Certificate of
Merger") with the Department of State of the State of Florida in such form as
required by, and executed in accordance with the relevant provisions of, the
FBCA (the date and time of such filing, or such later date and time as may be
set forth therein, being the "Effective Time").
SECTION 2.04 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as provided
in the applicable provisions of the FBCA. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Company and Merger Sub shall vest
in Company as the Surviving Corporation, and all debts, liabilities and duties
of Company and Merger Sub shall become the debts, liabilities and duties of
Company as the Surviving Corporation.
SECTION 2.05 Articles of Incorporation; Bylaws; Directors and Officers
of Surviving Corporation
Unless otherwise agreed by Parent and Company before the Effective
Time, at the Effective Time:
9
<PAGE> 14
(a) the Articles of Incorporation and the Bylaws of Merger
Sub in effect immediately prior to the Effective Time shall be the
Articles of Incorporation and the Bylaws of the Surviving Corporation,
until thereafter amended as provided by Law and such Article of
Incorporation or Bylaws; provided, however, that Article I of the
Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is " " and
the bylaws shall be amended to reflect such name change;
(b) the officers of Merger Sub immediately prior to the
Effective Time shall serve in their respective offices of the
Surviving Corporation from and after the Effective Time, in each case
until their successors are elected or appointed and qualified or until
their resignation or removal; and
(c) the directors of Merger Sub immediately prior to the
Effective Time shall serve as the directors of the Surviving
Corporation from and after the Effective Time, in each case until
their successors are elected or appointed and qualified or until their
resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Conversion of Shares
(a) At the Effective Time, by virtue of the Merger, and
without any action on the part of Parent, Merger Sub, Company or the
holders of any of the following securities:
(i) each share of Common Stock, $.001 par value, of
Company ("Company Common Stock") issued and outstanding
immediately before the Effective Time (excluding those held
in the treasury of Company and those owned by any wholly
owned subsidiary of Company) and all rights in respect
thereof, shall, forthwith cease to exist and be converted
into and become exchangeable for the right to receive 0.402
shares (the "Exchange Ratio") of common stock, $.001 par
value, of Parent ("Parent Common Stock");
(ii) each share of Company Common Stock held in the
treasury of Company or owned by any wholly owned subsidiary
of Company immediately prior to the Effective Time shall be
canceled and retired and no shares of stock or other
securities of Parent, the Surviving Corporation or any other
corporation shall be issuable, and no payment or other
consideration shall be made, with respect thereto; and
(iii) each issued and outstanding share of capital
stock of Merger Sub shall be converted into and become one
fully paid and nonassessable share of common stock of the
Surviving Corporation.
10
<PAGE> 15
(b) notwithstanding anything to the contrary above, the
Exchange Ratio shall be adjusted and recalculated as of the Exchange
Ratio Adjustment Date in accordance with the following formula:
<TABLE>
<S> <C>
Exchange Ratio = 6,000,000 - (.25(NDE - $54 Million)) + (.125(TNW - ($56)Million))
-----------------------------------------------------------------
X
</TABLE>
where X represents the number of outstanding shares of Company Common
Stock as of the Exchange Ratio Adjustment Date.
(c) The Exchange Ratio shall be adjusted downward to account
for the maximum amount of shares of Company Common Stock, or Parent
Common Stock after the Effective Time, as the case may be, which are
reasonably expected to be issued pursuant to the Earn-out Agreements
as of the Exchange Ratio Adjustment Date, as mutually agreed upon by
the Parent and the Company (the "Earn-out Stock Amount").
(d) The Adjusted Financial Statements and/or the Earn-out
Stock Amount shall be reasonably satisfactory to Parent. Upon receipt
by Parent of the Adjusted Financial Statements and/or the Earn-out
Stock Amount from the Company, Parent shall accept or reject the
Adjusted Financial Statements and/or the Earn-out Stock Amount by
written notice to the Company within three (3) Business Days
thereafter; failure to reject the Adjusted Financial Statements and/or
Earn-out Stock Amount, as applicable, within such period shall be
deemed conclusive acceptance of the Adjusted Financial Statements
and/or the Earn-out Stock Amount, as applicable. If Parent disputes
the Adjusted Financial Statements and/or the Earn-out Stock Amount,
the parties will attempt to resolve their differences jointly and the
Company shall provide Parent reasonable access to its appropriate
records, including but not limited to, its work papers, but if no
resolution is reached within three (3) Business Days, then the parties
agree to submit the disputed items to an independent "Big 6"
accounting firm as may be mutually agreed upon by the respective
accounting firms of Parent and the Company, for determination within
ten (10) Business Days, which determination shall be conclusive for
the purposes of this Agreement. The cost of such mutually agreed
accounting firm's determination shall be borne equally by the Company
and Parent.
SECTION 3.02 Exchange of Shares Other than Treasury Shares
(a) Exchange Agent. As of the Effective Time, Parent shall
enter into an agreement with a bank or trust company to act as
exchange agent for the Merger (the "Exchange Agent") as may be
designated by Parent.
(b) Parent to Provide Common Stock and Cash. Promptly after
the Effective Time, Parent shall make available to the Exchange Agent
for the benefit of the holder of Company Common
11
<PAGE> 16
Stock: (i) Certificates of Parent Common Stock ("Parent Certificates")
representing the number of whole shares of Parent Common Stock
issuable pursuant to Section 3.01(a) in exchange for shares of Company
Common Stock outstanding immediately prior to the Effective Time; (ii)
sufficient funds to permit payment in lieu of fractional shares
pursuant to Section 3.04 and (iii) any dividends or distributions to
which holders of shares of Company Common Stock may be entitled
pursuant to Section 3.07.
(c) Exchange Procedures. The Exchange Agent shall mail to
each holder of record of certificates of Company Common Stock
("Company Certificates"), whose shares were converted into the right
to receive shares of Parent Common Stock (and cash in lieu of
fractional shares pursuant to Section 3.04) promptly after the
Effective Time (and in any event no later than three Business Days
after the later to occur of the Effective Time and receipt by Parent
of a complete list from the Company of the names and addresses of its
holders of record): (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the
Company Certificates shall pass, only upon receipt of the Company
Certificates by the Exchange Agent, and shall be in such form and have
such other provisions as Parent may reasonably specify); and (ii)
instructions for use in effecting the surrender of the Company
Certificates in exchange for Parent Certificates (and cash in lieu of
fractional shares). Upon surrender of a Company Certificate for
cancellation to the Exchange Agent or to such other agent or agents as
may be appointed by Parent, together with such letter of transmittal,
duly completed and validly executed, and such other documents as may
be reasonably required by the Exchange Agent, the holder of such
Company Certificate shall be entitled to receive in exchange therefor
a Parent Certificate representing the number of whole shares of Parent
Common Stock that such holder has the right to receive pursuant to
this Article III and payment of cash in lieu of fractional shares
which such holder has the right to receive pursuant to Section 3.04,
and the Company Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Company Certificate
that, prior to the Effective Time, represented shares of Company
Common Stock will be deemed from and after the Effective Time, for all
corporate purposes other than the payment of dividends and
distributions, to evidence the ownership of the number of full shares
of Parent Common Stock into which such shares of Company Common Stock
shall have been so converted and the right to receive an amount in
cash in lieu of the issuance of any fractional shares in accordance
with Section 3.04. Notwithstanding any other provision of this
Agreement, no interest will be paid or will accrue on any cash payable
to holders of Company Certificates pursuant to the provisions of this
Article III.
(d) Lost, Stolen or Destroyed Company Certificates. In the
event any Company Certificates shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Company Certificates, upon the making of an
affidavit of that fact by the holder thereof, a Parent Certificate
representing such shares of Parent Common Stock (and cash in lieu of
fractional shares) as may be required pursuant to this Article III;
provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Company Certificates to indemnify Parent
against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Company
Certificates alleged to have been lost, stolen or destroyed.
12
<PAGE> 17
(e) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock
with a record date after the Effective Time will be paid to the holder
of any unsurrendered Company Certificate with respect to the shares of
Parent Common Stock represented thereby until the holder of record of
such Company Certificate shall surrender such Company Certificate.
Subject to the effect of applicable escheat or similar laws, following
surrender of any such Company Certificate, there shall be paid to the
record holder of the Parent Certificates issued in exchange therefor,
without interest, at the time of such surrender, the amount of any
such dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this
Section 3.02(e)) with respect to such shares of Parent Common Stock.
(f) Transfer of Ownership. If any Parent Certificate is to be
issued in a name other than that in which the Company Certificate
surrendered in exchange therefor is registered, it will be a condition
of the issuance thereof that the Company Certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange will have paid to Parent
or any agent designated by it any transfer or other taxes required by
reason of the issuance of a Parent Certificate for shares of Parent
Common Stock in any name other than that of the registered holder of
the Company Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has
been paid or is not payable.
(g) Termination of Exchange Agent Funding. Any portion of
funds (including any interest earned thereon) or Parent Certificates
held by the Exchange Agent which have not been delivered to holders of
Company Certificates pursuant to this Article III within six months
after the Effective Time shall promptly be paid or delivered, as
appropriate, to Parent, and thereafter holders of Company Certificates
who have not theretofore complied with the exchange procedures
outlined in and contemplated by this Section 3.02 shall thereafter
look only to Parent (subject to abandoned property, escheat and
similar laws) only as general creditors thereof for their claim for
shares of Parent Common Stock, any cash in lieu of fractional shares
of Parent Common Stock and any dividends or distributions (with a
record date after the Effective Time) with respect to Parent Common
Stock to which they are entitled.
(h) No Liability. Notwithstanding anything to the contrary in
this Section 3.02, none of the Exchange Agent, the Surviving
Corporation or any party hereto shall be liable to any person in
respect of any shares of Parent Common Stock or cash delivered to a
public official pursuant to any applicable abandoned property, escheat
or similar law.
(i) Expenses of Exchange Agent. Parent shall pay all charges
and expenses of the Exchange Agent incurred solely in connection with
the transactions contemplated by this Agreement, to the extent of
$8,500, with any and all charges and expenses above such amount being
borne by the Company.
SECTION 3.03 Stock Transfer Books
13
<PAGE> 18
(a) At the Effective Time, the stock transfer books of
Company shall each be closed, and there shall be no further
registration of transfers of shares of Company Common Stock thereafter
on the records of any such stock transfer books. In the event of a
transfer of ownership of shares of Company Common Stock that is not
registered in the stock transfer records of Company at the Effective
Time, a certificate or certificates representing the number of full
shares of Parent Common Stock into which such shares of Company Common
Stock shall have been converted shall be issued to the transferee
together with a cash payment in lieu of fractional shares, if any, in
accordance with Section 3.04 hereof, and a cash payment in the amount
of dividends, if any, in accordance with Section 3.02(e) hereof, if
the certificate or certificates representing such shares of Company
Common Stock is or are surrendered as provided in Section 3.02(c)
hereof, accompanied by all documents required to evidence and effect
such transfer and by evidence of payment of any applicable stock
transfer tax.
(b) Notwithstanding anything to the contrary herein,
certificates surrendered for exchange by any person constituting an
affiliate of Company shall not be exchanged until Parent shall have
received from such person an affiliate letter as provided in Section
7.03.
SECTION 3.04 No Fractional Share Certificates
No scrip or fractional share Parent Certificate shall be issued upon
the surrender for exchange of Company Certificates, and an outstanding
fractional share interest shall not entitle the owner thereof to vote, to
receive dividends or to any rights of a stockholder of Parent or of Surviving
Corporation with respect to such fractional share interest. As promptly as
practicable following the Effective Time, Parent shall deposit with the
Exchange Agent an amount in cash sufficient for the Exchange Agent to pay each
holder of Company Common Stock an amount in cash equal to the product obtained
by multiplying (i) the fractional share interest to which such holder would
otherwise be entitled (after taking into account all shares of Company Common
Stock held at the Effective Time by such holder) by (ii) the closing price for
a share of Parent Common Stock on the American Stock Exchange (the "AMEX") on
the last Business Day prior to the Effective Time. As soon as practicable after
the determination of the amount of cash, if any, to be paid to holders of
Company Common Stock with respect to any fractional share interests, the
Exchange Agent shall make available such amounts, net of any required
withholding Taxes, to such holders of Company Common Stock, subject to and in
accordance with the terms of Section 3.02 hereof.
SECTION 3.05 Options to Purchase Company Common Stock
14
<PAGE> 19
(a) At or prior to the Effective Time, each of Company and
Parent shall take all action necessary to cause as of the Effective
Time the assumption by Parent of, or the reissuance by Parent of
substitutes for, all of the following which remain outstanding as of
the Effective Time: (i) the options to purchase Company Common Stock
listed in the Company Disclosure Schedule, whether vested or unvested,
and issued under Company's Stock Plans; (ii) options to purchase
Company Common Stock listed in the Company Disclosure Schedule
pursuant to option agreements outside of the Company's Stock Plans;
and (iii) the warrants to purchase Company Stock listed in the Company
Disclosure Schedule and issued pursuant to warrant agreements,
(collectively, the "Outstanding Options and Warrants," and each an
"Outstanding Option" or an "Outstanding Warrant"). To the fullest
extent permitted under applicable law and the applicable stock option
agreements, the Company Stock Plans and the warrant agreements, each
of the Outstanding Options and Outstanding Warrants shall be exchanged
or substituted without any action on the part of the holder thereof
into an option or warrant to purchase shares of Company Common Stock
as of the Effective Time. The number of shares of Parent Common Stock
that the holder of an assumed or substituted Outstanding Option or
Outstanding Warrant shall be entitled to receive upon the exercise of
such option or warrant shall be the same number of shares of Company
Common Stock as the holder of such Outstanding Option or Outstanding
Warrant would have been entitled to receive pursuant to the Merger had
such holder exercised such option or warrant in full immediately prior
to the Effective Time. The price per share of Parent Common Stock
after the Effective Time shall be equal to (x) the aggregate exercise
price for the shares of Company Common Stock otherwise purchasable
pursuant to such Outstanding Option or Outstanding Warrant divided by
(y) the Exchange Ratio. Other than as set forth in the Outstanding
Options and Warrants or as contemplated by this Agreement, the
assumption and substitution of options and warrants as provided herein
shall not give the holders of such options and warrants additional
benefits or additional vesting rights which they did not have
immediately prior to the Effective Time or relieve the holders of any
obligations or restrictions applicable to their options and warrants
or the shares obtainable upon exercise of their options and warrants.
Only whole shares of Company Common Stock shall be issued upon
exercise of any Outstanding Option or Outstanding Warrant, and no
certificates or scrip representing fractional shares of Company Common
Stock and no cash in lieu of fractional shares shall be issued upon
such exercise. All fractional shares of Company Common Stock which a
holder of any Outstanding Option or Outstanding Warrant would
otherwise be entitled to receive upon exercise thereof shall be
aggregated at the time of such exercise. If a fractional share results
from such aggregation, in lieu thereof such fraction shall be rounded
up to one whole share of Company Common Stock if it is one-half or
larger and shall be rounded down to zero and canceled without any
payment or distribution with respect thereto if it is less than
one-half. Prior to the Effective Time, Company and Parent shall take
such additional actions, if any, as are necessary under applicable law
and the applicable agreements and the Company Stock Plans to assure
that each Outstanding Option and Outstanding Warrant shall, from and
after the Effective Time, represent only the right to purchase, upon
exercise, whole shares of Company Common Stock. Prior to the Effective
Time, the Board of Directors of the Company shall make the
determination that neither the Merger nor any of the other
transactions contemplated by this Agreement shall be deemed a "Change
in Control" for purposes of each of the employment agreements entered
into by the Company other than the employment agreements set forth on
Section 3.05 of the Company Disclosure Schedule.
15
<PAGE> 20
Except as otherwise specifically identified in Section 3.05
of the Company Disclosure Schedule, the assumption of the Outstanding
Options and Warrants in the Merger and their conversion into options
and warrants for Parent Common Stock will not result in any
accelerated vesting of those options or warrants or the shares
purchasable thereunder and the vesting schedule in effect for such
Outstanding Options and Warrants immediately prior to the Effective
Time shall remain in full force after the assumption thereof by
Parent.
It is the Parent's intention to roll such converted
Outstanding Options into options to purchase Parent Common Stock, as
described above, pursuant to either the Parent's Performance Stock
Program or, at Parent's discretion or in the event that Parent is
unable to roll such converted options into the Performance Stock
Program, then Parent will assume the Company Stock Plans. Upon such
conversion, any options granted under the Performance Stock Program to
the former holders of Outstanding Options pursuant to the Company
Stock Plans shall, except to the extent provided above, in all
respects be subject to the terms, provisions and conditions of the
Performance Stock Program and the standard form of stock option
agreement relating to such Performance Stock Program except where the
terms of the Performance Stock Program are contrary to the rights of
an option holder, whereupon in such instance the option holder will
retain his or her rights to such contrary terms; and provided further,
that such holders shall be deemed to have been granted such options as
of the date the original options were granted under the Company Stock
Plans.
(b) As soon as practicable after the Effective Time, Parent
shall file a registration statement on Form S-8 or a successor form,
under the Securities Act with respect to the shares of Parent Common
Stock subject to the Outstanding Options, to the extent that Form S-8
or successor form, is available to register the Outstanding Options,
and shall use its reasonable efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain
the current status of the prospectus or prospectuses contained
therein) for so long as the Outstanding Options remain outstanding.
SECTION 3.06 Unvested Stock
At the Effective Time, any unvested shares of Company Common Stock,
including, but not limited to, any restricted stock, awarded to employees,
directors or consultants pursuant to any of the Company's plans or arrangements
and outstanding immediately prior to the Effective Time shall be converted into
unvested shares of Parent Common Stock in accordance with the Exchange Ratio
and shall remain subject to the same terms, restrictions and vesting schedule
as in effect immediately prior to the Effective Time. All outstanding rights
which Company may hold immediately prior to the Effective Time to repurchase
unvested shares of Company Common Stock shall be assigned to the Parent in the
Merger and shall thereafter be exercisable by Parent upon the same terms and
conditions in effect immediately prior to the Effective Time, except that the
shares purchasable pursuant to such rights and the purchase price payable per
share shall be adjusted to reflect the Exchange Ratio.
16
<PAGE> 21
SECTION 3.07 Certain Adjustments
If between the date of this Agreement and the Effective Time, the
outstanding shares of Parent Common Stock or Company Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period, or the number of shares of Company Common Stock on a
fully diluted basis is in excess of that specified in Section 4.03 and
disclosed in Section 4.03 of the Company Disclosure Schedule (regardless of
whether such excess is a result of an additional issuance of capital stock or a
correction to such Sections), then the Exchange Ratio established pursuant to
the provisions of Section 3.01 shall be adjusted accordingly to provide to each
of Parent, on the one hand, and the holders of Company Common Stock in the
aggregate, on the other hand, the same economic effect as contemplated by this
Agreement prior to such reclassification, recapitalization, split-up,
combination, exchange, dividend or increase.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent, subject to the
exceptions specifically disclosed in writing in the Company Disclosure
Schedule, all such exceptions to be referenced to a specific representation set
forth in this Article IV or to otherwise be clearly applicable to the
representations hereof not specifically referenced, that (it being understood
that for purposes of this Article IV, unless the context otherwise requires,
the term Company shall be deemed to include all of the Company's Subsidiaries:
SECTION 4.01 Organization and Qualification; Subsidiaries
(a) Company and each directly and indirectly owned subsidiary
of Company (the "Company Subsidiaries") has been duly organized and is
validly existing and in good standing (to the extent applicable) under
the laws of the jurisdiction of its incorporation or organization, as
the case may be, and has the requisite corporate power and authority
to own, lease and operate its properties and to carry on its business
as it is now being conducted. Except as set forth in Section 4.01 of
the Company Disclosure Schedule, Company and each Company Subsidiary
is duly qualified or licensed to do business, and is in good standing
(to the extent applicable), in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for
such failure to be so qualified or licensed and in good standing that
could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(b) Section 4.01 of the Company Disclosure Schedule sets
forth, as of the date of this Agreement, a true and complete list of
each Company Subsidiary, together with (i) the jurisdiction of
incorporation or organization of each Company Subsidiary and the
percentage of each Company Subsidiary's outstanding capital stock or
other equity interests owned by Company or another
17
<PAGE> 22
Company Subsidiary and (ii) an indication of whether each Company
Subsidiary is a "Significant Subsidiary" as defined in Regulation S-X
under the Exchange Act. Except as set forth in Section 4.01 of the
Company Disclosure Schedule, neither Company nor any Company
Subsidiary owns an equity interest in any partnership or joint venture
arrangement or other business entity.
