<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JULY 3, 1999.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 333 - 56551
EYE CARE CENTERS OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2337775
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
11103 WEST AVENUE
SAN ANTONIO, TEXAS 78213
(Address of principal executive offices, including zip code)
(210) 340-3531
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant has (1) 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 the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class Outstanding at August 9, 1999
----- -----------------------------
Common Stock, $.01 par value 7,408,764 shares
================================================================================
<PAGE> 2
EYE CARE CENTERS OF AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at January 2, 1999
and July 3, 1999 (Unaudited)...........................................................2
Condensed Consolidated Statements of Operations for the
Thirteen Weeks and Twenty-Six Weeks Ended July 4, 1998
(Unaudited) and July 3, 1999 (Unaudited)..............................................3
Condensed Consolidated Statements of Cash Flows for the
Twenty-Six Weeks Ended July 4, 1998 (Unaudited)
and July 3, 1999 (Unaudited)...........................................................4
Notes to Condensed Consolidated Financial Statements.........................................5-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................................11-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings..............................................................................19
Item 6. Exhibits and Reports on Form 8-K............................................................20-21
</TABLE>
1
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
JANUARY 2, JULY 3,
1999 1999
--------- ---------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................... $ 5,127 $ 1,575
Accounts and notes receivable, net ........... 6,453 8,823
Inventory .................................... 26,977 24,527
Prepaid expenses and other ................... 2,286 1,692
Deferred income taxes ........................ 391 391
--------- ---------
Total current assets ............................... 41,234 37,008
PROPERTY & EQUIPMENT, net .......................... 68,118 65,568
INTANGIBLE ASSETS, net ............................. 102,459 100,716
OTHER ASSETS ....................................... 11,096 11,348
--------- ---------
Total assets ....................................... $ 222,907 $ 214,640
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ............................. $ 20,921 $ 16,838
Deferred revenue ............................. 5,331 5,873
Current maturities of long-term debt ......... 3,578 6,849
Accrued payroll expense ...................... 2,788 3,666
Accrued interest ............................. 3,347 3,052
Other accrued expenses ....................... 8,186 7,311
--------- ---------
Total current liabilities .......................... 44,151 43,589
LONG-TERM DEBT, less current maturities ............ 242,945 232,686
DEFERRED INCOME TAXES .............................. 391 391
DEFERRED RENT ...................................... 3,246 3,235
DEFERRED GAIN ...................................... 2,175 2,826
--------- ---------
Total liabilities .................................. 292,908 282,727
--------- ---------
SHAREHOLDERS' DEFICIT:
Common stock ................................. 75 74
Preferred stock .............................. 32,793 34,959
Additional paid-in capital ................... 60,958 58,305
Accumulated deficit .......................... (163,827) (161,425)
--------- ---------
Total shareholders' deficit ........................ (70,001) (68,087)
--------- ---------
$ 222,907 $ 214,640
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 4
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
THIRTEEN WEEKS TWENTY-SIX WEEKS
ENDED ENDED
---------------------- ----------------------
JULY 4, JULY 3, JULY 4, JULY 3,
1998 1999 1998 1999
--------- --------- --------- ---------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES:
Optical sales ................................... $ 57,717 $ 68,960 $ 119,075 $ 143,324
Management fee .................................. 523 813 1,184 1,523
--------- --------- --------- ---------
Total net revenues .................................... 58,240 69,773 120,259 144,847
OPERATING COSTS AND EXPENSES:
Cost of goods sold .............................. 19,989 22,845 40,488 47,723
Selling, general and administrative expenses ... 32,126 39,442 65,342 79,575
Recapitalization and other expenses ............. 25,216 -- 25,263 --
Amortization of intangibles ..................... 746 1,206 1,660 2,381
--------- --------- --------- ---------
Total operating costs and expenses .................... 78,077 63,493 132,753 129,679
--------- --------- --------- ---------
INCOME/(LOSS) FROM OPERATIONS ......................... (19,837) 6,280 (12,494) 15,168
INTEREST EXPENSE, NET ................................. 4,868 5,885 8,262 11,883
IN-SUBSTANCE DEFEASED BONDS INTEREST EXPENSE, NET ..... 1,460 -- 1,460 --
INCOME TAX EXPENSE/(BENEFIT) .......................... (54) 317 13 392
--------- --------- --------- ---------
NET INCOME/(LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE AND EXTRAORDINARY ITEM ........... (26,111) 78 (22,229) 2,893
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE ... -- -- -- 491
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF LONG-TERM
DEBT .................................................. 4,155 -- 4,155 --
--------- --------- --------- ---------
NET INCOME/(LOSS) ..................................... $ (30,266) $ 78 $ (26,384) $ 2,402
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
3
<PAGE> 5
EYE CARE CENTERS OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JULY 4, JULY 3,
1998 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) ............................................. $ (26,384) $ 2,402
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................. 7,663 9,699
Other amortization ......................................... 556 725
Cumulative effect of change in accounting principle ........ -- 491
Deferred liabilities and other ............................. 280 362
Expenses to affect capital lease retirement ................ -- (431)
Loss on disposition of property and equipment .............. 55 348
Extraordinary loss on early extinguishment of
long-term debt........................................ 4,155 --
Increase/(decrease) in operating assets and liabilities ....... 3,759 (4,621)
--------- ---------
Net cash provided by (used for) operating activities ................ (9,916) 8,975
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ......................... (8,632) (10,472)
Proceeds from sale of property and equipment .................. 763 17
Purchase of retail outlet ..................................... -- (368)
Payments received on notes receivable ......................... 85 97
--------- ---------
Net cash used for investing activities .............................. (7,784) (10,726)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt and capital leases ........................... (42,780) (1,361)
Payments related to deferred compensation ..................... (10) --
Proceeds from issuance of long-term debt ...................... 204,511 --
Proceeds from the issuance of common stock .................... 71,689 --
Proceeds from the issuance of preferred stock ................. 27,750 --
Payments to retire redeemable preferred stock ................. (12,385) --
Purchase of investment securities-restricted .................. (76,618) --
Expenses to affect recapitalization ........................... (23,849) --
Redemption of common stock .................................... (128,365) (440)
--------- ---------
Net cash provided by (used for) financing activities ................ 19,324 (1,801)
--------- ---------
NET INCREASE/(DECREASE) IN CASH ..................................... 1,624 (3,552)
CASH AND CASH EQUIVALENTS, beginning of period ...................... 7,172 5,127
--------- ---------
CASH AND CASH EQUIVALENTS, end of period ............................ $ 8,796 $ 1,575
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 6
EYE CARE CENTERS OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Eye Care
Centers of America, Inc., its wholly owned subsidiaries (collectively, unless
the context otherwise requires, the "Company") and optometrists to whom the
Company performs management services. All significant intercompany balances and
transactions have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included and are of a
normal, recurring nature. Operating results for the thirteen week and twenty-six
week periods ended July 3, 1999 are not necessarily indicative of the results
that may be expected for the fiscal year ended January 1, 2000. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Eye Care Centers of America, Inc.'s Annual Report on
Form 10-K for the year ended January 2, 1999.
2. RELATED PARTY TRANSACTIONS
Prior to the Recapitalization (defined herein) of the Company, the
Company was party to an agreement with Desai Capital Management, Inc. ("DCMI"),
a majority shareholder, whereby the Company paid DCMI $144,000 per year as an
advisory fee for consulting and strategic advice and $56,000 per year for the
consulting services of certain Board of Directors members who are also employees
and/or officers of DCMI. For the thirteen week and twenty-six week periods ended
July 4, 1998, the Company incurred $11,000 and $61,000, respectively, related to
these agreements. As a result of the Recapitalization, the agreement with DCMI
has been canceled, and DCMI is no longer a majority shareholder of the Company.