SECTION 4.02 Articles of Incorporation and Bylaws
The copies of Company's articles of incorporation and bylaws, as
amended to date, previously provided to Parent by Company are true, complete
and correct copies thereof. Such articles of incorporation and bylaws are in
full force and effect. Company is not in violation of any of the provisions of
its certificate of incorporation or bylaws.
SECTION 4.03 Capitalization
(a) The authorized capital stock of Company consists of
50,000,000 shares of Company Common Stock and 10,000,000 shares of
preferred stock ("Company Preferred Stock"). As of the date hereof,
(i) 14,939,407 shares of Company Common Stock are issued and
outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no shares of Company Common Stock are held in the
treasury of Company, (iii) no shares of Company Common Stock are held
by Company Subsidiaries, (iv) 2,400,000 shares of Company Common Stock
are reserved for future issuance pursuant to the Company Stock Plans
or pursuant to option agreements outside of the Company Stock Plans
(collectively, the "Company Stock Options"), of which, as of December
31,1999, 921,977 and 1,035,146 shares of Company Common Stock were
reserved for future issuance pursuant to unvested, outstanding and
vested, outstanding, unexercised Company Stock Options, respectively,
and (v) no shares of Company Preferred Stock are outstanding. The name
of each holder of a Company Stock Option or a warrant, the grant date
of each Company Stock Option and warrant, and the number of shares of
Company Common Stock for which each Company Stock Option or warrant,
as the case may be, is exercisable and the exercise price of each
Company Stock Option or warrant, as the case may be, and the Company
Stock Plans or other agreement that such Company Stock Options or
warrants are issuable under, are set forth in Section 4.03 of the
Company Disclosure Schedule. Except for (i) shares of Company Common
Stock issuable pursuant Company Stock Plans, and (ii) shares issuable
as specifically listed and indicated on Schedule 4.03 of the Company
Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character obligating
Company or any Company Subsidiary to issue or sell any shares of
capital stock of, or other equity interests in, Company or any Company
Subsidiary. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance prior to the Effective Time on the terms and
conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 4.03 of the Company's
Disclosure Schedule, there are no outstanding contractual obligations
of Company or any Company Subsidiary to repurchase, redeem or
otherwise acquire any shares of Company Common Stock or any capital
stock of any Company Subsidiary. Except as set forth in Section 4.03
of the Company's Disclosure Schedule, each outstanding share of
capital stock of each Company Subsidiary is duly authorized, validly
issued, fully paid and
18
<PAGE> 23
nonassessable and each such share owned by Company or another Company
Subsidiary is free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on
Company's or such other Company Subsidiary's voting rights, charges
and other encumbrances of any nature whatsoever. There are no
outstanding contractual obligations of Company or any Company
Subsidiary to provide funds to, guarantee indebtedness of, or make any
material investment (in the form of a loan, capital contribution or
otherwise) in, any Company Subsidiary or any other person, except as
set forth in Section 4.03 of the Company Disclosure Schedule.
(b) Schedule 4.03 correctly and completely sets forth each
agreement or obligation of the Company and/or any Company Subsidiary
to issue additional shares of Company Common Stock after the date
hereof if certain conditions are fulfilled, and correctly and
completely sets forth the maximum number of shares of Company Common
Stock issuable with respect to each business combination or otherwise
listed in Schedule 4.03 of the Company Disclosure Schedule and any
registration rights related to such shares. Such shares are
hereinafter called "Earn-out Company Shares."
(c) Provided that the Merger becomes effective, the terms of
each such business combination require each person entitled to receive
Earn-out Shares to accept in lieu of Company Common Stock the number
of shares of Parent Common Stock that would be issuable in the Merger
if such Company Common Stock were outstanding immediately prior to the
Effective time.
(d) The terms of each such business combination require each
person entitled to receive Earn-out Shares to accept Earn-out Shares
which have not been registered under the Securities Act and further
obligate such persons not to sell, transfer, pledge, hypothecate or
otherwise create any interest in the Earn-out Shares without such
registration or in a transaction except from the registration
requirements of the Securities Act and applicable state securities
laws.
(e) The consummation of the Merger will not trigger any
anti-dilution rights or price adjustment in connection with any
Outstanding Options and/or Warrants.
SECTION 4.04 Authority Relative to This Agreement
Company has all necessary corporate power and authority to execute and
deliver this Agreement to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement by Company and the consummation by Company of
the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no other corporate
proceedings on the part of Company are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby and thereby (other than,
with respect to the Merger, the approval of this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
with respect thereto at the Company Stockholders' Meeting (as defined in
Section 7.01), and the filing and recordation of the Certificate of Merger as
required by the FBCA). This
19
<PAGE> 24
Agreement has been duly executed and delivered by Company and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute legal, valid and binding obligations of Company, enforceable against
Company in accordance with their terms, subject to the effect of any applicable
bankruptcy, moratorium, insolvency, reorganization or other similar law
affecting the enforceability of creditors' rights generally and to the effect
of general principles of equity which may limit the availability of remedies
(whether in a proceeding at law or in equity).
SECTION 4.05 No Conflict; Required Filings and Consents
(a) Except as set forth in Section 4.05 of the Company
Disclosure Schedule, the execution and delivery of this Agreement by
Company do not, and the performance by Company of its obligations
hereunder and thereunder and the consummation of the Merger will not,
(i) conflict with or violate any provision of the certificate of
incorporation or bylaws of Company or any equivalent organizational
documents of any Company Subsidiary, (ii) assuming that all filings
and notifications described in Section 4.05(b) have been made and, to
the extent applicable approved, conflict with, violate, or constitute
a default in respect of any Governmental Authorization or Law
applicable to Company or any Company Subsidiary or by which any
material property or material asset of Company or any Company
Subsidiary is bound or affected or (iii) result in any breach of or
constitute a material default (or an event which with the giving of
notice or lapse of time or both could reasonably be expected to become
a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation
of a lien or other encumbrance on any material property or asset of
Company or any Company Subsidiary pursuant to, any material note,
bond, mortgage, indenture, contract, agreement, lease, license,
Company Permit (as defined below), franchise or other instrument or
obligation.
(b) Except as set forth in Section 4.05 of the Company's
Disclosure Schedule, the execution and delivery of this Agreement by
Company do not, and the performance by Company of its obligations
hereunder and the consummation of the Merger will not, require any
material consent, approval, authorization or permit of, or filing by
Company with or notification by Company to, any Governmental Entity,
except pursuant to applicable requirements of the Exchange Act, the
Securities Act, Blue Sky Laws, the rules and regulations of the NNM,
state takeover laws, the premerger notification requirements of the
HSR Act, and the filing and recordation of the Certificate of Merger
as required by the FBCA.
SECTION 4.06 Permits; Compliance with Laws
(a) Except as set forth in Section 4.06 of the Company
Disclosure Schedule, Company and the Company Subsidiaries are in
possession of all franchises, grants, authorizations, licenses,
establishment registrations, product listings, permits, easements,
variances, exceptions, consents, certificates, identification and
registration numbers, approvals and orders of any Governmental Entity
necessary for Company or any Company Subsidiary to own, lease and
operate its properties or to offer or perform its services or to
develop, produce, store, distribute and market its products or
otherwise to carry on its business as it is now being conducted
(collectively, the "Company
20
<PAGE> 25
Permits"), except for Company Permits which could not reasonably be
expected to have a Company Material Adverse Effect, and, as of the
date of this Agreement, none of the Company Permits has been suspended
or canceled nor is any such suspension or cancellation pending or, to
the knowledge of Company, threatened.
(b) Neither Company nor any Company Subsidiary is in conflict
with, or in default or violation of, (i) any Law applicable to Company
or any Company Subsidiary or by which any property or asset of Company
or any Company Subsidiary is bound or affected or (ii) any Company
Permits, except for conflicts, defaults or violations which could not
reasonably be expected to have a Company Material Adverse Effect.
Section 4.06 of the Company Disclosure Schedule sets forth, as of the
date of this Agreement, all actions, proceedings, investigations or
surveys pending or, to the knowledge of Company, threatened against
Company or any Company Subsidiary or to the Company's knowledge,
without any independent investigation, pending or threatened against
any Ophthalmologist/Optometrist Employee, that could reasonably be
expected to result in the suspension or cancellation of any other
material Company Permit. Since January 1, 1998, neither Company nor
any Company Subsidiary has received from any Governmental Entity any
written notification with respect to possible conflicts, defaults or
violations of Laws.
SECTION 4.07 SEC Filings; Financial Statements
(a) Except as disclosed in Section 4.07 of the Company
Disclosure Schedule, Company has timely filed all forms, reports,
statements and documents required to be filed by it (A) with the SEC
and the NNM since November 1, 1996 (collectively, together with any
such forms, reports, statements and documents Company may file
subsequent to the date hereof until the Closing, the "Company
Reports") and (B) with any other Governmental Entities. Except as
disclosed in Section 4.07 of the Company Disclosure Schedule, each
Company Report (i) was prepared in accordance with the requirements of
the Securities Act, the Exchange Act or the rules and regulations of
the NNM, as the case may be, in substantially all respects and (ii)
did not at the time it was filed contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not
misleading. Except as disclosed in Section 4.07 of the Company
Disclosure Schedule, each form, report, statement and document
referred to in clause (B) of this paragraph was prepared in all
material respects in accordance with the requirements of applicable
Law. No Company Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or required to file any form, report
or other document with the SEC, the NNM, any other stock exchange or
any other comparable Governmental Entity.
(b) Except as disclosed in Section 4.07 of the Company
Disclosure Schedule, each of the consolidated financial statements
(including, in each case, any notes thereto) contained in the Company
Reports was prepared in accordance with U.S. GAAP (except as may be
permitted by Form 10-Q under the Exchange Act) applied on a consistent
basis throughout the periods indicated (except as may be indicated in
the notes thereto) and each presented fairly, in all material
respects, the consolidated financial position of Company and the
consolidated Company Subsidiaries as at the
21
<PAGE> 26
respective dates thereof and for the respective periods indicated
therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring immaterial year-end
adjustments).
(c) Except as and to the extent set forth or reserved against
on the consolidated balance sheet of Company and the Company
Subsidiaries as reported in the Company Reports, including the notes
thereto, none of Company or any Company Subsidiary has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on a balance sheet
or in notes thereto prepared in accordance with U.S. GAAP, except for
immaterial liabilities or obligations incurred in the ordinary course
of business consistent with past practice since December 31, 1998, and
except as set forth in Section 4.07 of the Company Disclosure
Schedule.
SECTION 4.08 Absence of Certain Changes or Events
Except as set forth in Section 4.08 of the Company Disclosure
Schedules, since September 30, 1999, Company and the Company Subsidiaries have
conducted their businesses only in the ordinary course consistent with past
practice and, since such date, there has not been (i) any material changes in
or effect on the business, assets, liabilities, financial condition or results
of operations of Company or the Company Subsidiaries, (ii) any event that could
reasonably be expected to prevent or materially delay the performance of
Company's obligations pursuant to this Agreement and the consummation of the
Merger by Company, (iii) any material change by Company in its accounting
methods, principles or practices, (iv) any declaration, setting aside or
payment of any dividend or distribution in respect of the shares of Company
Common Stock or any redemption, purchase or other acquisition of any of
Company's securities, (v) except for changes in the ordinary course of business
consistent with past practice, any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting or repricing of stock options, stock appreciation
rights, performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any employees, officers, consultants or directors of Company
or any Company Subsidiary, (vi) any issuance or sale of any stock, notes, bonds
or other securities other than pursuant to the exercise of outstanding
securities, or entering into any agreement with respect thereto, or the
issuances of options under the Company Stock Plans, (vii) any amendment to the
Company's certificate of incorporation or bylaws, (viii) other than in the
ordinary course of business consistent with past practice, any (x) purchase,
sale, assignment or transfer of any material assets, (y) mortgage, pledge or
existence of any lien, encumbrance or charge on any material assets or
properties, tangible or intangible except for liens for Taxes not yet
delinquent, or (z) waiver of any rights of material value or cancellation or
any material debts or claims, (ix) any incurrence of any material liability
(absolute or contingent), except for current liabilities and obligations
incurred in the ordinary course of business consistent with past practice, (x)
any incurrence of any damage, destruction or similar loss, whether or not
covered by insurance, materially affecting the business or properties of
Company or
22
<PAGE> 27
any Company Subsidiary, or (xi) any entering into any transaction of a material
nature other than in the ordinary course of business, consistent with past
practice.
SECTION 4.09 Employee Benefit Plans; Labor Matters
(a) The Company Disclosure Schedule lists each employee
benefit fund, plan, program, arrangement and contract (including,
without limitation, any "pension" plan, fund or program, as defined in
Section 3(2) of ERISA, any "employee benefit plan", as defined in
Section 3(3) of ERISA and any plan, program, policy, arrangement or
contract providing for severance), whether currently in effect or
pursuant to which the Company or any Company Subsidiary has any
ongoing liability or obligation; medical, dental or vision benefits;
life insurance or death benefits; disability benefits, sick pay or
other wage replacement; vacation, holiday or sabbatical; pension or
profit-sharing benefits; stock options or other equity compensation;
bonus or incentive pay or other material fringe benefits) whether
written or not ("Benefit Plans"), maintained, sponsored or contributed
to or required to be contributed to by Company or any Company
Subsidiary (the "Company Benefit Plans"). With respect to each Company
Benefit Plan, Company has delivered or made available to Parent a
true, complete and correct copy of (i) such Company Benefit Plan (or,
if not written, a written summary of its material terms) and the most
recent summary plan description, if any, related to such Company
Benefit Plan, (ii) each trust agreement or other funding arrangement
relating to such Company Benefit Plan, (iii) the most recent annual
report (Form 5500) filed with the IRS with respect to such Company
Benefit Plan (and, if the most recent annual report is a Form 5500R,
the most recent Form 5500C filed with respect to such Company Benefit
Plan), (iv) the most recent actuarial report or financial statement
relating to such Company Benefit Plan and (v) the most recent
determination letter, if any, issued by the IRS with respect to such
Company Benefit Plan and any pending request for such a determination
letter. Neither Company nor any Company Subsidiary nor, to the
knowledge of Company, any other person or entity, has any express
commitment, whether legally enforceable or not, to modify, change or
terminate any Company Benefit Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
(b) Each Company Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable
laws, including ERISA and the Code, and contributions required to be
made under the terms of any of the Company Benefit Plans as of the
date of this Agreement have been timely made or, if not yet due, have
been properly reflected on the most recent consolidated balance sheet
filed or incorporated by reference in the Company Reports prior to the
date of this Agreement. With respect to the Company Benefit Plans, no
event has occurred and, to the knowledge of Company, there exists no
condition or set of circumstances in connection with which Company or
any Company Subsidiary could be subject to any liability (other than
for routine benefit liabilities) under the terms of, or with respect
to, such Company Benefit Plans, ERISA, the Code or any other
applicable Law.
(c) Company on behalf of itself and each Company ERISA
Affiliate (as defined below) hereby represents that: (i) each Company
Benefit Plan which is intended to qualify under Section 401(a),
Section 401(k), Section 401(m) or Section 4975(e)(6) of the Code has
received a favorable
23
<PAGE> 28
determination letter from the IRS as to its qualified status, and each
trust established in connection with any Company which is intended to
be exempt from federal income taxation under Section 501(a) of the
Code has received an opinion letter from the IRS that it is so exempt
or application for same is pending that is timely filed with the IRS,
and to Company's knowledge no fact or event has occurred that is
reasonably likely to materially adversely affect the qualified status
of any such Company Benefit Plan or the exempt status of any such
trust; (ii) to Company's knowledge there has been no prohibited
transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code and other than a transaction that is exempt under a
statutory or administrative exemption) with respect to any Company
Plan that could result in liability to the Company or a Company
Subsidiary and (iii) each Company Benefit Plan can be amended,
terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability (other than (A) liability
for ordinary administrative expenses typically incurred in a
termination event or (B) if the Company Benefit Plan is pension
benefit plan subject to Part 2 of Title I of ERISA, liability for the
accrued benefits as of the date of such termination (if and to the
extent required by ERISA)) to the extent that either there are
sufficient assets set aside in a trust or insurance contract to
satisfy such liability or such liability is reflected on the most
recent consolidated balance sheet filed or incorporated by reference
in the Company Reports prior to the date of this Agreement. No suit,
administrative proceeding, action or other litigation has been
brought, or to the knowledge of Company is threatened, against or with
respect to any such Company Benefit Plan, including any audit or
inquiry by the Internal Revenue Service or United States Department of
Labor (other than routine benefits claims).
(d) No Company Benefit Plan is a multiemployer pension plan
(as defined in Section 3(37) of ERISA) or other pension plan subject
to Title IV of ERISA and neither the Company, any Company Subsidiary
nor any other trade or business (whether or not incorporated) that is
under "common control" with Company or a Company Subsidiary (within
the meaning of ERISA Section 4001) or with respect to which Company or
any Company Subsidiary could otherwise incur liability under Title IV
of ERISA (a "Company ERISA Affiliate") has sponsored or contributed to
or been required to contribute to a multiemployer pension plan or
other pension plan subject to Title IV of ERISA. No material liability
under Title IV of ERISA has been incurred by Company, any Company
Subsidiary or any Company ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to
Company or any Company Subsidiary of incurring or being subject
(whether primarily, jointly or secondarily) to a material liability
thereunder. None of the assets of Company or any Company Subsidiary
is, or may reasonably be expected to become, the subject of any lien
arising under ERISA or Section 412(n) of the Code.
(e) With respect to each Benefit Plan required to be set
forth in the Disclosure Schedule that is subject to Title IV or Part 3
of Title I of ERISA or Section 412 of the Code, (i) no reportable
event (within the meaning of Section 4043 of ERISA, other than an
event that is not required to be reported before or within 30 days of
such event) has occurred or is expected to occur, (ii) there was not
an accumulated funding deficiency (within the meaning of Section 302
of ERISA or Section 412 of the Code), whether or not waived, as of the
most recently ended plan year of such Benefit Plan; and (iii) there is
no "unfunded benefit liability" (within the meaning of Section
4001(a)(18) of ERISA).
24
<PAGE> 29
(f) Company has delivered to Parent true, complete and
correct copies of (i) all employment agreements with officers and all
consulting agreements of Company and each Company Subsidiary, (ii) all
severance plans, agreements, programs and policies of Company and each
Company Subsidiary with or relating to their respective employees,
directors or consultants, and (iii) all plans, programs, agreements
and other arrangements of Company and each Company Subsidiary with or
relating to their respective employees, directors or consultants which
contain "change of control" provisions, and all such plans,
agreements, programs, and policies are specifically identified as such
on Section 4.09 of the Company Disclosure Schedule. Except as set
forth on Section 4.09 of the Company Disclosure Schedule, no payment
or benefit which may be required to be made by Company or any Company
Subsidiary or which otherwise may be required to be made under the
terms of any Company Benefit Plan or other arrangement will constitute
a parachute payment under Code Section 280(G)(1), and the consummation
of the transactions contemplated by this Agreement will not, alone or
in conjunction with any other possible event (including termination of
employment), (i) entitle any current or former employee or other
service provider of Company or any Company Subsidiary to severance
benefits or any other payment, compensation or benefit (including
forgiveness of indebtedness), and the amount such severance benefit or
any other payment is indicated in Section 4.04 of the Company
Distribution Schedule except as expressly provided by this Agreement,
or (ii) accelerate the time of payment or vesting, or increase the
amount of compensation or benefit due any such employee or service
provider.
(g) Neither Company nor any Company Subsidiary is a party to,
or has any obligations under or with respect to, any collective
bargaining or other labor union contract applicable to persons
employed by Company or any Company Subsidiary and no collective
bargaining agreement is being negotiated by Company or any Company
Subsidiary or any person or entity that may obligate the Company or
any Company Subsidiary thereunder. As of the date of this Agreement,
there is no labor dispute, strike, union organizing activity or work
stoppage against Company or any Company Subsidiary pending or, to the
knowledge of Company, threatened which may interfere with the
respective business activities of Company or any Company Subsidiary.
As of the date of this Agreement, to the knowledge of Company, none of
Company, any Company Subsidiary, or any of their respective
representatives or employees has committed any unfair labor practice
in connection with the operation of the respective businesses of
Company or any Company Subsidiary, and there is no charge or complaint
filed against Company or any Company Subsidiary by or with the
National Labor Relations Board or any comparable Governmental Entity
pending or threatened in writing.
(h) Except as required by Law, no Company Benefit Plan
provides any of the following retiree or post-employment benefits to
any person: medical, disability or life insurance benefits. To
Company's knowledge, Company and the Company ERISA Affiliates are in
compliance with (i) the requirements of the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and the regulations
(including proposed regulations) thereunder and (ii) the applicable
requirements of the Health Insurance Portability and Accountability
Act of 1996, as amended, and the regulations (including the proposed
regulations) thereunder.
25
<PAGE> 30
(i) Since November 1, 1998, neither the Company nor any
Company Subsidiary has terminated any at-will employee other than
pursuant to the forms of the notice attached hereto as Schedules
4.09(i)-1, 4.09(i)-2 or 4.09(i)-3. No single termination of at-will
employees, nor any group of terminations, constitutes a violation of
any federal or state law governing the closing of any plant or
termination or winding-up of any business.
SECTION 4.10 Certain Tax Matters
Neither Company, nor to Company's knowledge, any of its affiliates,
has taken or agreed to take any action (other than actions contemplated by this
Agreement) that could be expected to prevent the Merger from constituting a
"reorganization" under Section 368 of the Code. Company is not aware of any
agreement or plan to which Company or any of its affiliates is a party or other
circumstances relating to Company or any of its affiliates that could
reasonably be expected to prevent the Merger from so qualifying as a
reorganization under Section 368 of the Code.
SECTION 4.11 Contracts
(a) Section 4.11 of the Company Disclosure Schedule sets
forth a list of all material written and oral contracts or agreements
relating to the Company or any Company Subsidiary, including without
limitation any: (i) contract resulting in a commitment or potential
commitment for expenditure or other obligation or potential
obligation, or which provides for the receipt or potential receipt,
involving in excess of One Hundred Thousand Dollars ($100,000) in any
instance, or series of related contracts that in the aggregate give
rise to rights or obligations exceeding such amount, other than
contracts ("Customer Contracts") with health plans and providers,
entered into by the Company's managed care business in the ordinary
course of business, (ii) the twelve (12) largest Customer Contracts
based upon revenues generated to the Company; (iii) indenture,
mortgage, promissory note, loan agreement, guarantee or other
agreement or commitment for the borrowing or lending of money or
encumbrance of assets involving more than One Hundred Thousand Dollars
($100,000) in each instance; (iv) agreement which restricts the
Company from engaging in any line of business or from competing with
any other person; (v) warranties made with respect to products
manufactured, packaged, distributed or sold or services provided by
the Company; (vi) any agreement which terminates, or gives another
party the right to terminate such agreement, upon the completion of
the transaction contemplated by this Agreement; or (vii) any other
contract, agreement, instrument, arrangement or commitment that is
material to the condition (financial or otherwise), results of
operation, assets, properties, liabilities, business or prospects of
the Company (collectively, and together with all other agreements
required to be disclosed on the Company Disclosure Schedule the
"Company Material Contracts"). The Company has previously furnished to
Parent true, complete and correct copies of all written agreements, as
amended, required to be listed on Section 4.11 of the Company
Disclosure Schedule.
(b) The Company Material Contracts are each in full force and
effect and are the valid and legally binding obligations of the
Company and, to the best of Company's knowledge, the other
26
<PAGE> 31
parties thereto, enforceable in accordance with their respective
terms, subject only to bankruptcy, insolvency or similar laws
affecting the rights of creditors generally and to general equitable
principles. Except as set forth in Section 4.11 of the Company
Disclosure Schedule, the Company has not received notice of its
default under any of the Company Material Contracts and no event has
occurred which, with the passage of time or the giving of notice or
both, would constitute a default by the Company thereunder. Except as
set forth in the Company Disclosure Schedule, to the Company's
knowledge, none of the other parties to any of the Company Material
Contracts is in default thereunder, nor has an event occurred which,
with the passage of time or the giving of notice or both would
constitute a default by such other party thereunder. Except as set
forth in Section 4.11 of the Company Disclosure Schedule, the Company
has not received notice of the pending or threatened cancellation,
revocation or termination of any of the Company Material Contracts,
nor are any of them aware of any facts or circumstances which could
reasonably be expected to lead to any such cancellation, revocation or
termination.
(c) Except as otherwise indicated on Section 4.11 of the
Company Disclosure Schedule, to the Company's knowledge, after due
inquiry, the continuation, validity and effectiveness of the Company
Material Contracts under the current terms thereof will in no way be
affected by the consummation of the transactions contemplated by this
Agreement.
(d) Section 4.11 of the Company Disclosure Schedule
specifically identifies a list of all contracts which contain any
earn-out or contingency provision with respect to issuances of Company
Common Stock and/or any cash payments by the Company or Company
Subsidiaries.
(e) Section 4.11 of the Company Disclosure Schedule
identifies all agreements which restrict the Company from engaging in
any line of business or from competing with any other person.
SECTION 4.12 Litigation
Except as set forth in Section 4.12 of the Company Disclosure
Schedule, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of Company, threatened against Company or any Company
Subsidiary, and, to the knowledge of Company, there are no existing facts or
circumstances that could reasonably be expected to result in a suit, claim,
action, proceeding or investigation. Except as set forth in Section 4.12 of the
Company Disclosure Schedule, Company is not aware of any facts or circumstances
which could reasonably be expected to result in the denial of insurance
coverage under policies issued to Company and Company Subsidiaries in respect
of such suits, claims, actions, proceedings and investigations. Except as set
forth in Section 4.12 of the Company Disclosure Schedule, neither Company nor
any Company Subsidiary is subject to any outstanding order, writ, injunction or
decree.
27
<PAGE> 32
SECTION 4.13 Environmental Matters
Company and the Company Subsidiaries are in compliance with all
material applicable Environmental Laws and all Company Permits required by
Environmental Laws. All past noncompliance of Company or any Company Subsidiary
with Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future material obligation, cost or liability. Neither
Company nor any Company Subsidiary has released a Hazardous Material at, or
transported a Hazardous Material to or from, any real property currently or
formerly owned, leased or occupied by Company or any Company Subsidiary, in
violation of any Environmental Law.
SECTION 4.14 Intellectual Property
(a) Section 4.14(a) of the Company Disclosure Schedule
contains a true and complete list of Company's and the Company's
Subsidiaries patents, patent applications, registered trademarks,
trademark applications, trade names, registered service marks, service
mark applications, Internet domain names, Internet domain name
applications, copyright registrations and applications and other
filings and formal actions made or taken pursuant to Federal, state,
local and foreign laws by Company to protect its interests in Company
Intellectual Property, and includes details of all due dates for
further filings, maintenance, payments or other actions falling due in
respect of Company Intellectual Property within twelve (12) months of
the Effective Time. All of Company's patents, patent applications,
registered trademarks, and trademark applications, and registered
copyrights remain in good standing with all fees and filings due as of
the date hereof. The Company has previously provided Purchaser with a
list of all other trademarks and service marks which are material to
the Company's business.
(b) Company has made all registrations that Company
(including any of its subsidiaries) is required to have made in
relation to the processing of data, and is in good standing with
respect to such registrations with all fees due as of the Effective
Time duly made.
(c) Company Intellectual Property contains only those items
and rights which are: (i) owned by Company; (ii) in the public domain;
or (iii) rightfully used by Company pursuant to a valid and
enforceable license or other agreement (the "Company Licensed
Intellectual Property"), the parties, date, term and subject matter of
each such license or other agreement (each, a "License Agreement")
being set forth on Section 4.14(c) of the Company Disclosure Schedule.
Company has all rights in Company Intellectual Property necessary to
carry out Company's current activities and, to the knowledge of the
Company, the Company's future activities to the extent such future
activities are already planned, including without limitation, to the
extent required to carry out such activities, rights to make, use,
reproduce, modify, adopt, create derivative works based on, translate,
distribute (directly and indirectly), transmit, display and perform
publicly, license, rent and lease and, other than with respect to
Company Licensed Intellectual Property, assign and sell, Company
Intellectual Property.
28
<PAGE> 33
(d) The reproduction, manufacturing, distribution, licensing,
sublicensing, sale or any other exercise of rights in any Company
Intellectual Property, product, work, technology or process as now
used or offered or proposed for use, licensing or sale by Company does
not infringe on any patent, design right, trademark, trade name,
service mark, trade dress, Internet domain name, copyright, database,
statistical model, technology, invention, supplier list, trade secret,
know-how, computer software program or application of any person,
anywhere in the World. The Company has not received notice of any
claims (i) challenging the validity, effectiveness or, other than with
respect to Company Licensed Intellectual Property, ownership by
Company of any Company Intellectual Property, or (ii) to the effect
that the use, distribution, licensing, sublicensing, sale or any other
exercise of rights in any product, work, technology or process as now
used or offered or proposed for use, licensing, sublicensing or sale
by Company or its agents or use by its customers infringes or will
infringe on any intellectual property or other proprietary or personal
right of any person. To the knowledge of Company, no such claims have
been threatened by any person, nor are there any valid grounds for any
bona fide claim of any such kind. All of the rights within Company
Intellectual Property are enforceable and subsisting. To the knowledge
of Company, there is no unauthorized use, infringement or
misappropriation of any Company Intellectual Property by any third
party, employee or former employee.
(e) Except as set forth in section 4.14 of the Company
Disclosure Schedule, Company is not, nor as a result of the execution
or delivery of this Agreement, or performance of Company's obligations
hereunder, will Company be, in violation of any material license,
sublicense, agreement or instrument to which Company is a party or
otherwise bound, nor will execution or delivery of this Agreement, or
performance of Company's obligations hereunder, cause the diminution,
termination or forfeiture of any Company Intellectual Property.
(f) Section 4.14(f) of the Company Disclosure Schedule
contains a true and complete list of all software programs which are
owned by the Company (the "Company Software Programs"). Except as set
forth in section 4.14 of the Company Disclosure Schedule, Company owns
full and unencumbered right and good, valid and marketable title to
the Company Intellectual Property and the Company Software Programs
which are material to the Company's business free and clear of all
mortgages, pledges, liens, security interests, conditional sales
agreements, encumbrances or charges of any kind.
(g) Except as set forth in Section 4.14 of the Company
Disclosure Schedule, the Company Software Programs (i) have been
designed to ensure year 2000 compatibility, which includes, but is not
limited to, date data century recognition, and calculations that
accommodate same century and multi-century formulas and date values;
(ii) operate and will operate in accordance with their specifications
prior to, during and after the calendar year 2000; and (iii) shall not
end abnormally or provide invalid or incorrect results as a result of
date data, specifically including date data which represents or
references different centuries or more than one century.
29
<PAGE> 34
(h) Except as set forth in Section 4.14 of the Company
Disclosure Schedule, Company Intellectual Property is free and clear
of any and all mortgages, pledges, liens, security interests,
conditional sale agreements, encumbrances or charges of any kind.
(i) Except as set forth in the Company Disclosure Schedule,
Company (including its subsidiaries) does not owe any royalties or
other payments to third parties in respect of Company Intellectual
Property. All royalties or other payments set forth in the Company
Disclosure Schedule that have accrued prior to the Effective Time have
been paid.
SECTION 4.15 Taxes
(a) Company and each of the Company Subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of
which Company or any Company Subsidiary is or has been a member, have
properly completed and timely filed all Tax Returns required to be
filed by them and have paid all Taxes shown thereon to be due. Company
has provided adequate accruals in accordance with generally accepted
accounting principles in its latest financial statements included in
the Company Reports for any Taxes that have not been paid, whether or
not shown as being due on any Tax Returns. Company and the Company
Subsidiaries have no material liability for unpaid Taxes accruing
after the date of the Company's latest financial statements included
in the Company Reports.
(b) There is (i) no material claim for Taxes that is a lien
against the property of Company or any Company Subsidiary or is being
asserted against Company or any Company Subsidiary other than liens
for Taxes not yet due and payable, (ii) no audit of any Tax Return of
Company or any Company Subsidiary being conducted by a Tax Authority;
(iii) no extension of the statute of limitations on the assessment of
any Taxes granted by Company or any Company Subsidiary and currently
in effect, and (iv) no agreement, contract or arrangement to which
Company or any Company Subsidiary is a party that may result in the
payment of any amount that would not be deductible by reason of
Section 280G or Section 404 of the Code.
(c) There has been no change in ownership of Company or any
Company Subsidiaries that has caused the utilization of any losses of
such entities to be limited pursuant to Section 382 of the Code, and
any loss carryovers reflected on the latest financial statements
included in the Company Reports are properly computed and reflected.
(d) Except as set forth in Section 4.15 of the Company
Disclosure Schedule, Company and the Company Subsidiaries have not
been and will not be required to include any material adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to
Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
30
<PAGE> 35
(e) Neither Company nor any Company Subsidiary has filed or
will file any consent to have the provisions of paragraph 341(f)(2) of
the Code (or comparable provisions of any state Tax laws) apply to
Company or any Company Subsidiary.
(f) Neither Company nor any Company Subsidiary is a party to
any Tax sharing or Tax allocation agreement nor does Company or any
Company Subsidiary have any liability or potential liability to
another party under any such agreement.
(g) Neither Company nor any Company Subsidiary has filed any
disclosures under Section 6662 or comparable provisions of state,
local or foreign law to prevent the imposition of penalties with
respect to any Tax reporting position taken on any Tax Return.
(h) Company and each Company Subsidiary has in its possession
receipts for any Taxes paid to foreign Tax authorities. Neither
Company nor any Company Subsidiary has ever been a "personal holding
company" within the meaning of Section 542 of the Code or a "United
Sates real property holding corporation" within the meaning of Section
897 of the Code.
SECTION 4.16 Insurance
Company and each Company Subsidiary is presently insured, and during
each of the past five calendar years has been insured, against such risks, as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. The Company reasonably believes that the
policies of fire, theft, liability, medical malpractice, director and officer,
product liability and other insurance maintained with respect to the assets or
businesses of Company and Company Subsidiaries provide adequate coverage
against loss. Section 4.16 of the Company Disclosure Schedule sets forth a
complete and correct list as of the date hereof of all insurance policies
maintained by Company or the Company Subsidiaries, and Company has delivered to
Parent complete and correct copies of all such policies, together with all
riders and amendments thereto. All such policies are in full force and effect
and all premiums due thereon have been paid to the date hereof. Company and the
Company Subsidiaries have complied in all material respects with the terms of
such policies.
SECTION 4.17 Properties
(a) Company and the Company Subsidiaries have good title,
free and clear of all material mortgages, liens, pledges, charges or
other encumbrances to all their material (individually or in the
aggregate) tangible properties and assets, real, personal or mixed,
reflected in the Company's consolidated financial statements contained
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, as being owned by Company and the Company
Subsidiaries as of the date thereof, other than (i) any properties or
assets that have been sold or otherwise disposed of in the ordinary
course of business since the date of such financial statements, (ii)
liens disclosed in the notes to such financial statements and (iii)
liens arising in the ordinary course of business after the date of
31
<PAGE> 36
such financial statements. All buildings, and all fixtures, equipment
and other property and assets that are material to its business on a
consolidated basis, held under leases or sub-leases by Company or any
Company Subsidiary are held under valid instruments enforceable in
accordance with their respective terms, subject to applicable laws of
bankruptcy, insolvency or similar laws relating to creditors' rights
generally and to general principles of equity (whether applied in a
proceeding in law or equity). Substantially all of Company's and the
Company Subsidiaries' equipment in regular use has been reasonably
maintained and is in serviceable condition, reasonable wear and tear
excepted.
(b) Neither the Company nor any Company Subsidiary is
obligated as a lessee (which term as used herein includes sublessee
and similar terms) under any lease for real property, other than
Company leases related to the Practices (as defined in Section 6.12
hereof) and the leases set forth in Schedule 4.17 (the "Company
Leases").
SECTION 4.18 Affiliates
Section 4.18 of the Company Disclosure Schedule sets forth the name of
each person who is, in Company's reasonable judgment, an affiliate (as such
term is used in Rule 145 under the Securities Act.
SECTION 4.19 Opinion of Financial Advisor
PaineWebber Incorporated ("PaineWebber") has delivered to the board of
directors of Company its written opinion to the effect that, as of the date
hereof, the Exchange Ratio is fair to the holders of shares of Company Common
Stock from a financial point of view (the "Paine Webber Fairness Opinion").
SECTION 4.20 Brokers
The Company has furnished to Parent or its counsel a true and complete
copy of letter agreements (the "Engagement Letters") between the Company and
its counsel and its financial advisor, such Engagement Letters being the only
agreements pursuant to which such firms would be entitled to any payment
relating to the transactions contemplated hereunder. Other than Paine Webber
and as set forth in Section 4.20 of the Company Disclosure Schedule, no broker,
financial advisor or investment banker or other person is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any of its Subsidiaries.
32
<PAGE> 37
SECTION 4.21 Florida Business Corporation Law
For purposes of Section 607.0902 of the Florida Business Corporation
Law, the execution and delivery of this Agreement, the Stockholder Agreement
and the Purchase of shares of Company Common Stock or other securities issued
by the Company or by Parent and Merger Sub, including pursuant to the
Stockholder Agreement referred to in the preambles of this Agreement, will not
constitute a "control share acquisition" as defined in Section 607.0902(2) of
the Florida Business Corporation Law. Assuming Parent's representation in
Section 5.18 hereof is true, to Company's knowledge, no other state takeover
statute or similar statute or regulation applies or purports to apply to the
Merger, this Agreement, , the Stockholders Agreements or the transactions
contemplated by this Agreement, and the Stockholders Agreements.
SECTION 4.22 Business Activity Restriction
Except as set forth in Section 4.21 of the Company Disclosure
Schedule, there is no non-competition or other similar agreement, commitment,
judgment, injunction, order or decree to which Company or any subsidiary of
Company is a party or subject to that has or could reasonably be expected to
have the effect of prohibiting or impairing the conduct of business by Company.
Except as set forth in Section 4.21 of the Company Disclosure Schedule, Company
has not entered into any agreement under which Company is restricted in any
material respect from selling, licensing or otherwise distributing any of its
technology or products to, or providing services to, customers or potential
customers or any class of customers, in any geographic area, during any period
of time or in any segment of the market or line of business.