The Company and Thomas H. Lee Company ("THL Co.") entered into a
management agreement as of the closing date of the Company's Recapitalization
(the "Management Agreement"), pursuant to which THL Co. received a financial
advisory fee of $6.0 million in connection with structuring, negotiating and
arranging the Recapitalization of the Company and related debt financing. In
addition, pursuant to the Management Agreement, THL Co. will initially receive
$500,000 per year plus expenses for management and other consulting services
provided to the Company. After a term of ten years from the closing date, the
Management Agreement is automatically renewable on an annual basis unless either
party serves notice of termination at least ninety days prior to the renewal
date. For the thirteen week and twenty-six week periods ended July 3, 1999, the
Company incurred $125,000 and $250,000, respectively, related to the agreement.
3. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The Company currently has a net deferred
tax asset related to its temporary differences. Based upon the weight of
available evidence allowed under the
5
<PAGE> 7
criteria set forth under FAS Statement No. 109, including the lack of carryback
potential, uncertainties exist as to the future realization of the deferred tax
asset. These uncertainties include lack of carryback potential as the Company
has incurred taxable losses in past years. The Company has established a full
valuation allowance for its deferred tax assets.
4. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JULY 4, JULY 3,
1998 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash paid for interest ........................ $ 6,994 $11,445
Dividends accrued on redeemable
preferred stock.............................. $ 268 $ --
Rollover of preferred stock by management ..... $ 2,250 $ --
Rollover of common stock by management ........ $ 5,625 $ --
Dividends accrued on preferred stock .......... $ 761 $ 2,166
Retirement of capital lease obligation ........ $ -- $ 5,652
</TABLE>
5. INTEREST RATE SWAPS
The Company does not hold or issue financial instruments for trading
purposes nor is it a party to leveraged derivatives. The Company uses interest
rate swaps that are "vanilla" and involve little complexity as hedge instruments
to manage interest rate risk.
The counter parties to the Company's derivatives consist of major
international financial institutions. Because of the number of these
institutions and their high credit ratings, management believes these
derivatives do not present significant credit risk to the Company.
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Notional Amounts Maturity Fixed Pay Floating Receive
July 3, 1999 Date Rate Rate
---------------- -------- --------- ----------------
<S> <C> <C> <C>
$ 33.3 million 2000 5.9% 5.0%
$ 33.3 million 2001 5.9% 5.0%
</TABLE>
Interest rate swap agreements effectively convert floating rates on
long-term debt to fixed rates. The Company's intent is to reduce overall
interest expense while maintaining an acceptable level of risk to interest rate
fluctuations. The swap agreements specifically hedge a portion of both $50.0
million aggregate principle amount of the Company's Floating Interest Rate
Subordinated Term Securities due 2008 and $50.0 million of the Company's Credit
Facility, which consists of (i) the $55.0 million term loan facility; (ii) the
$35.0 million revolving credit facility; and (iii) the $100.0 million
acquisition facility. As market interest rates fluctuate, the unrealized gain or
loss on the swap portfolio moves in relationship to the fair value of the
underlying debt. The Company had an unrealized loss on the interest rate swap
portfolio of $0.2 million as of July 3, 1999. The change in the market value of
these interest rate swaps is not recorded in the financial position or
operations of the Company. Interest to be paid or received is accrued as an
adjustment to interest expense. Upon termination of interest rate swaps, the
fair
6
<PAGE> 8
value of the swaps is recorded through operations. If the hedged item is repaid
early, the Company will evaluate if the swap agreement is to be redesignated or
exited.
6. NEW ACCOUNTING PRONOUNCEMENTS
Derivatives. In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which is required to be adopted in years beginning after June 15,
1999. In June 1999, SFAS No. 137 was issued, which delays the required adoption
of SFAS No. 133 by one year. The statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The statement will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company has not yet determined what the
effect of SFAS No. 133 will be on the earnings and financial position of the
Company.
7. CONDENSED CONSOLIDATING INFORMATION
The $100,000,000 in principal amount of 9 1/8% Senior Subordinated Notes
due 2008 and $50,000,000 in principal amount of Floating Interest Rate
Subordinated Term Securities due 2008 were issued by the Company and are
guaranteed by all of the Company's subsidiaries (the "Guarantor Subsidiaries")
but are not guaranteed by certain private optometrists ("ODs") to whom the
Company provides management services. The guarantor subsidiaries are
wholly-owned by the Company and the guarantees are full, unconditional and joint
and several. The following condensed consolidating financial information
presents the financial position, results of operations and cash flows of (i) the
Company, as parent, as if it accounted for its subsidiaries on the equity
method, (ii) the Guarantor Subsidiaries, and (iii) ODs. Separate financial
statements of the Guarantor Subsidiaries are not presented herein as management
does not believe that such statements would be material to investors. Previous
fiscal years are not presented herein as the non-guarantor OD was consolidated
starting in the fourth quarter of fiscal 1998 and prior to this date all
subsidiaries were guarantors.
7
<PAGE> 9
CONSOLIDATING BALANCE SHEET
JULY 3, 1999
<TABLE>
<CAPTION>
Guarantor Consolidated
ASSETS Parent Subsidiaries ODs Eliminations Company
--------- ------------ --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ (3,606) $ 5,181 $ - $ - $ 1,575
Accounts and notes receivable ........................ 63,112 22,576 743 (77,608) 8,823
Inventory ............................................ 14,557 9,970 -- -- 24,527
Prepaid expenses and other ........................... 1,392 300 -- -- 1,692
Deferred income taxes ................................. 391 -- -- -- 391
--------- --------- --------- --------- ---------
Total current assets .................................... 75,846 38,027 743 (77,608) 37,008
Property and equipment .................................. 42,013 23,555 -- -- 65,568
Intangibles ............................................. 19,333 81,286 97 -- 100,716
Other assets ............................................ 10,961 387 -- -- 11,348
Investment in subsidiaries .............................. 16,058 -- -- (16,058) --
--------- --------- --------- --------- ---------
$ 164,211 $ 143,255 $ 840 $ (93,666) $ 214,640
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 13,449 $ 80,997 $- $ (77,608) $ 16,838
Deferred revenue ..................................... 4,008 1,865 -- -- 5,873
Current maturities of long-term debt ................. 6,000 849 -- -- 6,849
Accrued payroll expense .............................. 1,899 1,767 -- -- 3,666
Accrued interest ..................................... 2,302 750 -- -- 3,052
Other accrued expenses ............................... 3,073 3,971 267 -- 7,311
--------- --------- --------- --------- ---------
Total current liabilities ............................... 30,731 90,199 267 (77,608) 43,589
Long-term debt, less current maturities ................. 197,564 35,022 100 -- 232,686
Deferred income taxes ................................... 391 -- -- -- 391
Deferred rent ........................................... 2,338 897 -- -- 3,235
Deferred gain ........................................... 2,096 730 -- -- 2,826
--------- --------- --------- --------- ---------
Total liabilities ....................................... 233,120 126,848 367 (77,608) 282,727
--------- --------- --------- --------- ---------
Shareholders' equity/(deficit):
Common stock ......................................... 74 -- -- -- 74
Preferred stock ...................................... 34,959 -- -- -- 34,959
Additional paid-in capital ........................... 57,216 1,089 -- -- 58,305
Accumulated deficit .................................. (161,158) 15,318 473 (16,058) (161,425)
--------- --------- --------- --------- ---------
Total shareholders' equity/(deficit) .................... (68,909) 16,407 473 (16,058) (68,087)
--------- --------- --------- --------- ---------
$ 164,211 $ 143,255 $ 840 $ (93,666) $ 214,640
========= ========= ========= ========= =========
</TABLE>
CONSOLIDATING INCOME STATEMENT
FOR THE TWENTY-SIX WEEKS ENDED JULY 3, 1999
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
-------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Optical sales ................................. $ 81,788 $ 42,845 $ 18,691 $ - $143,324
Management fees ............................... 3,508 1,523 -- (3,508) 1,523
Investment earnings in subsidiaries ........... 5,606 -- -- (5,606)
-------- -------- -------- -------- --------
Net revenues .................................. 90,902 44,368 18,691 (9,114) 144,847
Operating costs and expenses:
Cost of goods sold ......................... 26,719 16,559 4,445 -- 47,723
Selling, general and administrative
expenses.................................. 49,966 19,554 13,563 (3,508) 79,575
Amortization of intangibles ................ 522 1,857 2 -- 2,381
-------- -------- -------- -------- --------
Total operating costs and expenses ............ 77,207 37,970 18,010 (3,508) 129,679
-------- -------- -------- -------- --------
Income (loss) from operations ................. 13,695 6,398 681 (5,606) 15,168
Interest expense, net ......................... 10,536 1,343 4 -- 11,883
Income tax expense ............................ 125 -- 267 -- 392
-------- -------- -------- -------- --------
Net income (loss) before extraordinary item ... 3,034 5,055 410 (5,606) 2,893
Cumulative effect of change in accounting
principle.................................... 365 126 -- -- 491
-------- -------- -------- -------- --------
Net income (loss) ............................. $ 2,669 $ 4,929 $ 410 $ (5,606) $ 2,402
======== ======== ======== ======== ========
</TABLE>
8
<PAGE> 10
CONSOLIDATING INCOME STATEMENT
FOR THE THIRTEEN WEEKS ENDED JULY 3, 1999
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
------- ------------ ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Optical sales ................................. $39,696 $20,809 $ 8,455 $ - $68,960
Management fees ............................... 1,499 813 -- (1,499) 813
Investment earnings in subsidiaries ........... 3,119 -- -- (3,119)
------- ------- ------- ------- -------
Net revenues .................................. 44,314 21,622 8,455 (4,618) 69,773
Operating costs and expenses:
Cost of goods sold ......................... 12,995 8,195 1,655 -- 22,845
Selling, general and administrative
expenses.................................. 25,231 8,852 6,858 (1,499) 39,442
Amortization of intangibles ................ 274 931 1 -- 1,206
------- ------- ------- ------- -------
Total operating costs and expenses ............ 38,500 17,978 8,514 (1,499) 63,493
------- ------- ------- ------- -------
Income (loss) from operations ................. 5,814 3,644 (59) (3,119) 6,280
Interest expense, net ......................... 5,419 464 2 -- 5,885
Income tax expense ............................ 50 -- 267 -- 317
------- ------- ------- ------- -------
Net income (loss) before extraordinary item ... 345 3,180 (328) (3,119) 78
Cumulative effect of change in accounting
principle ................................... -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss) ............................. $ 345 $ 3,180 $ (328) $(3,119) $ 78
======= ======= ======= ======= =======
</TABLE>
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED JULY 3, 1999
<TABLE>
<CAPTION>
Guarantor Consolidated
Parent Subsidiaries ODs Eliminations Company
-------- ------------ -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................... $ 2,669 $ 4,929 $ 410 $ (5,606) $ 2,402
Adjustments to reconcile net income (loss)
to net
Cash provided by operating activities:
Depreciation and amortization ......... 5,629 4,068 2 -- 9,699
Other amortization .................... 742 (17) -- 725
Cumulative effect of change in
accounting principle .............. 365 126 -- -- 491
Deferred liabilities and other ........ 577 (215) -- -- 362
Expenses to affect capital lease
retirement ........................ -- (431) -- -- (431)
(Gain) loss on disposition of property
and equipment ..................... 348 -- -- -- 348
Increase/(decrease) in operating assets
and liabilities ................... (524) (3,685) (412) -- (4,621)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities ........................... 9,806 4,775 -- (5,606) 8,975
-------- -------- -------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment . (9,157) (1,315) -- -- (10,472)
Proceeds from sale of property and
equipment ......................... 17 -- -- -- 17
Purchase of retail outlet ............. (368) -- -- -- (368)
Payment received on notes receivable .. 23 74 -- -- 97
Investment in subsidiaries ............ (5,606) -- -- 5,606 --
-------- -------- -------- -------- --------
Net cash provided by (used in) investing
activities ........................... (15,091) (1,241) -- 5,606 (10,726)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Payments on debt and capital leases ... (1,000) (361) -- -- (1,361)
Repurchase of common stock ............ (440) -- -- -- (440)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities ........................... (1,440) (361) -- -- (1,801)
-------- -------- -------- -------- --------
Net decrease in cash and cash equivalents . (6,725) 3,173 -- -- (3,552)
Cash and cash equivalents at beginning of
period ............................... 3,119 2,008 -- -- 5,127
-------- -------- -------- -------- --------
Cash and cash equivalents at end
of period ............................ $ (3,606) $ 5,181 $ -- $ -- $ 1,575
======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 11
8. CAPITAL LEASE OBLIGATION
During the second quarter of 1999, a third party paid $8.4 million of
the Company's $10.0 million capital lease obligations to the Eckerd Corporation.
The Company simultaneously leased these same properties under seven lease
agreements, accounting for these transactions as sales leaseback transactions. A
gain of $0.5 million has been deferred related to these sales leaseback
transactions. Four of the new lease agreements are being accounted for as
capital leases and three are being accounted for as operating leases. The
remaining capital lease obligation of $1.4 million under the original $10.0
million capital lease obligation was renewed as an operating lease.
9. SUBSEQUENT EVENT
On July 7, 1999, the Company entered into an asset purchase agreement
with Vision Twenty-One, Inc. and its subsidiary, The Complete Optical
Laboratory, Ltd., Corp., relating to the purchase of substantially all of the
assets used to operate 76 retail eyewear outlets. The purchase price for the
assets is $42.0 million, less certain purchase price adjustments which the
Company believes will be approximately $5.0 million. The Company plans to
utilize existing facilities to finance the transaction. As a result of this
acquisition, the Company (through its subsidiaries), will (i) own and operate 39
stores under the name "Vision World" in Minnesota, North Dakota, Iowa, South
Dakota, and Wisconsin and 18 stores under the name "Stein Optical" in Wisconsin,
and (ii) assume a business management agreement with a private optometrist to
manage 19 stores under the name "Eye Drx" in New Jersey. The Company believes
the closing will occur on or about August 31, 1999, but is subject to certain
pre-closing conditions, including third-party consents and governmental
authorizations. Concurrent with the closing, the Company will enter into a
strategic alliance agreement with Vision Twenty-One, Inc. involving their
respective managed care programs and the co-marketing of Vision Twenty-One's
refractive surgery program.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Eye Care Centers of America, Inc. is the fourth largest retail optical
chain in the United States as measured by net revenues, operating 277 stores,
253 of which are optical superstores. The Company operates predominately under
the trade name "EyeMasters," and in certain geographical regions under the trade
names "Binyon's," "Visionworks", "Hour Eyes", "Dr. Bizer's VisionWorld", "Dr.
Bizer's ValuVision" and "Doctor's ValuVision". The Company operates in the $15.8
billion optical retail market. Management believes that key drivers of growth
for retail optical chains include (i) the aging of the United States population,
(ii) the increased role of managed vision care, (iii) the consolidation of the
industry and (iv) new product innovations.
The industry is highly fragmented and is undergoing significant
consolidation. Since 1996, the Company has acquired and integrated three
acquisitions. In September 1996, the Company acquired all of the outstanding
shares of the capital stock of Visionworks Holdings, Inc. and its subsidiaries
(collectively, "Visionworks") for $61.5 million (the "Visionworks Acquisition").