SECTION 4.23 Governmental Authorizations
The Company and, to the Company's Knowledge, without any independent
investigation, each Ophthalmologist/Optometrist Employee, possesses all
necessary licenses, franchises, permits and other governmental authorizations
(collectively, "Governmental Authorizations"), including, but not limited to
all licenses, franchises, permits and authorizations for the conduct of the
Company's business as now conducted (except for those Governmental
Authorizations the failure to possess individually or in the aggregate could
not reasonably be expected to have a Company Material Adverse Effect), all of
which are listed (with expiration dates, if applicable) on Section 4.23 of the
Company Disclosure. Except as set forth in Section 4.23 of the Company
Disclosure Schedule, the transactions contemplated by this Agreement will not
result in a default under or a breach or violation of, or adversely affect the
rights and benefits afforded by any licenses, franchises, permits or
authorizations, except for defaults, breaches or violations which individually
or in the aggregate could not reasonably be expected to have a Company Material
Adverse Effect. All licenses, franchises, permits and other authorizations are
valid and in full force and effect, except for those licenses, franchises,
permits and other Governmental Authorizations the failure to possess could not
reasonably be expected to have a Company Material Adverse Effect. The Company
and to the Company's Knowledge, without any independent investigation, each
Ophthalmologist/Optometrist Employee is currently in compliance therewith, and
the Company has not received any notice that
33
<PAGE> 38
any Governmental Entity is considering challenging, revoking, canceling,
restricting, conditioning or not renewing any license, franchise, permit or
other authorization, except for those licenses, franchises, permits and other
Governmental Authorizations the failure of which to possess could not
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in Section 4.23 of the Company Disclosure Schedule, the Governmental
Authorizations listed in Section 4.23 of the Company Disclosure Schedule
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its business in the manner
it currently conducts and operates such businesses and to permit it to own and
use its assets in the manner in which it currently owns and uses such assets.
SECTION 4.24 Gifts, Political Contributions, Unrecorded Funds
Neither the Company nor, to the Company's Knowledge without
independent investigation, any agent, Employee or independent contractor of the
Company has, in connection with the business of the Company (i) made or agreed
to make any contribution, payment, or gift to any customer, supplier, landlord,
political candidate, governmental official, official of any health plan,
patient, employee, or agent where either the contribution, payment, or gift or
the purpose thereof was illegal under any law or regulation; (ii) established
or maintained any unrecorded fund or asset for any purpose or made any false
entries on its respective books and records for any reason; (iii) made or
agreed to make any contribution, or reimbursed any political gift or
contribution made by any other Person, to any candidate for federal, state, or
local public office in violation of any law or regulation; or (iv) submitted
any claim for services rendered or reimbursement for expenses to any Person
where the services were not actually rendered or the expenses were not actually
incurred.
SECTION 4.25 No Dissenters' Rights
The Company's Common Stock is designated as a national market system
security within the meaning of Section 607.1302 of the FBCA. The Company's
Articles of Incorporation or Bylaws do not provide the holders of any class or
series of capital stock of the Company with dissenters' rights under Section
607.1302 of the FBCA or any other applicable law.
SECTION 4.26 Board Recommendation
The Board of Directors of the Company, at a meeting duly called and
held, has unanimously (i) approved this Agreement, (ii) determined that this
Agreement and the transactions contemplated hereby, including the Merger, are
in the best interests of the stockholders of the Company and (iii) resolved
subject to its fiduciary duties under applicable law to recommend that the
stockholders of the Company adopt this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
34
<PAGE> 39
Parent hereby represents and warrants to Company, subject to the
exceptions specifically disclosed in the Parent Disclosure Schedule, all such
exceptions to be referenced to a specific representation set forth in this
Article V or to otherwise be clearly applicable to the representations hereof
not specifically referenced, that (it being understood that for purposes of
this Article V, unless the context otherwise requires, the term Parent shall be
deemed to include all of the Parent's Subsidiaries:
SECTION 5.01 Organization and Qualification; Subsidiaries
(a) Parent and each directly and indirectly owned subsidiary
of Parent (the "Parent Subsidiaries") has been duly organized and is
validly existing and in good standing (to the extent applicable) under
the laws of the jurisdiction of its incorporation or organization, as
the case may be, and has the requisite corporate power and authority
to own, lease and operate its properties and to carry on its business
as it is now being conducted. Except as set forth in Section 5.01 of
the Parent Disclosure Schedule, Parent and each Parent Subsidiary is
duly qualified or licensed to do business, and is in good standing (to
the extent applicable), in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its
business makes such qualification or licensing necessary, except for
such failure to be so qualified or licensed and in good standing that
could not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
(b) Section 5.01 of the Parent Disclosure Schedule sets
forth, as of the date of this Agreement, a true and complete list of
each Parent Subsidiary, together with (i) the jurisdiction of
incorporation or organization of each Parent Subsidiary and the
percentage of each Parent Subsidiary's outstanding capital stock or
other equity interests owned by Parent or another Parent Subsidiary
and (ii) an indication of whether each Parent Subsidiary is a
"Significant Subsidiary" as defined in Regulation S-X under the
Exchange Act. Except as set forth in Section 5.01 of the Parent
Disclosure Schedule, neither Parent nor any Parent Subsidiary owns an
equity interest in any partnership or joint venture arrangement or
other business entity that is material to the business, assets,
liabilities, financial condition or results of operations of Parent
and the Parent Subsidiaries, taken as a whole.
SECTION 5.02 Certificate of Incorporation and Bylaws
The copies of each of Parent's and Merger Subs, certificate of
incorporation and bylaws previously provided to Company by Parent are true,
complete and correct copies thereof. Such certificate of incorporation and
bylaws are in full force and effect. Parent is not in violation of any of the
provisions of its certificate of incorporation or bylaws.
SECTION 5.03 Capitalization
(a) The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock and 5,000,000 shares of
preferred stock ("Parent Preferred Stock"). As of January 28, 2000
35
<PAGE> 40
(which numbers are not materially different on the date hereof), (i)
12,543,556 shares of Parent Common Stock are issued and outstanding,
all of which are validly issued, fully paid and nonassessable, (ii) no
shares of Parent Common Stock are held in the treasury of Parent,
(iii) no shares of Parent Common Stock are held by Parent
Subsidiaries, (iv) approximately 2,007,976 shares of Parent Common
Stock are reserved for future issuance pursuant to outstanding options
and warrants to purchase Parent Common Stock ("Parent Stock Options"),
and (v) 418,803 shares of Parent Preferred Stock are outstanding.
Except as set forth in Section 5.03 of the Parent Disclosure Schedule
or shares of Parent Common Stock issuable pursuant to the Parent Stock
Plans, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character obligating Parent or any
Parent Subsidiary to issue or sell any shares of capital stock of, or
other equity interests in, Parent or any Parent Subsidiary. All shares
of Parent Common Stock subject to issuance as aforesaid, upon issuance
prior to the Effective Time on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. Except as
set forth in Section 5.03 of the Parent Disclosure Schedule, there are
no outstanding contractual obligations of Parent or any Parent
Subsidiary to repurchase, redeem or otherwise acquire any shares of
Parent Common Stock or any capital stock of any Parent Subsidiary.
Except as set forth in Section 5.03 of the Parent Disclosure Schedule,
each outstanding share of capital stock of each Parent Subsidiary is
duly authorized, validly issued, fully paid and nonassessable and each
such share owned by Parent or another Parent Subsidiary is free and
clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Parent's or such
other Parent Subsidiary's voting rights, charges and other
encumbrances of any nature whatsoever.
(b) The consummation of the Merger will not trigger any
anti-dilution rights or price adjustment in connection with any
options to purchase Parent Common Stock.
SECTION 5.04 Authority Relative to This Agreement
Each of Parent and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each of Parent and Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action, and no
other corporate proceedings on the part of Parent or Merger Sub are necessary
to authorize this Agreement or to consummate such transactions (other than the
approval of this Agreement and the Merger by the holders of a majority of the
outstanding shares of Parent Common Stock present at the Parent Shareholders'
Meeting and the consent of Parent as sole stockholder of Merger Sub). This
Agreement has been duly executed and delivered by each of Parent and Merger Sub
and, assuming the due authorization, execution and delivery by Company,
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub enforceable against Parent and Merger Sub in accordance with its terms.
SECTION 5.05 No Conflict; Required Filings and Consents
36
<PAGE> 41
(a) The execution and delivery of this Agreement by Parent
and Merger Sub does not, and the performance by Parent and Merger Sub
of their obligations hereunder and the consummation of the Merger will
not, except as set forth in Section 5.05 of the Parent Disclosure
Schedule, (i) conflict with or violate any provision of the articles
of incorporation or bylaws of Parent or any equivalent organizational
documents of any Parent Subsidiary, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 5.05(b)
have been obtained and all filings and notifications described in
Section 5.05(b) have been made, conflict with or violate any Law
applicable to Parent or any other Parent Subsidiary or by which any
material property or material asset of Parent or any Parent Subsidiary
is bound or affected or (iii) result in any material breach of or
constitute a material default (or an event which with the giving of
notice or lapse of time or both could reasonably be expected to become
a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation
of a lien or other encumbrance on any material property or asset of
Parent or any Parent Subsidiary pursuant to, any Parent Material
Contract (as defined below) or Parent Permit (as defined below).
(b) The execution and delivery of this Agreement by Parent
and Merger Sub does not, and the performance by Parent and Merger Sub
of their obligations hereunder and the consummation of the Merger will
not, require any material consent, approval, authorization or permit
of, or filing by Parent with or notification by Parent to, any
Governmental Entity, except as set forth in Section 5.05 of the Parent
Disclosure Schedule or pursuant to applicable requirements of the
Exchange Act, the Securities Act, Blue Sky Laws, the rules and
regulations of the AMEX, state takeover laws, the premerger
notification requirements of the HSR Act, if any, and the filing and
recordation of the Certificate of Merger as required by the FBCA.
37
<PAGE> 42
SECTION 5.06 Permits; Compliance with Laws
Except as set forth in Section 5.06 of the Parent Disclosure Schedule,
Parent and the Parent Subsidiaries are in possession of all franchises, grants,
authorizations, licenses, establishment registrations, product listings,
permits, easements, variances, exceptions, consents, certificates,
identification and registration numbers, approvals and orders of any
Governmental Entity necessary for Parent or any Parent Subsidiary to own, lease
and operate its properties or to offer or perform its services or to develop,
produce, store, distribute and market its products or otherwise to carry on its
business as it is now being conducted (collectively, the "Parent Permits")
except for Parent permits which could not reasonably be expected to have a
Parent Material Adverse Effect, and, as of the date of this Agreement, none of
the Parent Permits has been suspended or canceled nor is any such suspension or
cancellation pending or, to the knowledge of Parent, threatened. Neither Parent
nor any Parent Subsidiary is in conflict with, or in default or violation of,
(i) any Law applicable to Parent or any Parent Subsidiary or by which any
material property or asset of Parent or any Parent Subsidiary is bound or
affected or (ii) any Parent Permits, except for conflicts, defaults or
violations which could not reasonably be expected to have a Parent Material
Adverse Effect. Section 5.06 of the Parent Disclosure Schedule sets forth, as
of the date of this Agreement, all actions, proceedings, investigations or
surveys pending or, to the knowledge of Parent, threatened against Parent or
any Parent Subsidiary that could reasonably be expected to result in the
suspension or cancellation of any other material Parent Permit. Except as set
forth in Section 5.06 of the Parent Disclosure Schedule, since August 13, 1999,
neither Parent nor any Parent Subsidiary has received from any Governmental
Entity any written notification with respect to possible conflicts, defaults or
violations of Laws.
SECTION 5.07 SEC Filings; Financial Statements
(a) Parent has timely filed all forms, reports, statements
and documents required to be filed by it (A) with the SEC and the AMEX
since July 1, 1999 (collectively, together with any such forms,
reports, statements and documents Parent may file subsequent to the
date hereof until the Closing, the "Parent Reports") and (B) with any
other Governmental Entities. Each Parent Report (i) was prepared in
accordance with the requirements of the Securities Act, the Exchange
Act or the AMEX, as the case may be, substantially in all respects and
(ii) did not at the time it was filed contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not
misleading. Each form, report, statement and document referred to in
clause (B) of this paragraph was prepared in all material respects in
accordance with the requirements of applicable Law. No Parent
Subsidiary is subject to the periodic reporting requirements of the
Exchange Act or required to file any form, report or other document
with the SEC, the AMEX, any other stock exchange or any other
comparable Governmental Entity.
(b) Except as is provided in the Parent Reports, each of the
consolidated financial statements (including, in each case, any notes
thereto) contained in the Parent Reports was prepared in accordance
with GAAP applied on a consistent basis throughout the periods
indicated (except as
38
<PAGE> 43
may be indicated in the notes thereto) and each presented fairly, in
all material respects, the consolidated financial position of Parent
and the consolidated Parent Subsidiaries as at the respective dates
thereof and for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited statements,
to normal and recurring immaterial year-end adjustments).
(c) Except as and to the extent set forth or reserved against
on the consolidated balance sheet of Parent and the Parent
Subsidiaries as reported in the Parent Reports, including the notes
thereto, none of Parent or any Parent Subsidiary has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on a balance sheet
or in notes thereto prepared in accordance with GAAP, except for
immaterial liabilities or obligations incurred in the ordinary course
of business consistent with past practice since June 30, 1999 that
have not had or could not reasonably be expected to have, individually
or in the aggregate, a Parent Material Adverse Effect.
(d) Parent has furnished to Company copies of the unaudited
consolidated and consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and for
the months ended October 31 and November 30, 1999 for the Parent and
the Parent Subsidiaries (collectively, the "Financial Statements").
The Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby
(except as may be indicted in the notes thereto), present fairly, in
all material respects, the consolidated financial condition of the
Parent and the consolidated Parent Subsidiaries as of such dates and
the results of operations of the Parent and the Parent Subsidiaries
for such periods provided, however, that the Financial Statements are
subject to normal and recurring immaterial year-end adjustments and
lack footnotes and other presentation items.
(e) Parent has sold 3,571, 428 shares of Parent Common Stock
offered pursuant to its Registration Statement on Form S-1 declared
effective by the SEC on January 19, 2000 at purchase price of $3.50
per share. As of the date hereof, the net proceeds have been used by
Parent in the manner described in such Form S-1.
SECTION 5.08 Absence of Certain Changes or Events
39
<PAGE> 44
Except as set forth in Section 5.08 of the Parent Disclosure Schedule,
since September 30, 1999, Parent and the Parent Subsidiaries have conducted
their businesses only in the ordinary course consistent with past practice and,
since such date, there has not been (i) any material changes in or effect on
the business, assets, liabilities, financial condition or results of operations
of Parent or the Parent Subsidiaries, (ii) any event that could reasonably be
expected to prevent or materially delay the performance of Parent's obligations
pursuant to this Agreement and the consummation of the Merger by Parent, (iii)
any material change by Parent in its accounting methods, principles or
practices, (iv) any declaration, setting aside or payment of any dividend or
distribution in respect of the shares of Parent Common Stock or any redemption,
purchase or other acquisition of any of Parent's securities, (v) except for
changes in the ordinary course of business consistent with past practice, any
increase in the compensation or benefits or establishment of any bonus,
insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting or repricing
of stock options, stock appreciation rights, performance awards or restricted
stock awards), stock purchase or other employee benefit plan, or any other
increase in the compensation payable or to become payable to any employees,
officers, consultants or directors of Parent or any Parent Subsidiary, (vi) any
issuance or sale of any stock, notes, bonds or other securities other than
pursuant to the exercise of outstanding securities, or entering into any
agreement with respect thereto, or the issuances of options under the Parent
Stock Plans, (vii) any amendment to the Parent's certificate of incorporation
or bylaws, (viii) other than in the ordinary course of business consistent with
past practice, any (x) purchase, sale, assignment or transfer of any material
assets, (y) mortgage, pledge or existence of any lien, encumbrance or charge on
any material assets or properties, tangible or intangible except for liens for
Taxes not yet delinquent, or (z) waiver of any rights of material value or
cancellation or any material debts or claims, (ix) any incurrence of any
material liability (absolute or contingent), except for current liabilities and
obligations incurred in the ordinary course of business consistent with past
practice, (x) any incurrence of any damage, destruction or similar loss,
whether or not covered by insurance, materially affecting the business or
properties of Parent or any Parent Subsidiary, or (xi) any entering into any
transaction of a material nature other than in the ordinary course of business,
consistent with past practice.
SECTION 5.09 Employee Benefit Plans; Labor Matters
40
<PAGE> 45
(a) The Parent Disclosure Schedule lists each material
employee benefit fund, plan, program, arrangement and contract
(including, without limitation, any "pension" plan, fund or program,
as defined in Section 3(2) of ERISA, any "employee benefit plan", as
defined in Section 3(3) of ERISA and any plan, program, policy,
arrangement or contract providing for severance), whether currently in
effect or pursuant to which the Parent has any ongoing liability or
obligation; medical, dental or vision benefits; life insurance or
death benefits; disability benefits, sick pay or other wage
replacement; vacation, holiday or sabbatical; pension or
profit-sharing benefits; stock options or other equity compensation;
bonus or incentive pay or other material fringe benefits) whether
written or not ("Benefit Plans"), maintained, sponsored or contributed
to or required to be contributed to by Parent or any Parent Subsidiary
(the "Parent Benefit Plans"). With respect to each Parent Benefit
Plan, Parent has delivered or made available to Company a true,
complete and correct copy of (i) such Parent Benefit Plan (or, if not
written, a written summary of its material terms) and the most recent
summary plan description, if any, related to such Parent Benefit Plan,
(ii) each trust agreement or other funding arrangement relating to
such Parent Benefit Plan, (iii) the most recent annual report (Form
5500) filed with the IRS with respect to such Parent Benefit Plan
(and, if the most recent annual report is a Form 5500R, the most
recent Form 5500C filed with respect to such Parent Benefit Plan),
(iv) the most recent actuarial report or financial statement relating
to such Parent Benefit Plan and (v) the most recent determination
letter, if any, issued by the IRS with respect to such Parent Benefit
Plan and any pending request for such a determination letter. Neither
Parent nor any Parent Subsidiary nor, to the knowledge of Parent, any
other person or entity, has any express commitment, whether legally
enforceable or not, to modify, change or terminate any Parent Benefit
Plan, other than with respect to a modification, change or termination
required by ERISA or the Code.
(b) Except as set forth in Section 5.08 of the Parent
Disclosure Schedule, Parent has delivered to Company true, complete
and correct copies of (i) all employment agreements with officers and
all consulting agreements of Parent and each Parent Subsidiary, (ii)
all severance plans, agreements, programs and policies of Parent and
each Parent Subsidiary with or relating to their respective employees,
directors or consultants, and (iii) all plans, programs, agreements
and other arrangements of Parent and each Parent Subsidiary with or
relating to their respective employees, directors or consultants which
contain "change of control" provisions, and all such plans,
agreements, programs, and policies are specifically identified as such
on Section 5.09 of the Parent Disclosure Schedule. Except as set forth
in Section 5.09 of the Parent Disclosure Schedule, no payment or
benefit which may be required to be made by Parent or any Parent
Subsidiary or which otherwise may be required to be made under the
terms of any Parent Benefit Plan or other arrangement will constitute
a parachute payment under Code Section 280(G)(1), and the consummation
of the transactions contemplated by this Agreement will not, (i)
entitle any current or former employee or other service provider of
Parent or any Parent Subsidiary to severance benefits or any other
payment, compensation or benefit (including forgiveness of
indebtedness) or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation or benefit due any such employee
or service provider.
(c) Neither Parent nor any Parent Subsidiary is a party to,
or has any obligations under or with respect to, any collective
bargaining or other labor union contract applicable to persons
41
<PAGE> 46
employed by Parent or any Parent Subsidiary and no collective
bargaining agreement is being negotiated by Parent or any Parent
Subsidiary or any person or entity that may obligate the Parent or any
Parent Subsidiary thereunder. As of the date of this Agreement, there
is no labor dispute, strike, union organizing activity or work
stoppage against Parent or any Parent Subsidiary pending or, to the
knowledge of Parent, threatened which may interfere with the
respective business activities of Parent or any Parent Subsidiary. As
of the date of this Agreement, to the knowledge of Parent, none of
Parent, any Parent Subsidiary, or any of their respective
representatives or employees has committed any unfair labor practice
in connection with the operation of the respective businesses of
Parent or any Parent Subsidiary, and there is no charge or complaint
filed against Parent or any Parent Subsidiary by or with the National
Labor Relations Board or any comparable Governmental Entity pending or
threatened in writing.
SECTION 5.10 Certain Tax Matters
(a) Neither Parent, nor to Parent's knowledge, any of its
affiliates, has taken or agreed to take any action (other than actions
contemplated by this Agreement) that could be expected to prevent the
Merger from constituting a "reorganization" under Section 368 of the
Code. Parent is not aware of any agreement or plan to which Parent or
any of its affiliates is a party or other circumstances relating to
Parent or any of its affiliates that could reasonably be expected to
prevent the Merger from so qualifying as a reorganization under
Section 368 of the Code.
(b) Parent and each of the Parent Subsidiaries, and any
consolidated, combined, unitary or aggregated group for Tax purposes
of which Parent or any Parent Subsidiary is or has been a member, have
properly completed and timely filed all Tax Returns required to be
filed by them and have paid all Taxes shown thereon to be due. Parent
has provided adequate accruals in accordance with generally accepted
accounting principles in its latest financial statements included in
the Parent Reports for any Taxes that have not been paid, whether or
not shown as being due on any Tax Returns. Parent and the Parent
Subsidiaries have no material liability for unpaid Taxes accruing
after the date of the Parent's latest financial statements included in
the Parent Reports.
(c) There is (i) no material claim for Taxes that is a lien
against the property of Parent or any Parent Subsidiary or is being
asserted against Parent or any Parent Subsidiary other than liens for
Taxes not yet due and payable, (ii) no audit of any Tax Return of
parent or any Parent Subsidiary being conducted by a Tax Authority;
(iii) no extension of the statute of limitations on the assessment of
any Taxes granted by Parent or any Parent Subsidiary and currently in
effect, and (iv) no agreement, contract or arrangement to which Parent
or any Parent Subsidiary is a party that may result in the payment of
any amount that would not be deductible by reason of Section 280G or
Section 404 of the Code.
42
<PAGE> 47
SECTION 5.11 Contracts
(a) Section 5.11 of the Parent Disclosure Schedule sets forth
a list of all material written and oral contracts or agreements
relating to the Parent, including without limitation any: (i) contract
resulting in a commitment or potential commitment for expenditure or
other obligation or potential obligation, or which provides for the
receipt or potential receipt, involving in excess of One Hundred
Thousand Dollars ($100,000) in any instance, or series of related
contracts that in the aggregate give rise to rights or obligations
exceeding such amount, other than contracts with health plans and
providers, entered into by the Parent's managed care business in the
ordinary course of business, (ii) the twelve (12) largest customer
contracts based upon revenues generated to the Parent; (iii)
indenture, mortgage, promissory note, loan agreement, guarantee or
other agreement or commitment for the borrowing or lending of money or
encumbrance of assets involving more than One Hundred Thousand Dollars
($100,000) in each instance; (iv) agreement which restricts the Parent
from engaging in any line of business or from competing with any other
person; (v) warranties made with respect to products manufactured,
packaged, distributed or sold or services provided by the Parent; (vi)
any agreement which terminates, or gives another party the right to
terminate such agreement, upon the completion of the transaction
contemplated by this Agreement; or (vii) any other contract,
agreement, instrument, arrangement or commitment that is material to
the condition (financial or otherwise), results of operation, assets,
properties, liabilities, business or prospects of the Parent
(collectively, and together with all other agreements required to be
disclosed on the Parent Disclosure Schedule the "Parent Material
Contracts"). The Parent has previously furnished to Parent true,
complete and correct copies of all written agreements, as amended,
required to be listed on Section 5.11 of the Parent Disclosure
Schedule.
(b) The Parent Material Contracts are each in full force and
effect and are the valid and legally binding obligations of the Parent
and, to the best of Parent's knowledge, the other parties thereto,
enforceable in accordance with their respective terms, subject only to
bankruptcy, insolvency or similar laws affecting the rights of
creditors generally and to general equitable principles. The Parent
has not received notice of its default under any of the Parent
Material Contracts and no event has occurred which, with the passage
of time or the giving of notice or both, would constitute a default by
the Parent thereunder. To the Parent's knowledge, none of the other
parties to any of the Parent Material Contracts is in default
thereunder, nor has an event occurred which, with the passage of time
or the giving of notice or both would constitute a default by such
other party thereunder. The Parent has not received notice of the
pending or threatened cancellation, revocation or termination of any
of the Parent Material Contracts, nor are any of them aware of any
facts or circumstances which could reasonably be expected to lead to
any such cancellation, revocation or termination.
(c) Except as otherwise indicated on Section 5.11 of the
Parent Disclosure Schedule, to the Parent's knowledge, after due
inquiry, the continuation, validity and effectiveness of the Parent
Material Contracts under the current terms thereof will in no way be
affected by the consummation of the transactions contemplated by this
Agreement.
43
<PAGE> 48
SECTION 5.12 Litigation
There is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of Parent, threatened against Parent or any Parent
Subsidiary, and, to the knowledge of Parent, there are no existing facts or
circumstances that could reasonably be expected to result in a suit, claim,
action, proceeding or investigation. Parent is not aware of any facts or
circumstances which could reasonably be expected to result in the denial of
insurance coverage under policies issued to Parent and Parent Subsidiaries in
respect of such suits, claims, actions, proceedings and investigations. Neither
Parent nor any Parent Subsidiary is subject to any outstanding order, writ,
injunction or decree.
SECTION 5.13 Environmental Matters
Parent and the Parent Subsidiaries are in material compliance with all
applicable Environmental Laws and all Parent Permits required by Environmental
Laws. All past noncompliance of Parent or any Parent Subsidiary with
Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future material obligation, cost or liability. Neither
Parent nor any Parent Subsidiary has released a Hazardous Material at, or
transported a Hazardous Material to or from, any real property currently or
formerly owned, leased or occupied by Parent or any Parent Subsidiary, in
violation of any Environmental Law.
SECTION 5.14 Insurance
Parent and each Parent Subsidiary is presently insured, and during
each of the past five calendar years has been insured, against such risks, as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. The Parent reasonably believes that the
policies of fire, theft, liability, medical malpractice, director and officer,
product liability and other insurance maintained with respect to the assets or
businesses of Parent and Parent Subsidiaries provide, adequate coverage against
loss. Parent has made available to Company a complete and correct list as of
the date hereof of all insurance policies maintained by Parent or the Parent
Subsidiaries, and has made available to Company complete and correct copies of
all such policies, together with all riders and amendments thereto. All such
policies are in full force and effect and all premiums due thereon have been
paid to the date hereof. Parent and the Parent Subsidiaries have complied in
all material respects with the terms of such policies.
SECTION 5.15 Properties
Parent and the Parent Subsidiaries have good title, free and clear of
all material mortgages, liens, pledges, charges or other encumbrances to all
their material tangible properties and material assets, real, personal or
mixed, reflected in the Parent's consolidated financial statements for the
quarterly period ended September 30, 1999, as being owned by Parent and the
Parent Subsidiaries as of the date thereof, other than (i) any properties or
assets that have been sold or otherwise disposed of in the ordinary course of
business since the date of such financial statements, (ii) liens
44
<PAGE> 49
disclosed in the notes to such financial statements and (iii) liens arising in
the ordinary course of business after the date of such financial statements or
disclosed in Section 5.15 of the Parent Disclosure Schedule. All buildings, and
all fixtures, equipment and other property and assets that are material to its
business on a consolidated basis, held under leases or sub-leases by Parent or
any Parent Subsidiary are held under valid instruments enforceable in
accordance with their respective terms, subject to applicable laws of
bankruptcy, insolvency or similar laws relating to creditors' rights generally
and to general principles of equity (whether applied in a proceeding in law or
equity). Substantially all of Parent's and the Parent Subsidiaries' equipment
in regular use has been reasonably maintained and is in serviceable condition,
reasonable wear and tear excepted.
SECTION 5.16 Opinion of Financial Advisor
Legg Mason Wood Walker, Incorporated ("Legg Mason") has delivered to
the board of directors of Parent its written opinion to the effect that, as of
the date hereof, the Exchange Ratio is fair to the holders of shares of Parent
Common Stock from a financial point of view (the "Legg Mason Fairness
Opinion").
SECTION 5.17 Brokers
Except as set forth on Section 5.17 of Parent Disclosure Schedule, no
broker, finder or investment banker (other than Legg Mason and J.P. Morgan
Securities, Inc.) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of Parent. Parent has heretofore made available to Parent true, complete
and correct copies of all agreements between Parent, on the one hand, and Legg
Mason and/or J.P. Morgan Securities, Inc., on the other hand, pursuant to which
such firms would be entitled to any payment relating to the Merger.
SECTION 5.18 No Interested Shareholders
To Parent's knowledge, neither the Company nor any "affiliate" or
"associate" of the Company is an "interested shareholder" as those terms are
defined in 607.0901 of the FBCA.
SECTION 5.19 Governmental Authorizations
The Parent and, to the Parent's knowledge, without any independent
investigation, each Ophthalmologist/Optometrist Employee, possesses all
necessary licenses, franchises, permits and other governmental authorizations
(collectively, "Governmental Authorizations"), including, but not limited to,
all licenses, franchises, permits and authorizations for the conduct of the
Parent's business as now conducted, except for those licenses, franchises,
permits and other governmental authorizations the failure of which to possess
could not reasonably be expected to have a Parent Material Adverse Effect.
Except as set forth in Section 5.19 of the Parent Disclosure Schedule, the
transactions contemplated by this Agreement will not result in a default under
or a breach or violation of, or adversely affect the rights and benefits
afforded by any material licenses, franchises,
45
<PAGE> 50
permits or authorizations, except for those licenses, franchises, permits and
other governmental authorizations the failure of which to possess could not
reasonably be expected to have a Parent Material Adverse Effect . All such
licenses, franchises, permits and other authorizations are valid and in full
force and effect, except for those licenses, franchises, permits and other
governmental authorizations the failure of which to possess could not
reasonably be expected to have a Parent Material Adverse Effect. The Parent and
to the Parent's knowledge, without any independent investigation, each
Ophthalmologist/Optometrist Employee is currently in compliance therewith, and
the Parent has not received any notice that any Governmental Entity is
considering challenging, revoking, canceling, restricting, conditioning or not
renewing any material license, franchise, permit or other authorization except
for those licenses, franchises, permits and other governmental authorizations
the failure of which to possess could not reasonably be expected to have a
Parent Material Adverse Effect.
SECTION 5.20 Intellectual Property.
The Parent and the Parent Subsidiaries have ownership of or rights to
use each patent, patent application, copyright (whether or not registered),
copyright application, trademark (whether or not registered), trademark
application, trade name, service mark, and other trade secret or proprietary
intellectual property owned by or used in and material to the business of the
Parent and the Parent Subsidiaries, taken as a whole (collectively, a "Parent
Intellectual Property"). The Parent has been provided with a list of all
patents, trademarks and copyrights and applications therefor owned by or
licensed to the Parent or any Subsidiary that are material to the conduct of
the business of the Parent and the Parent Subsidiaries, taken as a whole, as
now operated. To the Parent's Knowledge, none of the previous or current
development, manufacture, marketing or distribution of products or services of
or by the Parent or any Parent Subsidiary infringes the right of any other
person, except for any such infringements that, in the aggregate, have not
resulted in, and could not reasonably be expected to result in, a Parent
Material Adverse Effect. To the Parent's Knowledge, without any independent
investigation, no other person is infringing the rights of the Parent or any
Parent Subsidiary in any such Parent Intellectual Property, except for any such
infringements that, in the aggregate, have not resulted in, and could not
reasonably be expected to result in, a Parent Material Adverse Effect. To the
best of Parent's knowledge, Parent's material software and hardware are year
2000 compliant, except to the extent noncompliance should not or could not
reasonably be expected to cause a Parent Material Adverse Effect.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business by Company Pending the Closing
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Company shall not
46
<PAGE> 51
knowingly take any action a principal purpose of which is, and the reasonably
likely result of which would be, a material delay in or interference with the
consummation of the Merger.
Company agrees that, between the date of this Agreement and the
Effective Time, unless Parent shall otherwise agree in writing, and except as
set forth below or as a result of entering into this Agreement, (x) the
respective businesses of Company and the Company Subsidiaries shall be
conducted only in, and Company and the Company Subsidiaries shall not take any
action except in, the ordinary course of business consistent with past practice
and (y) Company shall use all commercially reasonable efforts to keep available
the services of such of the current officers, significant employees and
consultants of Company and the Company Subsidiaries and shall use commercially
reasonable efforts to preserve the current relationships of Company and the
Company Subsidiaries with such of the corporate partners, customers, suppliers
and other persons with which Company or any Company Subsidiary has significant
business relations in order to preserve substantially intact its business
organization. By way of amplification and not limitation, neither Company nor
any Company Subsidiary shall, between the date of this Agreement and the
Effective Time, directly or indirectly, do, or agree to do, any of the
following without the prior written consent of Parent and except as a result of
entering into this Agreement or except as set forth in Section 6.01 of the
Company Disclosure Schedule:
(a) amend or otherwise change its certificate of
incorporation or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, sale,
pledge, disposition, grant, transfer, lease, license or encumbrance
of, (i) any shares of capital stock of Company or any Company
Subsidiary of any class, or securities convertible into or
exchangeable or exercisable for any shares of such capital stock, or
any options, warrants or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of Company or
any Company Subsidiary, other than the issuance of shares of Company
Common Stock pursuant to the exercise of stock options theretofore
outstanding as of the date of this Agreement, or (ii) any material
property or assets of Company or any Company Subsidiary, including,
but not limited to, the property or assets of MEC, except providing
products and services in the ordinary course of business consistent
with past practice;
(c) (i) except as to business interests in new refractive
centers or ambulatory surgical centers pursuant to the Company's
business plan and after written notice to Parent, acquire (including,
without limitation, by merger, consolidation, or acquisition of stock
or assets) any interest in any corporation, partnership, other
business organization or person or any division thereof; (ii) incur
any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person (other than Company and
Company Subsidiaries) for borrowed money or make any loans or
advances, other than routine employee loans to employees other
47
<PAGE> 52
than Company officers (not to exceed $1,000 to any individual),
material to the business, assets, liabilities, financial condition or
results of operations of Company and the Company Subsidiaries, taken
as a whole, other than borrowing under the Company's credit facility
for use in operating the Company in the ordinary course of business,
or to pay or discharge debt or liabilities for an amount less than
reflected or reserved against on the Company Balance Sheet; (iii)
terminate, cancel or request any material change in, or agree to any
material change in, any Company Material Contract; (iv) make or
authorize any capital expenditure, other than capital expenditures in
the ordinary course of business consistent with past practice that
have been included in the fiscal year 2000 budget ("Budget") delivered
to Parent and disclosed in writing to Parent and that are not, in the
aggregate, in excess of $75,000 for Company and the Company
Subsidiaries taken as a whole; or (v) enter into or amend any
contract, agreement, commitment or arrangement that, if fully
performed, would not be permitted under this Section 6.01(c);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, except that any Company
Subsidiary may pay dividends or make other distributions to Company or
any other Company Subsidiary;
(e) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital
stock;
(f) except as contemplated herein, amend or change the period
(or permit any acceleration, amendment or change) of exercisability of
options granted under the Company Stock Plans or other options and
warrants, reprice any options or warrants, or authorize cash payments
in exchange for any Company Stock Options granted under any of such
plans;
(g) except in connection with the closing of the Practice
Dispositions, amend the terms of, repurchase, redeem or otherwise
acquire, or permit any Company Subsidiary to repurchase, redeem or
otherwise acquire, any of its securities or any securities of any
Company Subsidiary or propose to do any of the foregoing;
(h) enter into any contract or agreement, which, if entered
into prior to the date hereof, would be a Material Contract, amend or
terminate any existing Material Contract, or take any action which
would terminate an existing Material Contract, or would give any party
to an existing Material Contract the right to terminate such Material
Contract;
(i) increase the compensation payable or to become payable to
its directors, officers, consultants or employees, except as required
by the agreements which are set forth in Section 6.01 of the Company
Disclosure Schedule, or grant any rights to severance or termination
pay to, or enter into any employment or severance agreement which
provides benefits upon a change in control of Company that would be
triggered by the Merger with, any director, officer, consultant or
other employee of Company or any Company Subsidiary who is not
48
<PAGE> 53
currently entitled to such benefits from the Merger, establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any director, officer, consultant or employee of Company or
any Company Subsidiary, except to the extent required by applicable
Law, or enter into or amend any contract, agreement, commitment or
arrangement between Company or any Company Subsidiary and any of
Company's directors, officers, consultants or employees;
(j) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than (x) the payment, discharge or satisfaction in
the ordinary course of business and consistent with past practice of
liabilities reflected or reserved against on the consolidated balance
sheet of Company and the consolidated the Company Subsidiaries dated
as of September 30, 1999 included in Company's quarterly report on
Form 10-Q for the period then ended (the "Company Balance Sheet") but
only to the extent reflected or to the extent of such reserves or (y)
incurred in the ordinary course of business since September 30, 1999
or (z) to pay or discharge any such liability for an amount less than
reflected or reserved against on the Company Balance Sheet;
(k) except for accounting changes for discontinued business
operations of the Practice Dispositions and the Corporate Optometry
businesses in accordance with GAAP, make any change with respect to
Company's accounting policies, principles, methods or procedures,
including, without limitation, revenue recognition policies, other
than as required by GAAP;
(l) make any material Tax election or settle or compromise
any material Tax liability; or
(m) except as otherwise permitted in connection with this
Agreement, authorize or enter into any formal or informal agreement or
otherwise make any commitment to do any of the foregoing or to take
any action which would make any of the representations or warranties
of Company contained in this Agreement untrue or incorrect or result
in any of the conditions to the Merger set forth herein not being
satisfied.
SECTION 6.02 Notices of Certain Events
Each of Parent and Company shall give prompt notice to the other of
(i) any notice or other communication from any person alleging that the consent
of such person is or may be required in connection with the Merger; (ii) any
notice or other communication from any Governmental Entity in connection with
the Merger; (iii) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting Parent or the Parent Subsidiaries or Company or the Company
Subsidiaries, respectively, or that relate to the consummation of the Merger;
(iv) the occurrence of a default or event that, with the giving of notice or
lapse of time or both, will become a default under any Parent Material Contract
49
<PAGE> 54
or Company Material Contract, respectively; and (v) any change that could
reasonably be expected to have a Parent Material Adverse Effect or a Company
Material Adverse Effect, respectively, or to delay or impede the ability of
either Parent or Company, respectively, to perform their respective obligations
pursuant to this Agreement and to effect the consummation of the Merger.