At the time of the Visionworks Acquisition, Visionworks was a sixty store
optical retailer located along the Atlantic Coast from Florida to Washington, D.
C. with forty-nine superstores and eleven optical stores located near Eckerd
Corporation stores. In September 1997, the Company acquired The Samit Group,
Inc. and its subsidiaries ("TSGI"), a ten store optical retailer located in the
Washington, D.C. area and certain assets related to twelve additional stores in
Virginia for $22.3 million less acquisition date liabilities. Simultaneously
with the acquisition of TSGI, the Company entered into long-term business
management agreements with Hour Eyes Doctors of Optometry, P.C. ("PC"), a
Virginia professional corporation, to manage the additional twelve Hour Eyes
optical stores in Virginia (collectively, the "Hour Eyes Acquisition"). As a
result of the long-term business management agreements with PC, the Company
records a management fee but does not include the results of operations from the
twelve Virginia stores in the Company's consolidated results of operations. In
September 1998, the Company acquired certain assets of Dr. Bizer's VisionWorld,
PLLC and related entities (the "Bizer Entities"), a nineteen store optical
retailer located primarily in Kentucky and Tennessee, and simultaneously entered
into long-term management agreements with a private optometrist to manage such
nineteen stores (collectively, the "Bizer Acquisition"). The results of
operations from the date of acquisition from these nineteen stores are included
in the Company's consolidated results of operations.
On March 6, 1998, ECCA Merger Corp. ("Merger Corp."), a Delaware
corporation formed by Thomas H. Lee Company ("THL Co."), and the Company entered
into a recapitalization agreement (the "Recapitalization Agreement") providing
for, among other things, the merger of such corporation with and into the
Company (the "Merger" and, together with the financing of the recapitalization
and related transactions described below, the "Recapitalization"). Upon
consummation of the Recapitalization on April 24, 1998, Thomas H. Lee Equity
Fund IV, L.P. ("THL Fund IV") and other affiliates of THL Co. (collectively with
THL Fund IV and THL Co., "THL") owned approximately 89.7% of the issued and
outstanding shares of common stock of the Company ("Common Stock"), existing
shareholders (including management) of the Company retained approximately 7.3%
of the issued and outstanding Common Stock and management purchased additional
shares representing approximately 3.0% of the issued and outstanding Common
Stock. The total transaction value of the Recapitalization was approximately
$323.8 million, including related fees and expenses, and the implied total
equity value of the Company following the Recapitalization was approximately
$107.3 million.
11
<PAGE> 13
Certain of the funds needed to consummate the Recapitalization were
obtained through the sale, pursuant to Rule 144A promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), of $100,000,000 in
principal amount of 9 1/8% Senior Subordinated Notes due 2008 (the "Fixed Rate
Notes") and $50,000,000 in principal amount of Floating Interest Rate
Subordinated Term Securities due 2008 (the "Floating Rate Notes" and, together
with the Fixed Rate Notes, the "Initial Notes"). The Initial Notes were issued
by the Company and guaranteed by the Company's subsidiaries (the "Subsidiary
Guarantors"). Under that certain Indenture, dated April 24, 1998 (the
"Indenture"), by and among the Company, the Subsidiary Guarantors, and the
United States Trust Company of New York as Trustee governing the Initial Notes,
the Company and the Subsidiary Guarantors are jointly and severally liable for
payment of the Initial Notes. The Company filed a registration statement with
the Securities and Exchange Commission with respect to an offer to exchange the
Initial Notes for notes which have terms substantially identical in all material
respects to the Initial Notes, except such notes are freely transferable by the
holders thereof and are issued without any covenant regarding registration (the
"Exchange Notes"). The registration statement was declared effective on January
28, 1999. The exchange period ended March 4, 1999. The Exchange Notes are the
only notes of the Company which are currently outstanding. In addition to the
net proceeds from the sale of the Exchange Notes, the Recapitalization was
financed with (a) approximately $55.0 million of borrowings under the Credit
Facility (defined herein) and (b) approximately $99.4 million from the sale of
capital stock to THL, Bernard W. Andrews and other members of management (the
"Equity Contribution") consisting of (i) approximately $71.6 million from the
sale of Common Stock and (ii) approximately $27.8 million from the sale of
shares of a newly created series of preferred stock of the Company ("New
Preferred Stock"). The Company used the proceeds from such bank borrowings, the
sale of the Exchange Notes, and the Equity Contribution principally to finance
the conversion into cash of the shares of Common Stock which were not retained
by existing stockholders, to refinance certain existing indebtedness of the
Company, to redeem certain outstanding preferred stock of the Company and to pay
related fees and expenses of the Recapitalization. In connection with the
Recapitalization, the Company in-substance defeased its previously issued 12%
Senior Notes due 2003 (the "Senior Notes") by depositing with the trustee for
the Senior Notes (i) an irrevocable notice of redemption of the Senior Notes on
October 1, 1998 and (ii) United States government securities in an amount
necessary to yield on October 1, 1998, $78.4 million, which constituted the
principal amount, premium and interest payable on the Senior Notes on the
October 1, 1998 redemption date. The Senior Notes were defeased as scheduled on
October 1, 1998.
12
<PAGE> 14
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statement of
income data as a percentage of net revenues.
<TABLE>
<CAPTION>
THIRTEEN TWENTY-SIX
WEEKS ENDED WEEKS ENDED
----------------- -----------------
JULY 4, JULY 3, JULY 4, JULY 3,
1998 1999 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
NET REVENUES:
Optical sales ................................... 99.1 % 98.8% 99.0% 98.9%
Management fee .................................. 0.9 1.2 1.0 1.1
----- ----- ----- -----
Total net revenues .................................... 100.0 100.0 100.0 100.0
OPERATING COSTS AND EXPENSES:
Cost of goods sold .............................. 34.6 * 33.1* 34.0* 33.3*
Selling, general and administrative expenses .... 55.7 * 57.2* 54.9* 55.5*
Recapitalization and other expenses ............. 43.3 -- 21.0 --
Amortization of intangibles ..................... 1.3 1.7 1.4 1.7
----- ----- ----- -----
Total operating costs and expenses .................... 134.1 91.0 110.4 89.5
----- ----- ----- -----
INCOME/(LOSS) FROM OPERATIONS ......................... (34.1) 9.0 (10.4) 10.5
INTEREST EXPENSE, NET ................................. 8.4 8.4 6.9 8.2
IN-SUBSTANCE DEFEASED BONDS INTEREST EXPENSE, NET ..... 2.5 -- 1.2 --
INCOME TAX EXPENSE/(BENEFIT) .......................... (0.1) 0.5 0.0 0.3
----- ----- ----- -----
NET INCOME/(LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE
AND EXTRAORDINARY LOSS .............................. (44.9) 0.1 (18.5) 2.0
CHANGE IN ACCOUNTING PRINCIPLE ........................ -- -- -- 0.3
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF LONG-TERM
DEBT ................................................ 7.1 -- 3.5 --
----- ----- ----- -----
NET INCOME/(LOSS) ..................................... (52.0)% 0.1% (22.0)% 1.7%
===== ===== ===== =====
</TABLE>
* Percentages based on optical sales only
THE THIRTEEN WEEKS ENDED JULY 3, 1999 COMPARED TO THE THIRTEEN WEEKS ENDED JULY
4, 1998.
Net Revenues. The increase in net revenues to $69.8 million for the thirteen
weeks ended July 3, 1999 from $58.2 million for the thirteen weeks ended July 4,
1998 was largely the result of the Bizer
13
<PAGE> 15
Acquisition and an increase in comparable store sales of 1.5%. The Bizer
Acquisition resulted in an increase in net revenues of $8.5 million during the
second thirteen weeks of fiscal 1999.