SECTION 6.03 Access to Information; Confidentiality
(a) Except as required pursuant to any confidentiality
agreement or similar agreement or arrangement to which Parent or
Company or any of the Parent Subsidiaries or the Company Subsidiaries
is a party or pursuant to applicable Law or the regulations or
requirements of any stock exchange or other regulatory organization
with whose rules a party hereto is required to comply, from the date
of this Agreement to the Effective Time, Parent and Company shall (and
shall cause the Parent Subsidiaries and Company Subsidiaries,
respectively, to) (i) provide to the other (and its officers,
directors, employees, accountants, consultants, legal counsel, agents
and other representatives (collectively, "Representatives")) access at
reasonable times upon prior notice to its and its subsidiaries'
officers, employees, agents, properties, offices and other facilities
and to the books and records thereof, and (ii) furnish promptly such
information concerning its and its subsidiaries' business, properties,
contracts, assets, liabilities and personnel as the other party or its
Representatives may reasonably request. All such investigations and
access shall be conducted in a manner as not to interfere unreasonably
with the business operations of the Company. No investigation
conducted pursuant to this Section 6.03 shall affect or be deemed to
modify any representation or warranty made in this Agreement.
(b) The parties hereto shall comply with, and shall cause
their respective Representatives to comply with, all of their
respective obligations under the Confidentiality Agreement with
respect to the information disclosed pursuant to this Section 6.03 or
pursuant to the Confidentiality Agreement.
SECTION 6.04 No Solicitation of Transactions
(a) Except as provided in Section 6.04(b) below, Company
shall not, directly or indirectly, and shall cause its Representatives
not to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing nonpublic information), any inquiries
or the making of any proposal or offer (including, without limitation,
any proposal or offer to its stockholders) that constitutes, or may
reasonably be expected to lead to, any Competing Transaction, or enter
into or maintain or continue discussions or negotiate with any person
in furtherance of such inquiries or to obtain a Competing Transaction,
or agree to or endorse any Competing Transaction, or authorize or
permit any of Company's Representatives or subsidiaries, or any
Representative retained by Company's subsidiaries, to take any such
action; provided, however, that nothing contained in this Section
6.04(a) shall prohibit the board of directors of Company (i) from
complying with Rule 14d-9 or 14e-2(a) promulgated under the Exchange
Act with regard to a tender or exchange offer not made in violation of
this Section 6.04(a) or (ii) prior to receipt of the approval by the
stockholders of Company of this Agreement and the Merger from
providing information (subject to a confidentiality
50
<PAGE> 55
agreement at least as restrictive as the Confidentiality Agreement) in
connection with, and negotiating, another unsolicited, bona fide
written proposal regarding a Competing Transaction that (x) Company's
board of directors shall have concluded in good faith, after
considering applicable state law, on the basis of the advice of
independent outside counsel that such action is necessary to prevent
Company's board of directors from violating its fiduciary duties to
Company's stockholders under applicable law, and with respect to which
Company's board of directors shall have determined (based upon the
advice of Company's independent financial advisors) in the proper
exercise of its fiduciary duties to Company's stockholders that the
acquiring party is capable of consummating such Competing Transaction
on the terms proposed, and (y) Company's board of directors shall have
determined in the proper exercise of its fiduciary duties to Company's
stockholders that such Competing Transaction provides greater value to
the stockholders of Company than the Merger (based upon the written
opinion of Company's independent financial advisors that such
Competing Transaction is superior from a financial point of view) (any
such Competing Transaction being referred to herein as a "Superior
Proposal"). Any violation of the restrictions set forth in this
Section 6.04(a) by any Representative of Company or any of its
Subsidiaries, whether or not such Person is purporting to act on
behalf of Company or otherwise, shall be deemed to be a breach of this
Section 6.04(a) by Company. Company shall notify Parent promptly if
any proposal or offer, or any inquiry or contact with any person with
respect thereto, regarding a Competing Transaction is made, such
notice to include the identity of the person making such proposal,
offer, inquiry or contact, and the terms of such Competing
Transaction, and shall keep Parent apprised, on a current basis, no
later than 24 hours after any change or modification of any such
Competing Transaction, of the status of such Competing Transaction and
of any modifications to the terms thereof. Company immediately shall
cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to a
Competing Transaction. Company shall not release any third party from,
or waive any provision of, any confidentiality or standstill agreement
to which it is a party.
(b) Except as permitted by this Section 6.04(b), the
Company's Board of Directors shall not (i) withdraw, modify or change
its approval or recommendation of this Agreement, or propose publicly
to withdraw, modify or change the Merger or any of the transactions
contemplated hereby, (ii) approve or recommend or publicly propose to
approve or recommend a Competing Transaction, (iii) cause the Company
to enter into any letter agreement, letter of intent, agreement in
principle or definitive agreement or similar agreement providing for a
Competing Transaction, or (iv) resolve to do any of the foregoing,
unless prior to the Company Stockholders' Meeting, the Company
receives an unsolicited proposal for a Competing Transaction and the
Board of Directors or the Company determines reasonably and in good
faith, after due investigation, that (a) such proposal is a Superior
Proposal based upon the written opinion of the Company's independent
financial advisors that such Competing Transaction is superior from a
financial point of view, (b) the Person making such Superior Proposal
is reasonably capable of consummating such Superior Proposal in a
timely fashion and (c) based upon the advice of independent outside
counsel, the failure of the Board of Directors of the Company to
withdraw or modify its approval or recommendation of this Agreement or
the Merger, or approve or recommend such Superior Proposal, would be
inconsistent with its fiduciary duties under applicable law. In such
case, the Board may withdraw or modify its
51
<PAGE> 56
recommendation, and approve and recommend such Superior Proposal,
provided the Board of Directors of the Company (i) at least five (5)
Business Days prior to taking such action, provides to Parent written
notice of the Company's intention to accept the Superior Proposal,
(ii) during such period, gives parent a reasonable opportunity to
propose modifications to the Merger Consideration and negotiates such
modifications in good faith with the objective of allowing Parent to
match the Superior Proposal and (iii) at the end of such period, (A)
reasonably and in good faith continues to believe that the other
proposal is a Superior Proposal, (B) simultaneously terminates this
Agreement, (C) concurrently causes the Company to enter into a
definitive acquisition agreement with respect to such Superior
Proposal and (D) concurrently pays to Parent the Termination Fee and
Parent's Expenses as provided in Section 9.05. Nothing contained in
this Section 6.04(b) shall prohibit the Company from taking and
disclosing to its stockholders a position contemplated by Rule 14d-9
or Rule 14e-2(a) promulgated under the Exchange Act; provided that the
Company does not withdraw or modify its position with respect to the
Merger or approve or recommend a proposal for a Competing Transaction
except as provided in this Section 6.04(b).
SECTION 6.05 TaxFree Transaction
From and after the date of this Agreement, each party hereto shall use
all reasonable efforts to cause the Merger to qualify, and shall not knowingly
take any actions or cause any actions to be taken which could reasonably be
expected to prevent the Merger from qualifying as a "reorganization" under
Section 368(a) of the Code.
SECTION 6.06 Control of Operations
Nothing contained in this Agreement shall give Parent, directly or
indirectly, the right to control or direct the operations of Company and the
Company Subsidiaries prior to the Effective Time. Prior to the Effective Time,
Company shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its operations.
SECTION 6.07 Further Action; Consents; Filings
(a) Upon the terms and subject to the conditions hereof, each
of the parties hereto shall use all reasonable efforts to (i) take, or
cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable under applicable Law
or otherwise to consummate and make effective the Merger, (ii) obtain
from any Governmental Entity any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by
Parent or Company or any of their respective subsidiaries in
connection with the authorization, execution and delivery of this
Agreement and the consummation of the Merger and (iii) make all
necessary filings, and thereafter make any other required or
appropriate submissions, with respect to this Agreement and the Merger
required under (A) the rules and regulations of the AMEX or the NNM,
as the case may be, (B) the Securities Act, the Exchange Act and any
other applicable Federal or state securities Laws, (C) the HSR Act, if
any, and (D) any other applicable Law. The parties hereto shall
cooperate and consult with each other in connection with the making of
all such filings, including by providing copies of all such documents
to the nonfiling parties and their advisors prior to filing, and none
of
52
<PAGE> 57
the parties shall file any such document if any of the other parties
shall have reasonably objected to the filing of such document. No
party shall consent to any voluntary extension of any statutory
deadline or waiting period or to any voluntary delay of the
consummation of the Merger at the behest of any Governmental Entity
without the consent and agreement of the other parties hereto, which
consent shall not be unreasonably withheld or delayed. The Parent
shall not be required to divest itself or the Company of any assets or
business in order to obtain approval in connection with the HSR Act or
otherwise.
(b) Each of Company and Parent will give (or will cause their
respective subsidiaries to give) any notices to third persons, and
use, and cause their respective subsidiaries to use, reasonable
efforts to obtain any consents from third persons necessary, proper or
advisable (as determined in good faith by Parent with respect to such
notices or consents to be delivered or obtained by Company) to
consummate the transactions contemplated by this Agreement.
SECTION 6.08 Additional Reports
Company and Parent shall each furnish to the other copies of any
reports of the type referred to in Sections 4.07 and 5.06, which it files with
the SEC on or after the date hereof, and Company and Parent, as the case may
be, covenant and warrant that as of the respective dates thereof, such reports
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Any unaudited consolidated interim financial statements included in
such reports (including any related notes and schedules) will fairly present in
all material respects the financial position of Company and its consolidated
subsidiaries or Parent and its consolidated subsidiaries, as the case may be,
as of the dates thereof and the results of operations and changes in financial
position or other information including therein for the periods or as of the
date then ended (subject, where appropriate, to normal year-end adjustments),
in each case in accordance with past practice and U.S. GAAP consistently
applied during the periods involved (except as otherwise disclosed in the notes
thereto).
SECTION 6.09 Conduct of Business by Parent
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement pursuant to its terms or the
Effective Time, Parent shall not knowingly take any action a principal purpose
of which is, and the reasonably likely result of which would be, a material
delay in or interference with the consummation of the Merger. Neither Parent
nor any Parent Subsidiary shall, between the date of this Agreement and the
Effective Time, directly or indirectly, do, or agree to do, any of the
following without the prior written consent of Company, except as a result of
entering into or as contemplated by this Agreement or except as set forth in
Section 6.09 of the Parent Disclosure Schedule:
53
<PAGE> 58
(a) amend or otherwise change its certificate of
incorporation or bylaws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, sale,
pledge, disposition, grant, transfer, lease, license or encumbrance
of, (i) more than outstanding 20% of the shares of capital stock of
Parent or any shares of capital stock of a Parent Subsidiary of any
class, or securities convertible into or exchangeable or exercisable
for any shares of such capital stock, or any options, warrants or
other rights of any kind to acquire more than 20% of the outstanding
shares of such capital stock or any other ownership interest
(including, without limitation, any phantom interest), of Parent or
any Parent Subsidiary, other than the issuance of shares of Parent
common stock pursuant to the exercise of stock options granted
pursuant to the Parent Stock Plans, or (ii) any material property or
material assets of Parent or any Parent Subsidiary, except providing
products and services in the ordinary course of business consistent
with past practice;
(c) (i) an acquisition (including, without limitation, by
merger, consolidation, or acquisition of stock or assets) of any
interest in any corporation, partnership, other business organization
or person or any division thereof which would be considered a
"Significant Subsidiary" of the Parent (after taking into effect the
Merger); (ii) except in connection with an acquisition permitted
pursuant to the foregoing clause (i), incur any material indebtedness
for borrowed money or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person
which are material to the Parent (other than Parent and Parent
Subsidiaries) for borrowed money or make any loans or advances,
material to the business, assets, liabilities, financial condition or
results of operations of Parent and the Parent Subsidiaries, taken as
a whole, other than borrowings under the Parent's credit facility for
use in operating the business; or (iii) enter into or amend any
contract, agreement, commitment or arrangement in which the Parent is
obligated to perform and, if fully performed, would not be permitted
under this Section 6.09(c);
(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, except that any Parent Subsidiary
may pay dividends or make other distributions to Parent or any other
Parent Subsidiary;
(e) reclassify, combine, split or subdivide any of its
capital stock;
(f) amend or change the period (or permit any acceleration,
amendment or change) of exercisability of options granted under the
Parent Stock Plans or other options and warrants or take any action to
reprice any such options and warrants;
54
<PAGE> 59
(g) authorize or enter into any formal or informal agreement
or otherwise make any commitment to do any of the foregoing or take
any action which would result in any of the conditions to the merger
set forth herein not being satisfied.
(h) take any action resulting in the delisting of Parent from
the Amex; and
(i) take any action resulting in a Parent Material Adverse
Effect.
SECTION 6.10 Post Merger Directors and Officers
The Board of Directors of Parent will take all actions necessary to
increase the number of members of the Board of Directors of Parent and to cause
three designees of the Company, with one such designee being an independent
director as determined under the new rules of the AMEX (the "Company
Nominees"), to be appointed to the Board of Directors of Parent as of the
Effective Time, each Company Nominee to hold office in accordance with the
Certificate of Incorporation and By-laws of Parent.
SECTION 6.11 Bank Restructuring
The Company and the Company's Subsidiaries will use commercially
reasonable efforts to enter into a Letter of Intent (the "Letter of Intent")
with Bank of Montreal (the "Company Bank") no later than forty-five (45) days
after the execution of this Agreement, which provides, among other things, that
each of the parties to the Existing Credit Agreement agrees to proceed in good
faith to amend the Existing Credit Agreement upon consummation of the Merger on
terms and provisions which in the aggregate are no less favorable to the
Company than those contained in Parent's existing credit facility with Bank
Austria and which are acceptable to each of Parent and the Company, and that
Parent is a third party beneficiary to the Letter of Intent, and the Company
shall use its commercially reasonable efforts to finalize the amendment in
accordance with the Letter of Intent. The Parent will use commercially
reasonable efforts to enter into a Letter of Intent (the "Bank Austria Letter
of Intent") with Bank Austria, no later than forty-five (45) days after the
execution of this Agreement, which provides, among other things, that each of
the parties to the Bank Austria Credit Agreement agrees to proceed in good
faith to amend the Bank Austria Credit Agreement upon consummation of the
Merger upon terms and provisions which are acceptable to each of Parent and the
Company, and Parent shall use its best efforts to finalize the amendment in
accordance with the Bank Austria Letter of Intent. The parties agree to
consolidate the loans into one senior credit facility with Company Bank and
Bank Austria serving as co-agents in the event the banks request the same.
55
<PAGE> 60
SECTION 6.12 Disposition of Practices
The Company will use its commercially reasonable efforts to (i)
complete the termination of all of its management relationships with all of its
Ophthalmology and Optometry Practices (including the Corporate Optometry
practices), including any practice that the Company is obligated under a
contract or otherwise to purchase, all of which Ophthalmology and Optometry
Practices (including the Corporate Optometry practices) are set forth in
Section 6.12 of the Company Disclosure Schedule (the "Practices"); provided,
however, that such Practices shall not include for the purposes of this Section
6.12 the Company's Talbert operation in Arizona ("Talbert") if the Parent and
the Company agree in writing within 45 days from the date hereof to maintain
Talbert and (ii) transfer all of the assets and leases relating to the
Practices back to the Practices and cause or have an agreement which will cause
all of such Practices to assume all liabilities and obligations relating to
such Practices (collectively, the "Practice Dispositions"), on such terms which
are satisfactory to the Parent, pursuant to which the Company shall obtain
releases from the Practices containing language substantially the same as set
forth on Annex J hereto whereby the Company will be unconditionally and
irrevocably released and forever discharged from all rights, claims, demands,
obligations, liabilities and damages (collectively, the "Obligations"), whether
accrued or unaccrued, asserted or unasserted and whether known or unknown
relating to or in connection with the Company's arrangements and agreements
with the Practices which ever existed, now exist or may hereafter exist, except
with respect to any Obligations incurred after the Effective Time pursuant to
ongoing relationships with Practices approved by Parent. The Company will
cancel any options to purchase the Company's securities held by such Practices
or their stockholders, affiliates or related parties in connection with the
Practice Dispositions, effective no later than the date of the closing of such
Practice Dispositions. The net proceeds received by the Company in connection
with the Practice Dispositions will be used substantially by the Company to
reduce the amount outstanding under the Existing Credit Agreement and for
operations and the settlement of debts approved by the Company Bank and Parent.
SECTION 6.13 Financing Commitments
The Parent will use its commercially reasonable efforts to enter into
a financing commitment ("Financing Term Sheet") on or before the date that is
forty-five (45) days from the date hereof, which commitment may be subject to
the exception, among others, that the investor shall be satisfied with the 1999
year-end audited financial statements of the Company, and which commitment
involves a Financing in an amount not less than Thirty Million Dollars
($30,000,000) (the "Financing") through the issuance of equity, equity linked
or subordinated debt securities in one or more public or private transactions,
which commitment terms shall be reasonably acceptable to Parent and Company,
and Parent shall use its commercially reasonable efforts to finalize the
Financing in accordance with such commitment.
SECTION 6.14 Standstill Agreement
56
<PAGE> 61
The Company will use its commercially reasonable efforts to enter into
a Standstill Agreement (the "Standstill Agreement") with the Company Bank
within forty-five (45) days of the execution of this Agreement.
SECTION 6.15 Voting
Each of the stockholders who granted an irrevocable proxy pursuant to
the Company Stockholder Agreement and the Parent Stockholder Agreement, as the
case may be, will vote any shares of the Company's Common Stock held by them,
or which they have the right to vote, in favor of approval of the Merger, or
the issuance of shares in connection with the Merger, as the case may be, in
person, or by proxy.
SECTION 6.16 Waiver
The Company will use its commercially reasonable efforts to obtain, on
or before the date that is 45 days after the date of this Agreement, (i) a
release and waiver (the "Block Waiver") of all restrictions set forth in
Section 10, and any provisions related thereto, of that certain Asset Purchase
Agreement, dated June 4, 1999, among Block Vision Inc., Block Buying Group LLC
and the Company (the "Block Agreement") or (ii) a final nonappealable judgment
from a Florida court of competent jurisdiction holding that Section 10 of the
Block Agreement, and the provisions related thereto, are not enforceable
against Parent.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Registration Statement; Joint Proxy Statement
(a) As promptly as practicable after the execution of this
Agreement, Parent and Company shall jointly prepare and shall file
with the SEC a document or documents that will constitute (i) the
prospectus forming part of the registration statement on Form S-4 of
Parent (together with all amendments thereto, the "Registration
Statement"), in connection with the registration under the Securities
Act of Parent Common Stock to be issued to Company's stockholders
pursuant to the Merger and (ii) the joint proxy statement with respect
to the Merger relating to the special meetings of Company's
stockholders to be held to consider approval of this Agreement and the
Merger (the "Company Stockholders' Meeting") and of Parent's
stockholders to be held to consider approval of the issuance of Parent
Common Stock (the "Share Issuance") to Company's stockholders pursuant
to the Merger (the "Parent Stockholders' Meeting") (together with any
amendments thereto, the "Joint Proxy Statement"). Copies of the Joint
Proxy Statement shall be provided to the AMEX and the NNM in
accordance with its rules. Each of the parties hereto shall use all
reasonable efforts to cause the Registration Statement to become
effective as promptly as practicable after the date hereof, and, prior
to the effective date of the Registration Statement, the parties
hereto shall take all action
57
<PAGE> 62
required under any applicable Laws in connection with the issuance of
shares of Parent Common Stock pursuant to the Merger. Parent or
Company, as the case may be, shall furnish all information concerning
Parent or Company as the other party may reasonably request in
connection with such actions and the preparation of the Registration
Statement and the Joint Proxy Statement. As promptly as practicable
after the effective date of the Registration Statement, the Joint
Proxy Statement shall be mailed to the stockholders of Company and of
Parent. Each of the parties hereto shall cause the Joint Proxy
Statement to comply as to form and substance as to such party in all
material respects with the applicable requirements of (i) the Exchange
Act, (ii) the Securities Act, (iii) the rules and regulations of the
AMEX and the NNM.
(b) The Joint Proxy Statement shall include (i) the approval
of the Merger and the recommendation of the board of directors of
Company to Company's stockholders that they vote in favor of approval
of this Agreement and the Merger, subject to the right of the board of
directors of the Company to withdraw its recommendation and recommend
a Superior Proposal in compliance with Section 6.04 of this Agreement,
and (ii) the opinion of PaineWebber referred to in Section 4.19. The
Joint Proxy Statement shall include (A) the approval of the Share
Issuance and the recommendation of the board of directors of Parent to
Parent's stockholders that they vote in favor of approval of the Share
Issuance, and (B) the opinion of Legg Mason referred to in Section
5.16.
(c) No amendment or supplement to the Joint Proxy Statement
or the Registration Statement shall be made without the approval of
Parent and Company, which approval shall not be unreasonably withheld
or delayed. Each of the parties hereto shall advise the other parties
hereto, promptly after it receives notice thereof, of the time when
the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the
suspension of the qualification of the Parent Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction,
or of any request by the SEC for amendment of the Joint Proxy
Statement or the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
(d) None of the information supplied by Company for inclusion
or incorporation by reference in the Registration Statement or the
Joint Proxy Statement shall, at the respective times filed with the
SEC or other regulatory agency and, in addition, (A) in the case of
the Joint Proxy Statement, at the date it or any amendments or
supplements thereto are mailed to stockholders of Parent and Company,
at the time of the Company Stockholders' Meeting, at the time of the
Parent Shareholders' Meeting and at the Effective Time and (B) in the
case of the Registration Statement, when it becomes effective under
the Securities Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any
event or circumstance relating to Company or any Company Subsidiary,
or their respective officers or directors, should be discovered by
Company that should be set forth in an amendment or a supplement to
the Registration Statement or the Joint Proxy Statement, Company shall
promptly inform Parent. All documents that Company is responsible for
filing with the SEC in connection with the Merger will comply as to
form in all
58
<PAGE> 63
material respects with the applicable requirements of the rules and
regulations of the Securities Act and the Exchange Act.
(e) None of the information supplied by Parent for inclusion
or incorporation by reference in the Registration Statement or the
Joint Proxy Statement shall, at the respective times filed with the
SEC or other regulatory agency and, in addition, (A) in the case of
the Joint Proxy Statement, at the date it or any amendments or
supplements thereto are mailed to stockholders of Parent and Company,
at the time of Company Stockholders' meeting, at the time of the
Parent Shareholders' Meeting and at the Effective Time and (B) in the
case of the Registration Statement, when it becomes effective under
the Securities Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are
made, not misleading. If, at any time prior to the Effective Time, any
event or circumstance relating to Parent or any Parent Subsidiary, or
their respective officers or directors, should be discovered by Parent
that should be set forth in an amendment or a supplement to the
Registration Statement or the Joint Proxy Statement, Parent shall
promptly inform Company. All documents that Parent is responsible for
filing with the SEC in connection with the Merger will comply as to
form in all material respects with the applicable requirements of the
rules and regulations of the Securities Act and the Exchange Act.
59
<PAGE> 64
SECTION 7.02 Stockholders' Meetings
Company shall call and hold the Company Stockholders' Meeting and
Parent shall call and hold the Parent Stockholders' Meeting as promptly as
practicable after the date hereof for the purpose of voting upon the approval
of this Agreement and the Merger or the Share Issuance, as the case may be,
pursuant to the Joint Proxy Statement, and Company and Parent shall use all
reasonable efforts to hold the Parent Stockholders' Meeting and the Company
Stockholders' Meeting on the same day and as soon as practicable after the date
on which the Registration Statement becomes effective. Nothing herein shall
prevent the Company or the Parent from adjourning or postponing the Company
Stockholders' Meeting or the Parent Stockholders' Meeting, as the case may be,
if there are insufficient shares of Company Common Stock or Parent Common
Stock, as the case may be, necessary to conduct business at their respective
meetings of the stockholders. Unless Company's board of directors has withdrawn
its recommendation of this Agreement and the Merger in compliance with Section
6.04. Company shall use all reasonable efforts to solicit from its stockholders
proxies in favor of the approval of this Agreement and the Merger pursuant to
the Joint Proxy Statement and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required by the FBCA or
applicable other stock exchange requirements to obtain such approval. Parent
shall use all reasonable efforts to solicit from its stockholders proxies in
favor of the Share Issuance pursuant to the Joint Proxy Statement and shall
take all other action necessary or advisable to secure the vote or consent of
stockholders required by the FBCA or applicable stock exchange requirements to
obtain such approval. Each of the parties hereto shall take all other action
necessary or, in the opinion of the other parties hereto, advisable to promptly
and expeditiously secure any vote or consent of stockholders required by
applicable Law and such party's certificate of incorporation and bylaws to
effect the Merger.
SECTION 7.03 Affiliates
(a) Company will use reasonable efforts to obtain an executed
letter agreement substantially in the form of Annex D hereto from (i)
each person identified in Section 4.18 of the Company Disclosure
Schedule within 15 days following the execution and delivery of this
Agreement and (ii) from any person who, to the knowledge of Company,
may be deemed to have become an affiliate of Company after the date of
this Agreement and prior to the Effective Time as soon as practicable
after attaining such status. The foregoing notwithstanding, Parent
shall be entitled to place legends as specified in the Affiliate
Agreement on the certificates evidencing any of the Parent Common
Stock to be received by (i) any affiliate of Company or (ii) any
person Parent reasonably identifies (by written notice to Company) as
being a person who is an "affiliate" within the meaning of Rule 145
promulgated under the Securities Act, and to issue appropriate stop
transfer instructions to the transfer agent for such Parent Common
Stock, consistent with the terms of the Affiliate Agreement,
regardless of whether such person has executed Affiliate Agreement and
regardless of whether such person's name and address appear on Section
4.18 of the Company Disclosure Schedule.
SECTION 7.04 Directors' and Officers' Indemnification and Insurance
60
<PAGE> 65
(a) Parent and the Merger Sub agree that all rights to
indemnification, advancement of expenses, exculpation, limitation of
liability and any and all similar rights now existing in favor of each
present and former director, officer, employee and agent of Company
and each Company Subsidiary (collectively, the "Indemnified Parties")
as provided in the Company's present charter or by-laws in effect on
the date hereof, shall survive the Merger and shall continue in full
force and effect for a period of five years from the Effective Time,
which provisions shall not be amended, repealed or otherwise modified
for a period of five years from the Effective Time in any manner that
would affect adversely the rights thereunder of individuals who at any
time prior to the Effective Time were directors, officers, employees
or agents of the Company, unless such modification shall be required
by law, and Parent agrees to cause the Surviving Corporation to comply
with its obligations thereunder; provided, however, that in the event
any claim or claims are asserted or made within such five-year period,
all rights to indemnification in respect to any such claim or claims
shall continue until the disposition of any and all such claims.
(b) In the event the Company or the Surviving Corporation or
any of their respective successors or assigns (i) consolidates with or
merges into any other person and shall not be the continuing or
Surviving Corporation or entity of such consolidation or merger or
(ii) transfers a material amount of its properties and assets to any
person in a single transaction or a series of transactions, then, and
in each such case, Parent will make or cause to be made proper
provision so that the successors and assigns of the Company or the
Surviving Corporation, as the case may be, assume the indemnification
obligations described herein for the benefit of the Indemnified
Parties as a condition to such merger, consolidation or transfer
becoming effective.
(c) The provisions of this Section 7.04 are (i) intended to
be for the benefit of, and will be enforceable by, each of the
Indemnified Parties and (ii) in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such
person may have by contract or otherwise.
(d) Parent agrees, as soon as practicable after the Effective
Time, to cause the Surviving Corporation to use commercially
reasonable efforts to purchase tail coverage, if available, for the
directors' and officers' liability insurance policies currently
maintained by Company covering a period of five years after the
Effective Time; provided, however, that in no event shall Parent be
required to expend in excess of $250,000 on the premium for such five
year tail coverage. To the extent that the premium for such tail
coverage exceeds $250,000, Surviving Corporation shall pay such
additional premium amount (the "Additional Premium Amount"). In the
event that such tail coverage is not available, the Surviving
Corporation shall have no obligation to purchase such tail coverage,
but shall maintain in effect the Company's directors' and officers'
liability insurance policies in effect as of the date hereof or, if
not available, directors' and officers' liability insurance policies
covering the directors and officers of the Company (and their
respective heirs and executors, if such coverage may be obtained at no
additional cost), with coverages and other terms substantially as
favorable to such directors and officers as is currently in effect;
provided, however, that in no event shall the Surviving Corporation be
required to expend in any one year in excess of 150% of the annual
premium currently paid by Company for such coverage, which current
premium amount
61
<PAGE> 66
is set forth in Section 7.04 of the Company Disclosure Schedule, and
if the premium for such coverage exceeds such amount, Parent shall
purchase a policy with the greatest coverage available for such 150%
of the annual premium; and provided, further, that the cumulative
annual premiums to be paid for such policies over a five-year period
shall be projected by Parent's insurance broker in good faith on or
prior to the Exchange Ratio Adjustment Date (the "Projected Cumulative
Amount"). (The amount by which the Projected Cumulative Amount exceeds
$250,000 is herein referred to as the "Excess Projected Cumulative
Amount".)
SECTION 7.05 No Shelf Registration
Parent shall not be required to amend or maintain the effectiveness of
the Registration Statement for the purpose of permitting resale of the shares
of Parent Common Stock received pursuant hereto by the persons who may be
deemed to be "affiliates" of Company within the meaning of Rule 145 promulgated
under the Securities Act.
SECTION 7.06 Public Announcements
The initial press release concerning the Merger shall be a joint press
release and, thereafter, Parent and Company shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to this Agreement or the Merger and shall not issue any such press
release or make any such public statement without the prior written approval of
the other, except to the extent required by applicable Law or the requirements
of the rules and regulations of the AMEX and the NNM, in which case the issuing
party shall use all reasonable efforts to consult with the other party before
issuing any such release or making any such public statement.
SECTION 7.07 AMEX Listing
Prior to the Effective Time, Parent shall file with the AMEX a
Notification Form for Listing of Additional Shares with respect to the Parent
Common Stock issued or issuable in connection with the Merger.
SECTION 7.08 Blue Sky
Parent shall use all reasonable efforts to obtain prior to the
Effective Time all necessary permits and approvals required under Blue Sky Laws
to permit the distribution of the shares of Parent Common Stock to be issued in
accordance with the provisions of this Agreement.
SECTION 7.09 Acquisition of Company Capital Stock
Prior to the Effective Time, neither Parent, nor any of Parent
Subsidiaries or Affiliates will, nor will they assist or encourage others to,
directly or indirectly, acquire or attempt to acquire ownership of more than
five percent (5%) of the Company's capital stock.
62
<PAGE> 67
Prior to the Effective Time, neither Company, nor any of Company
Subsidiaries or Affiliates will, nor will they assist or encourage others to,
directly or indirectly, acquire or attempt to acquire ownership of more than
five percent (5%) of Parent's capital stock.
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate
the Merger
The obligations of the parties hereto to consummate the Merger are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following conditions:
(a) the Registration Statement shall have been declared
effective by the SEC under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceeding for that purpose shall have
been initiated by the SEC and not concluded or withdrawn;
(b) this Agreement and the Merger shall have been duly
approved by the requisite vote of stockholders of Company in
accordance with the FBCA and by the requisite vote of the stockholders
of Parent in accordance with the DGCL and the rules of the AMEX;
(c) no court of competent jurisdiction shall have issued or
entered any order, writ, injunction or decree, and no other
Governmental Entity shall have issued any order, which is then in
effect and has the effect of making the Merger illegal or otherwise
prohibiting its consummation;
(d) any waiting period (and any extension thereof) applicable
to the consummation of the Merger under the HSR Act or any other
applicable competition, merger control or similar Law shall have
expired or been terminated;
(e) all material consents, approvals and authorizations
legally required to be obtained to consummate the Merger shall have
been obtained from all Governmental Entities;
(f) the shares of Parent Common Stock to be issued in the
Merger shall be registered under the Securities Act and shall have
been authorized for listing on the AMEX, subject to notice of
issuance;
(g) the Parent shall have entered into an amendment to its
existing credit agreement with Bank Austria having terms substantially
in accordance with the terms outlined in the Bank Austria Letter of
Intent referred to in Section 6.11 hereof;
63
<PAGE> 68
(h) the Parent shall have obtained not less then $30,000,000
from the Financing pursuant to the terms contained in the Financing
Term Sheet described in Section 6.13;
(i) on or before Exchange Ratio Adjustment Date, all consents
of third parties required pursuant to the terms of any Company
Material Contract and any Parent Material Contract as a result of the
Merger shall have been obtained including those specified in Section
8.01(i) of the Parent Disclosure Schedule and 8.01(i) of the Company
Disclosure Schedule, except where the failure to obtain, individually
or in the aggregate, any such consent(s) could not reasonably be
expected to result in, individually or in the aggregate, a Company
Material Adverse Effect or Parent Material Adverse Effect, as the case
may be;
(j) Shumaker, Loop & Kendrick, special counsel to Company, or
such other law firm or professional services firm reasonably
acceptable to Parent (including any "Big 6" accounting firm) shall
have issued its opinion, such opinion dated on the date of the
Closing, addressed to Company, and reasonably satisfactory to it and
the Purchaser, based upon customary representations of Company and
Parent and customary assumptions, to the effect that the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of
the Code (the "Tax Opinion"), which opinion shall not have been
withdrawn or modified in any material respect; provided, however, that
if such firm does not render such opinion, this condition shall
nonetheless be deemed satisfied if such opinion, dated as of the date
of the Closing (k) The Company shall have entered into the Letter of
Intent with Company Bank within 45 days of the date of this Agreement,
is rendered by counsel to Parent or any "Big 6" accounting firm; and
(k) The Company shall have entered into the Letter of Intent
with the Company Bank within 45 days of the date of this Agreement.
SECTION 8.02 Conditions to the Obligations of Company
The obligations of Company to consummate the Merger, or to permit the
consummation of the Merger are subject to the satisfaction or, if permitted by
applicable Law, waiver of the following further conditions:
(a) each of the representations and warranties of Parent
contained in this Agreement shall be true, complete and correct in all
material respects (other than representations and warranties subject
to materiality or "material adverse effect" qualifiers which shall be
true, complete and correct in all respects) both when made and on and
as of the Effective Time as if made at and as of the Effective Time
(other than representations and warranties which address matters only
as of a certain date which shall be so true, complete and correct as
of such certain date), and Company shall have received a certificate
signed by the Chief Financial Officer of Parent on behalf of the
Parent to such effect;
(b) Parent shall have performed or complied in all material
respects with all
64
<PAGE> 69
covenants required by this Agreement to be performed or complied with
by it on or prior to the Effective Time and Company shall have
received a certificate signed by the Chief Financial Officer of Parent
on behalf of the Parent to that effect; and
(c) There shall have been no Parent Material Adverse Effect
since the date of this Agreement.
SECTION 8.03 Conditions to the Obligations of Parent
The obligations of Parent to consummate the Merger are subject to the
satisfaction or waiver of the following further conditions:
(a) Each of the representations and warranties of Company
contained in this Agreement shall be true, complete and correct in all
material respects, (other than representations and warranties subject
to materiality or "material adverse effect" qualifiers which shall be
true, complete and correct in all respects) both when made and on and
as of the Effective Time as if made at and as of the Effective Time
(other than representations and warranties which address matters only
as of a certain date which shall be so true, complete and correct as
of such certain date), and Parent shall have received a certificate
signed by the Chief Executive Officer on behalf of the Company of
Company to such effect;
(b) Company shall have performed or complied in all material
respects with all covenants required by this Agreement to be performed
or complied with by it on or prior to the date on which they are to be
performed as specifically set forth herein or the Effective Time, as
applicable, and Parent shall have received a certificate of the Chief
Executive Officer signed by Company on behalf of the Company to that
effect;
(c) There shall have been no Company Material Adverse Effect
since the date of this Agreement;
(d) The Parent shall have executed, by the Exchange Ratio
Adjustment Date, agreements with each of Richard Lindstrom, M.D. and
Bruce C. Maller which provide for the continuation of services
provided by them, upon terms which are satisfactory to Parent;
(e) On or before the Exchange Ratio Adjustment Date, the
officers, directors, and shareholders of Company listed on Annex E
hereto (the "Company Insiders") shall have entered into lock-up
agreements in the form set forth as Annex F hereto;
(f) The Company shall not have received any notice of default
or notice of any pending or threatened cancellation, revocation or
termination or be aware of any facts or circumstances which could
reasonably be expected to lead to any such cancellation, revocation,
or termination under any of the Company's managed care contracts
which, after giving effect to any new managed care business entered
into after the date hereof (except for
65
<PAGE> 70
any contracts which have been projected in any Company business plan
for year 2000, previously delivered to Parent), cause, or could
reasonably likely cause, individually or collectively, a material
adverse effect on the Company's managed care business as a stand alone
business. The determination of the overall loss of managed care
business under this Section 8.03(f) shall be made without regard to
any disclosures contained in the Company Disclosure Schedule, except
that no account shall be taken of the loss of business under any
managed care contracts specifically identified under Section 4.08 of
the Company Disclosure Schedule. The Parent shall have received a
certificate of the Chief Executive Officer of the Company to such
affect; and
(g) On or before the Exchange Ratio Adjustment Date, the
Company shall have divested all of its business and assets relating to
the Corporate Optometry practice and the Company shall have received
from all of the Corporate Optometry practices a release in
substantially the form set forth on Annex J hereto, except as the
parties may otherwise agree in writing with respect to Talbert.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination
This Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite adoption
and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the boards
of directors of each of Parent and Company;
(b) by either Parent or Company, if the Effective Time shall
not have occurred on or before August 31, 2000; provided, however,
that the right to terminate this Agreement under this Section 9.01(b)
shall not be available to any party whose failure to fulfill any
obligation under this Agreement shall have principally caused, or
resulted in, the failure of the Effective Time to occur on or before
such date;
(c) by either Parent or Company, if any Governmental Order,
writ, injunction or decree preventing the consummation of the Merger
shall have been entered by any court of competent jurisdiction and
shall have become final and nonappealable;
(d) by Parent, if (i) the board of directors of Company
withdraws, modifies or changes its recommendation of this Agreement or
the Merger in a manner adverse to Parent or its stockholders, (ii) the
board of directors of Company shall have recommended to the
66
<PAGE> 71
stockholders of Company a Competing Transaction, (iii) the Company
fails to comply with Section 6.04, (iv) a Competing Transaction shall
have been announced or otherwise publicly known and the board of
directors of Company shall have (A) failed to recommend against
acceptance of such by its stockholders (including by taking no
position, or indicating its inability to take a position, with respect
to the acceptance by its stockholders of a Competing Transaction
involving a tender offer or exchange offer), (B) failed to reconfirm
its approval and recommendation of this Agreement and the transactions
contemplated hereby within 5 Business Days after Parent requests in
writing that such recommendation be reconfirmed or (C) determined that
such Competing Transaction was a Superior Proposal and takes any of
the actions allowed by clause (ii) of Section 6.04, or (v) the board
of directors of Company resolves to take any of the actions described
above;
(e) by Parent or Company, if (i) this Agreement and the
Merger shall fail to receive the requisite votes for approval at the
Company Stockholders' Meeting or any adjournment or postponement
thereof or (ii) if the Share Issuance shall fail to receive the
requisite votes for approval at the Parent Shareholders' Meeting or
any adjournment or postponement thereof;
(f) by Parent, upon a material breach of any representation
or warranty on the part of Company set forth in this Agreement, upon a
material breach of any covenant or agreement on the part of the
Company set forth in this Agreement or if any material representation
or warranty of Company shall have become untrue, incomplete or
incorrect in any material respect, in any case such that the
conditions set forth in Section 8.03 would not be satisfied (a
"Terminating Company Breach"); provided, however, that if such
Terminating Company Breach is curable by Company through the exercise
of its reasonable efforts within 20 days and for so long as Company
continues to exercise such reasonable efforts, Parent may not
terminate this Agreement under this Section 9.01(f) during such 20 day
period; and provided, further that the preceding proviso shall not in
any event be deemed to extend any date set forth in paragraph (b) of
this Section 9.01; or
(g) by Company, upon material breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in
this Agreement, or if any material representation or warranty of
Parent shall have become untrue, incomplete or incorrect in any
material respect, in either case such that the conditions set forth in
Section 8.02 would not be satisfied (a "Terminating Parent Breach");
provided, however, that if such Terminating Parent Breach is curable
by Parent through the exercise of its reasonable efforts within 20
days and for so long as Parent continues to exercise such reasonable
efforts, Company may not terminate this Agreement under this Section
9.01(g) during such 20 day period; and provided, further that the
preceding proviso shall not in any event be deemed to extend any date
set forth in paragraph (b) of this Section 9.01.