Gross Profit. Gross profit increased to $46.1 million for the thirteen weeks
ended July 3, 1999 from $37.7 million for the thirteen weeks ended July 4, 1998.
Gross profit as a percentage of optical sales increased to 66.9% for the
thirteen weeks ended July 3, 1999 as compared to 65.4% for the thirteen weeks
ended July 4, 1998. This percentage increase was primarily due to increased
productivity within the store labs and an increase in the mix of anti-reflective
and polycarbonate lens sales.
Selling General & Administrative Expenses (SG&A). SG&A increased to $39.4
million for the thirteen weeks ended July 3, 1999 from $32.1 million for the
thirteen weeks ended July 4, 1998. SG&A as a percentage of optical sales
increased to 57.2% for the thirteen weeks ended July 3,1999 from 55.7% for the
thirteen weeks ended July 4, 1998. This percentage increase was primarily due to
the inclusion of doctor payroll expenses for the stores acquired through the
Bizer Acquisition, which were not included in the second quarter of 1998
results, and increased overhead costs. This increase was partially offset by a
decrease in advertising.
Amortization Expense. Amortization expense (excluding the amortization of store
pre-opening costs) increased to $1.2 million for the thirteen weeks ended July
3, 1999 from $0.7 million for the thirteen weeks ended July 4, 1998. This
increase was due to amortization of the goodwill related to the Bizer
Acquisition, which was recorded during the fourth quarter of 1998, and
amortization of the debt issuance costs related to the Recapitalization.
Net Interest Expense. Net interest expense increased to $5.9 million for the
thirteen weeks ended July 3, 1999 from $4.9 million for the thirteen weeks ended
July 4, 1998. This increase was due to the increased borrowings related to the
Recapitalization and the Bizer Acquisition.
Net Income. Net income increased to $0.1 million for the thirteen weeks ended
July 3, 1999 from a net loss of $30.3 million for the thirteen weeks ended July
4, 1998.
THE TWENTY-SIX WEEKS ENDED JULY 3, 1999 COMPARED TO THE TWENTY-SIX WEEKS ENDED
JULY 4, 1998.
Net Revenues. The increase in net revenues to $144.8 million for the twenty-six
weeks ended July 3, 1999 from $120.3 million for the twenty-six weeks ended July
4, 1998 was largely the result of the Bizer Acquisition and an increase in
comparable store sales of 1.6%. The Bizer Acquisition resulted in an increase in
net revenues of $18.7 million during the second twenty-six weeks of fiscal 1999.
Gross Profit. Gross profit increased to $95.6 million for the twenty-six weeks
ended July 3, 1999 from $78.6 million for the twenty-six weeks ended July 4,
1998. Gross profit as a percentage of optical sales increased to 66.7% for the
twenty-six weeks ended July 3, 1999 as compared to 66.0% for the twenty-six
weeks ended July 4, 1998. This percentage increase was primarily due to
increased productivity within the store labs.
Selling General & Administrative Expenses (SG&A). SG&A increased to $79.6
million for the twenty-six weeks ended July 3, 1999 from $65.3 million for the
twenty-six weeks ended July 4, 1998. SG&A as a percentage of optical sales
increased to 55.5% for the twenty-six weeks ended July 3,1999 from 54.9% for the
twenty-six weeks ended July 4, 1998. This percentage increase was primarily due
to the inclusion of doctor payroll expenses for the stores acquired through the
Bizer Acquisition, which were not included in the second quarter of 1998
results.
14
<PAGE> 16
Amortization Expense. Amortization expense (excluding the amortization of store
pre-opening costs) increased to $2.4 million for the twenty-six weeks ended July
3, 1999 from $1.7 million for the twenty-six weeks ended July 4, 1998. This
increase was due to amortization of the goodwill related to the Bizer
Acquisition, which was recorded during the fourth quarter of 1998, and
amortization of the debt issuance costs related to the Recapitalization.
Net Interest Expense. Net interest expense increased to $11.9 million for the
twenty-six weeks ended July 3, 1999 from $8.3 million for the twenty-six weeks
ended July 4, 1998. This increase was due to the increased borrowings related to
the Recapitalization and the Bizer Acquisition.
Net Income. Net income increased to $2.4 million for the twenty-six weeks ended
July 3, 1999 from a net loss of $26.4 million for the twenty-six weeks ended
July 4, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities have provided net cash of $9.0
million for the twenty-six weeks ended July 3, 1999 as compared to a use of $9.9
million for the twenty-six weeks ended July 4, 1998. As of July 3, 1999, the
Company had $1.6 million of cash available to meet the Company's obligations.
Capital expenditures are related to the construction of new stores,
repositioning of existing stores in some markets, new computer systems for the
stores and maintenance of existing facilities. Capital expenditures for the
twenty-six weeks ended July 3, 1999 were $10.5 million. Capital expenditures for
1999 are anticipated to be approximately $18.0 million. Of the 1999 capital
expenditures, approximately $10.0 million are expected to be related to new
stores, approximately $4.0 million are expected to be for maintenance of
existing facilities and the remaining approximately $4.0 million represents the
funds necessary to complete the Company's point-of-sale and equipment upgrade
programs, which management believes are non-recurring in nature.
In connection with the Recapitalization, the Company entered into a
credit agreement (the "Credit Facility") which consists of (i) the $55.0 million
term loan facility (the "Term Loan Facility"); (ii) the $35.0 million revolving
credit facility (the "Revolving Credit Facility"); and (iii) the $100.0 million
acquisition facility (the "Acquisition Facility"), of which $50.0 million was
committed at April 24, 1998. At July 3, 1999, the Company had $54.0 million in
term loans outstanding under this facility and $30.1 million outstanding under
the Acquisition Facility, which funded the Bizer Acquisition. Borrowings made
under the Credit Facility bear interest at a rate equal to, at the Company's
option, LIBOR plus 2.25% or the Base Rate (as defined in the Credit Facility)
plus 1.25%. The Term Loan Facility matures five years from the closing date of
the Credit Facility and will amortize quarterly in aggregate annual principal
amounts of approximately $0.0 million, $4.0 million, $12.0 million, $18.0
million, and $21.0 million, respectively, for years one through five after the
closing of the Credit Facility.
In connection with the Recapitalization, the Company completed a debt
offering of the Initial Notes, which were subsequently exchanged for the
Exchange Notes. Interest on the Exchange Notes will be payable semiannually on
each May 1 and November 1, commencing on November 1, 1998. Interest on the Fixed
Rate Notes accrues at the rate of 9 1/8% per annum. The Floating Rate Notes bear
interest at a rate per annum, reset semiannually, and equal to LIBOR (as
defined) plus 3.98%. The Exchange Notes will not be entitled to the benefit of
any mandatory sinking fund. On April 24, 1998, the Company entered into an
interest rate swap agreement which converts a portion of the Floating Rate Notes
to a fixed rate.
15
<PAGE> 17
During 1996, the Company issued 110,000 shares of Series A Cumulative
Mandatorily Redeemable Exchangeable Pay-in-Kind Preferred Stock ("Preferred
Stock"). In conjunction with the Recapitalization, the Company repurchased the
Preferred Stock, canceled it and issued 300,000 shares of a new series of
preferred stock (the "New Preferred Stock"), par value $ .01 per share.
Dividends on shares of New Preferred Stock are cumulative from the date of issue
(whether or not declared) and will be payable when and as may be declared from
time to time by the Board of Directors of the Company. Such dividends accrue on
a daily basis from the original date of issue at an annual rate per share equal
to 13% of the original purchase price per share, with such amount to be
compounded quarterly. The New Preferred Stock will be redeemable at the option
of the Company, in whole or in part, at $100 per share plus (i) the per share
dividend rate and (ii) all accumulated and unpaid dividends, if any, to the date
of redemption, upon occurrence of an offering of equity securities, a change of
control or certain sales of assets.
Based upon current operations, anticipated cost savings and future
growth, the Company believes that its cash flow from operations, together with
available borrowings under the Revolving Credit Facility, will be adequate to
meet its anticipated requirements for working capital, capital expenditures and
scheduled principal and interest payments. However, the Company believes that
its ability to repay the Exchange Notes and amounts outstanding under the
Revolving Credit Facility and the Acquisition Facility at maturity may require
additional financing. The ability of the Company to meet its debt service
obligations and reduce its debt will be dependent on the future performance of
the Company, which in turn, will be subject to general economic conditions and
to financial, business, and other factors, including factors beyond the
Company's control. A portion of the Company's debt bears interest at floating
rates; therefore, its financial condition is and will continue to be affected by
changes in prevailing interest rates.
SYSTEMS CONVERSION; YEAR 2000 ISSUE
The Company is aware of the potential for industry wide business
disruption which could occur due to problems related to the "Year 2000" issue.
It is the belief of the Company's management that it has a prudent plan in place
to address these issues within the Company and with its suppliers. The
components of the Company's plan include: an assessment of internal systems for
modification and/or replacement; communication with external vendors to
determine their state of readiness to maintain an uninterrupted supply of goods
and services to the Company; an evaluation of the Company's production equipment
as to its ability to function properly after the turn of the century; an
evaluation of facility- related issues; the retention of technical and advisory
expertise to ensure that the Company is taking prudent action steps; and the
development of a contingency plan.
State of Readiness
The Company has developed a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 related failures. While
there is still a significant amount of work to do, the Company believes that it
is on track towards a timely completion in the fall of 1999. Overall the Company
estimates that it has completed approximately 90% of the Year 2000 issue
identification process, and approximately 65% of the process of remediating Year
2000 issues that have been identified to date.
Internal Systems (Information Technology)
To date, the Company has fully completed its assessment of all
information technology systems that could be significantly affected by the Year
2000 issue. The completed assessment indicated that certain systems are already
Year 2000 compliant while others are still in the process of being remediated.
16
<PAGE> 18
Compliant systems include the Company's general ledger system, the managed
vision care system, and the merchandising system. Systems that are in the
process of being remediated are the payroll/human resources system and the
point-of-sale system, both of which should be compliant by the end of the summer
of 1999.
Suppliers
The Company is in the process of communicating with its external
vendors to gain an understanding of their state of readiness to maintain an
uninterrupted supply of goods and services to the Company. Although the Company
believes that its products may be purchased from a number of vendors on
comparable terms and that therefore it is not dependent on any vendors or any
other single vendor for frames or lenses, the Company has identified vendors
that may otherwise be viewed as critical to its business. The Company is
defining a critical vendor as one whose inability to continue to provide goods
and services could have a serious adverse impact on the Company's ability to
produce, deliver, and collect payment for eyewear and/or services. To date the
Company is not aware of any supplier with a Year 2000 issue that would
materially impact the results of operations, liquidity or capital resources.
However, the Company has no means of ensuring that suppliers will be Year 2000
ready. Although the Company believes it does not have any critical vendors, the
inability of suppliers to complete their Year 2000 resolution process in a
timely fashion could materially impact the Company.
Production Equipment
The Company has completed an inventory of production equipment
currently used at the Company. The Company has determined the Year 2000
readiness of this equipment through communication with the equipment
manufacturers and testing where appropriate. The Company is not aware of any
production equipment that is affected by the Year 2000 issue.
Facility-Related Issues
The Company is in the process of evaluating facilities-related
equipment with the potential for Year 2000 related failures. The Company will
determine the Year 2000 readiness of this equipment through communication with
the equipment manufacturers and testing where appropriate. It is the Company's
intention to repair or replace non-compliant equipment prior to operating
difficulties. The Company, as in most companies, remains aware of the potential
for imbedded logic within microchips to cause equipment failure. The Company
believes that it has a prudent approach towards evaluating facilities equipment,
however, it may be impracticable or impossible to test certain items of
equipment for Year 2000 readiness. To the extent such untested equipment is not
Year 2000 ready, it may fail to operate on or after January 1, 2000, resulting
in possible interruptions of security, heating, elevator, telephone and other
services.
Technical and Advisory Expertise
The Company has engaged outside consultants to assist it in project
planning, testing methodologies, and evaluating our Year 2000 remediation
activities.
17
<PAGE> 19
Costs
The Company is evaluating the total cost of Year 2000 compliance. At
this time, the Company estimates the total cost of Year 2000 related activities
to be approximately $650,000, with $100,000 of that amount yet to be incurred.
This amount is incremental spending and has been budgeted within the normal
magnitude of Information Technology spending. This amount includes the
replacement of hardware and applications that are outdated and were due for
replacement regardless of Year 2000 issues.
Contingency Plan
Although the Company believes that it is taking prudent action related
to the identification and resolution of issues related to the Year 2000, its
assessment is still in progress. The Company may never be able to know with
certainty whether certain key vendors are compliant. Failure of key vendors to
make their computer systems Year 2000 compliant could result in delayed
deliveries of products to the Company. If such delays are extended they could
have a material adverse effect on the Company's business, financial condition,
and results of operations. There are also technical vagaries to logic imbedded
within microchips, which may prove impracticable or impossible to test. To the
extent such microchips are not Year 2000 compliant, this could have a material
adverse effect on the Company's business, financial condition, and results of
operations.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Company's efforts related to the Year 2000 issue are
expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its critical vendors. The Company believes that, with the
implementation of new business systems and completion of the plans set in place
related to the Year 2000 issue, the possibility of significant interruptions of
normal operations should be reduced.
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. While the Company does not believe its business is highly
sensitive to inflation, there can be no assurance that a high rate of inflation
would not have an adverse impact on the Company's operations.
SEASONALITY AND QUARTERLY RESULTS
The Company's sales fluctuate seasonally. Historically, the Company's
highest sales and earnings occur in the first and third fiscal quarters;
however, the opening of new stores and the Bizer Acquisition may affect seasonal
fluctuations. Hence, quarterly results are not necessarily indicative of results
for the entire year.
18
<PAGE> 20
FORWARD LOOKING STATEMENTS
The foregoing Form 10-Q contains various "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements represent the Company's expectations or belief concerning future
events, including the following: any statements regarding future sales and gross
profit percentages, any statements regarding the continuation of historical
trends, and any statements regarding the sufficiency of the Company's cash
balances and cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. The Company
cautions that these statements are further qualified by important economic and
competitive factors that could cause actual results to differ materially from
those in the forward-looking statements, including, without limitation, risks of
the eye care industry, including a highly competitive industry with many
well-established competitors with greater financial and other resources than the
Company, and the impact of changes in consumer tastes, local, regional and
national economic conditions, demographic trends, traffic patterns, employee
availability and cost increases. In addition, the Company's ability to expand is
dependent upon various factors, such as the availability of attractive sites for
new stores, the ability to negotiate suitable lease terms, the ability to
generate or borrow funds to develop new stores and obtain various government
permits and licenses and the recruitment and training of skilled management and
employees. Accordingly, such forward-looking statements do not purport to be
predictions of future events or circumstances and may not be realized.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks. Market risk is the
potential loss arising from adverse changes in market prices and rates. The
Company does not enter into derivative or other financial instruments for
trading or speculative purposes. There have been no material changes in the
Company's market risk during the second quarter of fiscal 1999. For further
discussion, refer to the Eye Care Centers of America, Inc.'s annual report on
Form 10-K for the year ended January 2, 1999.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to routine litigation in the ordinary course of its
business. There have been no such pending matters, individually or in the
aggregate, that are deemed to be material to the business or financial condition
of the Company that have arisen during the second quarter of fiscal 1999. For
further discussion, refer to the Eye Care Centers of America, Inc.'s annual
report on Form 10-K for the year ended January 2, 1999.