(h) by a party, if on or before the applicable date set forth
in Article VIII , any condition set forth in Article VIII which is
required to be met on or before such date has not
67
<PAGE> 72
been so met by the other party; provided, however, that if such failed
condition is curable by the other party through the exercise of its
reasonable efforts within 20 days and for so long as such other party
continues to exercise such reasonable efforts, the terminating party
may not terminate this Agreement under this Section 9.01(h); and
provided, further that the preceding proviso shall not in any event be
deemed to extend any date set forth in paragraph (b) of this Section
9.01;
(i) by the Company, pursuant to Section 6.04, in the event
the Company has complied with all the provisions of Section 6.04 and
has determined to accept a Superior Proposal; provided that the
Company shall have provided Parent with one Business Day's prior
written notice of the Company's decision to so terminate (the "Company
Termination Notice"). The Company Termination Notice shall indicate in
reasonable detail the terms and conditions of such Superior Proposal,
including, without limitation, the amount and form of the proposed
consideration and whether such Superior Proposal is subject to any
material conditions.
In the event either party shall terminate this Agreement pursuant to
Section 9.01, neither Parent nor any of Parent's Subsidiaries will,
nor will they assist or encourage others to, directly or indirectly,
for a period of two (2) years after termination of this Agreement,
acquire or attempt to acquire ownership or more than five percent (5%)
of the Company's capital stock.
The right of any party hereto to terminate this Agreement pursuant to
this Section 9.01 will remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 9.02 Effect of Termination
Except as provided in Section 9.05, in the event of termination of
this Agreement pursuant to Section 9.01 or otherwise, this Agreement shall
forthwith become void, there shall be no liability under this Agreement or
otherwise on the part of any party hereto or any of its affiliates or any of
its or their officers or directors, and all rights and obligations of each
party hereto shall cease. No termination of this Agreement shall affect the
obligation of the parties contained in the Confidentiality Agreements, which
shall survive termination of this Agreement and remain in full force and effect
in accordance with their terms.
68
<PAGE> 73
SECTION 9.03 Amendment
This Agreement may be amended by the parties hereto by action taken by
or on behalf of their respective boards of directors at any time prior to the
Effective Time; provided, however, that, after the approval of this Agreement
by the stockholders of Company, no amendment may be made that changes the
amount or type of consideration into which Company common stock will be
converted pursuant to this Agreement. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
SECTION 9.04 Waiver
At any time prior to the Effective Time, any party hereto may (a)
extend the time for or waive compliance with the performance of any obligation
or other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance by the other party with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party or
parties to be bound thereby.
SECTION 9.05 Termination Fee; Expenses
(a) Except as set forth in this Section 9.05, all Expenses
incurred in connection with this Agreement and the Merger shall be
paid by the party incurring such Expenses, whether or not the Merger
is consummated, except that Parent and Company each shall pay one-half
of all Expenses (other than attorney's and accountant's fees and
expenses) incurred solely for printing, filing (with the SEC) and
mailing the Registration Statement and the Joint Proxy Statement and
all SEC and other regulatory filing fees incurred in connection with
the Registration Statement and the Joint Proxy Statement and any fees
required to be paid under the HSR Act.
(b) In the event that (i) Company shall terminate this
Agreement pursuant to Section 9.01(i) or Parent shall terminate this
Agreement pursuant to Section 9.01(d) or (ii) this Agreement shall be
terminated (x) pursuant to Section 9.01(b) or (y) pursuant to Section
9.01(e)(i) as a result of the failure to obtain the requisite approval
of the Company stockholders and, in the case of either (x) or (y), (A)
at or prior to such termination, there shall exist or have been
proposed a Competing Transaction with respect to Company and (B)
within nine months after such termination, Company shall enter into a
definitive agreement with respect to any Competing Transaction or any
Competing Transaction involving Company shall be consummated, then, in
the case of (i), promptly after such termination, or in the case of
(ii), concurrently with the consummation of such Competing
Transaction, Company shall pay to Parent an amount in cash equal to
the greater of Four percent (4%) of the "total enterprise value" of
the transactions contemplated by this Agreement or as reflected in the
Superior Proposal or the Competing Transaction, as the case may be,
(the "Termination Fee") plus Parent's Expenses. For purposes of this
Section 9.05, the term "total enterprise value" shall mean the
purchase price paid or offered to be paid, as the case may be, in such
transaction, plus the amount of any indebtedness and other liabilities
of the Company assumed or
69
<PAGE> 74
offered to be assumed, as the case may be, in this or such Competing
Transaction, as the case may be.
(c) In the event that Parent shall terminate this Agreement
pursuant to clause (i) of Section 9.01(f), then Company shall promptly
reimburse Parent for Parent's Expenses, and if, within nine months of
such termination of this Agreement, Company shall enter into a
definitive agreement with respect to any Competing Transaction (other
than a Competing Transaction solely described in clause (v) of the
definition of such term) or any Competing Transaction (other than a
Competing Transaction solely described in clause (v) of the definition
of such term) involving Company shall be consummated, concurrently
with the consummation of such Competing Transaction (other than a
Competing Transaction solely described in clause (v) of the definition
of such term), the Company shall pay to Parent an amount in cash equal
to one-half of the Termination Fee unless Company did not have
Knowledge at the time that this Agreement was entered into that such
representation or warranty was incorrect or incomplete, in which case
Company shall not be obligated to such portion of the Termination Fee,
but shall nonetheless be obligated to pay Parent's Expenses as set
forth above.
(d) In the event that Parent shall terminate this Agreement
pursuant to clause (ii) of Section 9.01(f) (other than in connection
with a breach of Section 6.04 or Section 6.01(y) hereof, which are
provided for below), then Company shall promptly reimburse Parent for
Parent's Expenses, and if, within nine months of such termination of
this Agreement, Company shall enter into a definitive agreement with
respect to any Competing Transaction (other than a Competing
Transaction solely described in clause (v) of the definition of such
term) or any Competing Transaction (other than a Competing Transaction
solely described in clause (v) of the definition of such term)
involving Company shall be consummated, concurrently with the
consummation of such Competing Transaction (other than a Competing
Transaction solely described in clause (v) of the definition of such
term), the Company shall pay to Parent an amount in cash equal to half
of the Termination Fee.
(e) In the event that Parent shall terminate this Agreement
pursuant to clause (ii) of Section 9.01(f) in connection with a breach
of Section 6.04, then Company shall promptly reimburse Parent for
Parent's Expenses, and if, within nine months of such termination of
this Agreement, the Company shall enter into any agreement with
respect to any Competing Transaction or any Competing Transaction
involving Company shall be consummated, concurrently with the
execution of any such agreement, or if there is no agreement, upon the
consummation of such Competing Transaction, the Company shall pay to
Parent in cash the Termination Fee.
(f) In the event that Parent shall terminate this Agreement
pursuant to clause (ii) of Section 9.01(f) in connection with a breach
of Section 6.01(y), then Company shall promptly reimburse Parent for
Parent's Expenses.
(g) In the event that Parent shall terminate this Agreement
pursuant to clause (iii) of Section 9.01(f), then Company shall
promptly reimburse Parent for Parent's Expenses.
70
<PAGE> 75
(h) In the event that Company shall terminate this Agreement
pursuant to Section 9.01(g), then Parent shall promptly reimburse
Company for Company's Expenses.
(i) Parent, Merger Sub and Company agree that the agreements
contained in this Article IX above are reasonable, are an integral
part of the transaction contemplated by this Agreement, and are the
sole and exclusive remedies in law or in equity for a termination or
breach of this Agreement or otherwise in connection with the
transactions contemplated by this Agreement. The payments provided for
in this Section 9.05 are intended to establish liquidated damages in
the event of a termination or otherwise and are not intended as a
penalty. Accordingly, if Company or Parent fails to pay to Parent or
Company, as the case may be, any amounts due under Section 9.05(b),
Section 9.05(c), or Section 9.05(d), Company or Parent, as the case
may be, shall pay interest on such amounts at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be
made.
(j) In the event that the Company does not enter into the
Standstill Agreement within 45 days following the date hereof, the
Company shall promptly reimburse Parent for Parent's Expenses;
(k) In the event that a dispute arises in connection with
Section 9.04(c), (d) and/or (e) hereof, such dispute shall be
submitted for arbitration to the American Arbitration Association
("AAA") in New York City in accordance with the Commercial Rules of
the American Arbitration Association, provided; however, that such
arbitrators shall apply the Delaware General Corporation Law and
applicable case law thereunder to the resolution of the dispute. The
decision of the AAA shall be final and binding upon the parties, and
shall be enforceable in any court of competent jurisdiction. Nothing
in this provision shall be construed to prohibit any party hereto from
seeking interim equitable relief in a court of competent jurisdiction
pending submission of said dispute to arbitration hereunder.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01 NonSurvival of Representations and Warranties
The representations and warranties in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 9.01, as the case may be.
71
<PAGE> 76
SECTION 10.02 Notices
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by telecopy or facsimile,
by registered or certified mail (postage prepaid, return receipt requested) or
by a nationally recognized courier service to the respective parties at the
following addresses (or at such other address for a party as shall be specified
in a notice given in accordance with this Section 10.02): (a) if to Company:
Vision Twenty-One, Inc. 7360 Bryan Dairy Road Largo, FL 33777 Attention:
Theodore N. Gillette Telecopier: (727) 547-4371
with a copy to:
Shumaker, Loop & Kendrick, LLP
101 E. Kennedy Blvd.
Suite 2800
Tampa, FL 33602-0609
Attention: Darrell C. Smith, Esq.
Telecopier: (813) 229-1660
(b) if to Parent or Merger Sub:
OptiCare Health Systems, Inc.
87 Grandview Avenue
Waterbury, CT 06708
Attention: Stephen P. Fisher,
General Counsel
Telecopier: (203) 596-2227
with a copy to:
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
Attention: Robert L. Lawrence, Esq.
Telecopier: (212) 245-3009
72
<PAGE> 77
SECTION 10.03 Severability
If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the Merger is
not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner to the fullest extent permitted by
applicable Law in order that the Merger may be consummated as originally
contemplated to the fullest extent possible.
SECTION 10.04 Assignment; Binding Effect; Benefit
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of Law or otherwise) without the prior written consent of the other parties
hereto. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. Notwithstanding anything contained in this
Agreement to the contrary, other than Section 7.04, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and permitted assigns any rights
or remedies under or by reason of this Agreement.
SECTION 10.05 Incorporation of Exhibits
The Parent Disclosure Schedule, the Company Disclosure Schedule and
all Exhibits attached hereto and referred to herein are hereby incorporated
herein and made a part of this Agreement for all purposes as if fully set forth
herein.
SECTION 10.06 Governing Law
ANY DISPUTE OR CLAIM BASED UPON, ARISING OUT OF OR RESULTING FROM THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ITS CHOICE OF LAWS
PRINCIPLES THEREOF DIRECTING THE APPLICATION OF ANY LAW OTHER THAN THAT OF
DELAWARE. COURTS WITHIN THE STATE OF DELAWARE WILL HAVE JURISDICTION OVER ALL
DISPUTES BETWEEN THE PARTIES HERETO ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND THE AGREEMENTS, INSTRUMENTS AND DOCUMENTS CONTEMPLATED HEREBY;
PROVIDED, THAT THE EFFECTIVENESS AND EFFECT OF THE MERGER SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF FLORIDA. THE PARTIES HEREBY CONSENT TO AND AGREE TO
SUBMIT TO THE JURISDICTION OF SUCH COURTS. EACH OF THE PARTIES HERETO WAIVES,
AND AGREES NOT TO ASSERT IN ANY SUCH DISPUTE, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY CLAIM
73
<PAGE> 78
THAT (I) SUCH PARTY IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH
COURTS, (II) SUCH PARTY AND SUCH PARTY'S PROPERTY IS IMMUNE FROM ANY LEGAL
PROCESS ISSUED BY SUCH COURTS OR (III) ANY LITIGATION COMMENCED IN SUCH COURTS
IS BROUGHT IN AN INCONVENIENT FORUM OR IMPROPER VENUE.
SECTION 10.07 Waiver of Jury Trial
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION OR AGREEMENT CONTEMPLATED
HEREBY OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT HEREOF.
SECTION 10.08 Headings; Interpretation
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties, and no presumption or burden of proof
shall arise favoring or disfavoring any party by virtue of the authorship of
any provisions of this Agreement.
SECTION 10.09 Counterparts
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by the different parties hereto
in separate counterparts, each of which when executed and delivered shall be
deemed to be an original but all of which taken together shall constitute one
and the same agreement.
SECTION 10.10 Entire Agreement
This Agreement (including the Exhibits, the Parent Disclosure Schedule
and the Company Disclosure Schedule), together with all other agreements
entered into simultaneously herewith by the parties hereto and the
Confidentiality Agreements, constitute the entire agreement among the parties
with respect to the subject matter hereof and supersede all prior agreements
and understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any party
hereto unless made in writing and signed by all parties hereto.
74
<PAGE> 79
[THIS PAGE INTENTIONALLY LEFT BLANK]
75
<PAGE> 80
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
OPTICARE HEALTH SYSTEMS, INC.
By: /s/ Dean J. Yimoyines
----------------------------------
Name: Dean J. Yimoyines
Title: President and Chief Executive
Officer
VISION TWENTY-ONE, INC.
By: /s/ Theodore N. Gilette
----------------------------------
Name: Theodore N. Gillette
Title: Chief Executive Officer
OC ACQUISITION CORP.
By: /s/ Dean J. Yimoyines
----------------------------------
Name: Dean J. Yimoyines
Title: President and Chief Executive
Officer
76
<PAGE> 1
Exhibit 21
LIST OF SUBSIDIARIES OF VISION TWENTY-ONE, INC.
<TABLE>
<CAPTION>
JURISDICTION
SUBSIDIARY OF INCORPORATION
- ---------- ----------------
<S> <C>
Vision 21 Managed Eye Care of Tampa, Bay, Inc. Florida
Vision 21 Management Services, Inc. Florida
Vision 21 of Southern Arizona, Inc. Florida
Vision 21 of Sierra Vista, Inc. Florida
Vision Twenty-One Managed Eye Care, IPA, Inc. New York
Vision Twenty-One Eye Surgery Centers, Inc. Florida
Vision Twenty-One Surgery Center, Ltd. Florida LP
Vision Twenty-One Surgery Center-Largo, Ltd. Florida LP
The Complete Optical Laboratory, Ltd. New Jersey
Vision Twenty-One Refractive Center, Inc. Florida
Vision Twenty-One of Wisconsin, Inc. Wisconsin
Vision Insurance Plan of America, Inc. Wisconsin
Eye Surgery Center Management, Inc. Florida
LSI Acquisition, Inc. New Jersey
MEC Health Care, Inc. Maryland
Vision 21 Physician Practice Management Company Florida
Vision Twenty-One Eye Laser Centers, Inc. Florida
BBG-COA, Inc. Delaware
BVC Administrators, Inc. New Jersey
Block Vision, Inc. New Jersey
UVC Independent Practice Association, Inc. New York
CHVC Independent Practice Association, Inc. New York
MVC Independent Practice Association, Inc. New York
WVC Independent Practice Association, Inc. New York
FVC Independent Practice Association, Inc. New York
BHVC Independent Practice Association, Inc. New York
The Block Group of New York, Inc. New York
BBG Independent Practice Association, Inc. New York
VCA Independent Practice Association, Inc. New York
Block Vision of Texas, Inc. Texas
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-38285) pertaining to the Vision Twenty-One, Inc. 1996 Stock
Incentive Plan, the Registration Statement (Form S-8 No. 333-67315) pertaining
to the Vision Twenty-One, Inc. 1998 Employee Stock Purchase Plan, and the
Registration Statement (Post-Effective Amendment No. 2 on Form S-3 to Form S-1
No. 333-51437) of our report dated April 7, 2000 (except paragraph 2 of Note 16,
as to which the date is April 21, 2000, and paragraph 3 of Note 16, as to which
the date is May 5, 2000) with respect to the consolidated financial statements
and schedule of Vision Twenty-One, Inc. and Subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Tampa, Florida
May 5, 2000
80
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VISION TWENTY-ONE, INC. FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,032,399
<SECURITIES> 0
<RECEIVABLES> 2,762,697
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 29,203,180
<PP&E> 7,363,561
<DEPRECIATION> 2,231,903
<TOTAL-ASSETS> 84,878,687
<CURRENT-LIABILITIES> 86,311,609
<BONDS> 0
0
0
<COMMON> 15,617
<OTHER-SE> (2,765,709)
<TOTAL-LIABILITY-AND-EQUITY> 84,878,687
<SALES> 19,150,982
<TOTAL-REVENUES> 88,402,498
<CGS> 18,260,819
<TOTAL-COSTS> 72,182,741
<OTHER-EXPENSES> 30,034,603
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,551,542
<INCOME-PRETAX> (21,312,776)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,312,776)
<DISCONTINUED> (61,770,592)
<EXTRAORDINARY> 3,770,823
<CHANGES> 0
<NET-INCOME> (79,312,545)
<EPS-BASIC> (5.16)
<EPS-DILUTED> (5.16)
</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 TWELVE MONTHS ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,514,670
<SECURITIES> 0
<RECEIVABLES> 8,627,987
<ALLOWANCES> 30,000
<INVENTORY> 0
<CURRENT-ASSETS> 34,860,794
<PP&E> 5,181,167
<DEPRECIATION> 1,104,227
<TOTAL-ASSETS> 191,677,124
<CURRENT-LIABILITIES> 28,226,608
<BONDS> 0
0
0
<COMMON> 15,067
<OTHER-SE> 73,706,546
<TOTAL-LIABILITY-AND-EQUITY> 191,677,124
<SALES> 58,959,195
<TOTAL-REVENUES> 118,023,253
<CGS> 55,926,173
<TOTAL-COSTS> 101,773,698
<OTHER-EXPENSES> 29,046,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,084,891
<INCOME-PRETAX> (17,196,476)
<INCOME-TAX> 0
<INCOME-CONTINUING> (17,196,476)
<DISCONTINUED> 11,127,191
<EXTRAORDINARY> (1,885,512)
<CHANGES> 0
<NET-INCOME> (7,954,797)
<EPS-BASIC> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