19
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement dated August 15, 1996 by and between Eye Care
Centers of America, Inc., Visionworks Holdings, Inc. and the Sellers
listed therein. (a)
2.2 Stock Purchase Agreement, dated September 30, 1997, by
and among Eye Care Centers of America, Inc., a Texas
corporation, Robert A. Samit, O. D. and Michael Davidson, O. D. (a)
2.3 Recapitalization Agreement dated as of March 6, 1998 among ECCA Merger
Corp., Eye Care Centers of America, Inc. and the sellers Listed
therein. (a)
2.4 Amendment No. 1 to the Recapitalization Agreement dated as of April 23,
1998 among ECCA Merger Corp., Eye Care Centers of America, Inc., and
the sellers listed therein. (a)
2.5 Amendment No. 2 to the Recapitalization Agreement dated as of April 24,
1998 among ECCA Merger Corp., Eye Care Centers of America, Inc. and the
sellers listed therein. (a)
2.6 Articles of Merger of ECCA Merger Corp. with and into Eye Care Centers
of America, Inc. dated April 24, 1998. (a)
2.7 Master Asset Purchase Agreement, dated as of August 22, 1998, by and
among Eye Care Centers of America, Inc., Mark E. Lynn, Dr. Mark Lynn &
Associates, PLLC; Dr. Bizer's Vision World, PLLC and its affiliates. (a)
2.8 Letter Agreement, dated October 1, 1998, amending and
modifying that certain Master Asset Purchase
Agreement, dated as of August 22, 1998, by and among
Eye Care Centers of America, Inc.; Mark E. Lynn; Dr.
Mark Lynn & Associates, PLLC; Dr. Bizer's VisionWorld,
PLLC and its affiliates. (a)
2.9 Asset Purchase Agreement, dated July 7, 1999 by and among Eye Care
Centers of America, Inc., Vision Twenty-One, Inc., and The Complete
Optical Laboratory, Ltd., Corp. (c) (*)
3.1 Restated Articles of Incorporation of Eye Care Centers of America Inc.
(a)
3.2 Statement of Resolution of the Board of Directors of Eye Care Centers
of America, Inc. designating a series of Preferred Stock. (a)
3.3 Amended and Restated By-laws of Eye Care Centers of America, Inc. (a)
3.4 Certificate of Incorporation of Eye Drx Retail Management, Inc. (c)
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C>
3.5 Certificate of Incorporation of Stein Optical, Inc. (c)
3.6 Certificate of Incorporation of Vision World, Inc. (c)
4.1 Indenture dated as of April 24, 1998 among Eye Care
Centers of America, Inc., the Guarantors named therein
and United States Trust Company of New York, as
Trustee for the 9 1/8% Senior Subordinated Notes Due
2008 and Floating Interest Rate Subordinated Term
Securities. (a)
4.2 Form of Fixed Rate Exchange Note (included in Exhibit 4.1 Hereto). (a)
4.3 Form of Floating Rate Exchange Note (included in Exhibit 4.1 Hereto).
(a)
4.4 Form of Guarantee (included in Exhibit 4.1 hereto). (a)
4.5 Registration Rights Agreement dated April 24, 1998
between Eye Care Centers of America, Inc., the
subsidiaries of the Company named as guarantors
therein, BT Alex. Brown Incorporated and Merrill
Lynch, Pierce, Fenner & Smith Incorporated. (a)
27.1 Financial Data Schedule. (c)
</TABLE>
- ----------
+ Portions of this Exhibit have been omitted pursuant to an application
for an order declaring confidential treatment filed with the
Securities and Exchange Commission.
* Portions of this Exhibit have been omitted pursuant to Rule 601 of
the Securities Act and a copy will be furnished supplementally upon
request.
(a) Incorporated by reference from the Registration Statement on Form S-4
(File No. 333 - 56551).
(b) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended January 2, 1999.
(c) Filed herewith.
(b) The Company filed no current reports on Form 8-K with the Securities and
Exchange Commission during the thirteen weeks ended July 3, 1999.
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EYE CARE CENTERS OF AMERICA, INC.
August 13, 1999 /s/ Alan E. Wiley
- -------------------------------- ---------------------------------
Dated Alan E. Wiley
Executive Vice President and
Chief Financial Officer
22
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Index Description
------------- -----------
<S> <C>
2.9 Asset Purchase Agreement, dated July 7, 1999 by and among Eye Care
Centers of America, Inc., Vision Twenty-One, Inc., and The Complete
Optical Laboratory, Ltd., Corp.
3.4 Certificate of Incorporation of Eye Drx Retail Management, Inc.
3.5 Certificate of Incorporation of Stein Optical, Inc.
3.6 Certificate of Incorporation of Vision World, Inc.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is entered into as of July
7, 1999 by and among Eye Care Centers of America, Inc., a Texas corporation
("Purchaser"), Vision Twenty-One, Inc., a Florida corporation (the "Company"),
and The Complete Optical Laboratory, Ltd., Corp., a New Jersey corporation and a
direct wholly-owned subsidiary of the Company (the "Subsidiary" and, together
with the Company, the "Sellers").
W I T N E S S E T H:
WHEREAS, pursuant to the Vision World Acquisition Agreement, on June
30, 1998 the Company acquired substantially all of the assets and operations of
Vision World, which engaged in the business of providing optometric services,
selling optical goods and providing other related services primarily in the
State of Minnesota (the "Minnesota Business");
WHEREAS, pursuant to the Eye Care Acquisition Agreement, on March 31,
1998 Eye Care One merged with and into the Company, after which the Company
continued to operate Eye Care One's business of providing optometric services,
selling optical goods and providing other related services primarily in the
State of Wisconsin (the "Wisconsin Business") pursuant to the Eye Care
Acquisition Agreement;
WHEREAS, on January 1, 1998, (i) pursuant to the Drx Acquisition
Agreement, the Company acquired certain of the assets of the Practice and Elliot
L. Shack, O.D., P.A., a New Jersey professional association, which engaged in
the business of providing optometric services, selling optical goods and
providing other related services primarily in the State of New Jersey and the
Company concurrently entered into the Business Management Agreement to provide
certain management services to the Practice (the Company's business with respect
to the ownership of such assets and management of the Practice being hereinafter
referred to as the "New Jersey Business") and (ii) the Company acquired all of
the outstanding capital stock of the Subsidiary pursuant to the TCOL Stock
Purchase Agreement, the Subsidiary being engaged in the manufacture of optical
lenses in New Jersey (the "Subsidiary Business");
WHEREAS, the New Jersey Business, the Minnesota Business and the
Wisconsin Business of the Company are hereinafter referred to as the "Company
Businesses" and the Company Businesses and the Subsidiary Business are
hereinafter collectively referred to as the "Acquired Businesses;"
WHEREAS, the Company desires to sell and Purchaser desires to purchase
substantially all of the assets, properties, and rights of the Company used in
the Company Businesses;
WHEREAS, the Subsidiary desires to sell and Purchaser desires to
purchase substantially all of the assets, properties, and rights of the
Subsidiary; and
WHEREAS, simultaneously with this Agreement, the Purchaser and the
Company will enter into an Agreement Regarding Strategic Alliance (the
"Strategic Agreement") whereby the Purchaser and the Company will create a
strategic alliance to facilitate the growth of its respective businesses;
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements of the parties hereinafter contained, the Parties hereby agree as
follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
For purposes of this Agreement, capitalized terms shall have the
meanings specified or referred to in EXHIBIT A hereto.
ARTICLE II
SALE OF ASSETS
Section 2.01 Sale of Assets.
(a) On the Closing Date, and subject to the terms and
conditions herein stated, the Company agrees to sell, transfer, assign, convey
and deliver to Purchaser, and Purchaser agrees to purchase from the Company, all
right, title and interest in and to all of the assets used in, related to or
necessary for the operation of each of the Company Businesses including, without
limitation, the following: (i) all of the goodwill and all of the customer lists
(to the extent permitted by applicable law) used in, related to or necessary for
the operation of the Company Businesses; (ii) all rights and privileges under
the Contracts and accounts of the Company Businesses including, without
limitation, the Contracts listed on EXHIBIT B-1 (with respect to the Wisconsin
Business), EXHIBIT B-2 (with respect to the Minnesota Business) and EXHIBIT B-3
(with respect to the New Jersey Business) hereto identified as being assumed by
Purchaser (collectively such Contracts listed on EXHIBITS B-1, B-2 AND B-3 are
referred to herein as the "Company Assigned Contracts") and the right to receive
all payments, rights, and privileges of the Company arising under the Company
Assigned Contracts; (iii) all of the trade names, service marks, trademarks,
patents, trade secrets, internet addresses, telephone numbers and other
intellectual property rights, whether registered or unregistered, used in,
related to or necessary for the operation of the Company Businesses, including,
without limitation, the names "Vision World," "Stein Optical," "EyeCare One,"
and "Eye Drx" and the Internet addresses "www.visionworld.com" and
"www.steinoptical.com" and the other rights of the Company listed on Schedule
3.16; (iv) all of the prepaid expenses, unbilled costs and fees, and accounts,
notes and other receivables used in, related to or necessary for the operation
of the Company Businesses; (v) the fixed assets, vehicles, equipment and other
personal property of the Company physically located at the offices of the
Company Businesses including, without limitation, the assets of the Company
listed on EXHIBIT C-1 (with respect to the Wisconsin Business), EXHIBIT C-2
(with respect to the Minnesota Business) and EXHIBIT C-3 (with respect to the
New Jersey Business) hereto; (vi) all of the books and records of the Company
used in, related to or necessary for the operation of the Company Businesses;
(vii) all of the supplies, inventories and office and other supplies physically
located at the offices of the Company Businesses; (viii) to the extent permitted
by applicable law, all rights of the Company under any written or oral contract,
agreement, non-competition agreement, confidentiality agreement, lease, plan,
instrument, registration, license, certificate of occupancy, other permit or
approval of any nature, or other document, commitment, arrangement, undertaking,
practice or authorization used in, related to, or necessary for the operation of
the Company Businesses; (ix) all computer software and related licenses of the
Company used in, related to or necessary for the operation of the Company
Businesses; (x) all rights or choses in action of the Company used in, related
to, or necessary for the operation of the Company Businesses arising out of
occurrences before or after the Closing Date including, without limitation, all
rights under express or implied warranties relating to the assets of the Company
used in, related to, or necessary for the operation of the Company Businesses;
and (xi) all of the Company's right, title and interest to any other assets
physically located at the offices of the Company Businesses or any claims
related thereto. The assets described in this SECTION 2.01(a) are hereinafter
collectively referred to as the "Company Assets." Notwithstanding the foregoing,
the
2
<PAGE> 3
Company shall retain and shall not transfer to Purchaser, and the term "Company
Assets" shall not include any of the following (collectively, the "Company
Excluded Assets"):
(A) any of the Company's accounts receivable
relating to Medicare or Medicaid or any of
the Company's cash or cash equivalents;
(B) any of the Company's intercompany
receivables or receivables due from
employees, independent contractors or other
related parties;
(C) any Contract relating to employment or the
engagement of independent contractors
(except as expressly included in the
Assigned Contracts) including, without
limitation, the Cummins Employment
Agreement;
(D) any of the other assets or Contracts listed
on EXHIBIT D-1 (with respect to the
Wisconsin Business), EXHIBIT D-2 (with
respect to the Minnesota Business) and
EXHIBIT D-3 (with respect to the New Jersey
Business) hereto;
(E) any assets of the Company in the States of
Minnesota, New Jersey or Wisconsin which are
not used in, related to or necessary for the
operation of the Acquired Businesses;
(F) any computer equipment, software, licenses
or other assets primarily used at the
Company's corporate headquarters in Tampa
Bay, Florida or that is not used by the
Company in connection with the Acquired
Businesses including, without limitation,
the computer software and licenses set forth
on EXHIBIT D-1, D-2, D-3 OR D-4;
(G) any of the shares of stock of, or assets
owned by, VIPA; or
(H) any rights or choses in action against the
selling parties under the Vision World
Acquisition Agreement, Eye Care Acquisition
Agreement, Drx Acquisition Agreement and
TCOL Stock Purchase Agreement (other than
rights with respect to non-competition,
non-solicitation or similar provisions, and
breaches with respect thereto, which are
transferred hereunder to the extent
permitted by applicable law and the terms of
such agreements).
(b) On the Closing Date, and subject to the terms and
conditions herein stated, the Subsidiary agrees to sell, transfer, assign,
convey and deliver to Purchaser, and Purchaser agrees to purchase from the
Subsidiary, all right, title and interest in and to all of the assets of the
Subsidiary including, without limitation, the following: (i) all of the goodwill
of the Subsidiary and all of the customer lists of the Subsidiary; (ii) all
rights and privileges under the Contracts and accounts of the Subsidiary
including, without limitation, the contracts listed on EXHIBIT B-4 hereto
identified as being assumed by Purchaser (collectively, the "Subsidiary Assigned
Contracts" and, together with the Company Assigned Contracts, the "Assigned
Contracts") and the right to receive all payments, rights, and privileges of the
Subsidiary arising under the Subsidiary Assigned Contracts; (iii) all of the
Subsidiary's trade names, service marks, trademarks, patents, trade secrets,
internet addresses, telephone numbers and other intellectual property rights,
whether registered or unregistered including, without limitation, the names "The
Complete Optical Laboratory, Ltd." and the other rights of the
3
<PAGE> 4
Subsidiary listed on Schedule 3.16; (iv) all of the Subsidiary's prepaid
expenses, unbilled costs and fees, and accounts, notes and other receivables;
(v) the fixed assets, vehicles, equipment and other personal property of the
Subsidiary including, without limitation, the assets of the Subsidiary listed on
EXHIBIT C-4 hereto; (vi) all of the books and records of the Subsidiary; (vii)
all of the Subsidiary's supplies, inventories and office and other supplies;
(viii) to the extent permitted by applicable law, all rights of the Subsidiary
under any written or oral contract, agreement, non-competition agreement,
confidentiality agreement, lease, plan, instrument, registration, license,
certificate of occupancy, other permit or approval of any nature, or other
document, commitment, arrangement, undertaking, practice or authorization; (ix)
all computer software and related licenses of the Subsidiary; (x) all rights or
choses in action of the Subsidiary arising out of occurrences before or after
the Closing Date including, without limitation, all rights under express or
implied warranties relating to the other Subsidiary Assets; and (xi) all of the
Subsidiary's right, title and interest to any other assets or claims of the
Subsidiary. The assets described in this SECTION 2.01(b) are hereinafter
collectively referred to as the "Subsidiary Assets." The Company Assets and the
Subsidiary Assets are hereinafter referred to herein as the "Assets."
Notwithstanding the foregoing, the Subsidiary shall retain and shall not
transfer to Purchaser, and the term "Subsidiary Assets" shall not include, any
of the following (collectively, the "Subsidiary Excluded Assets" and, together
with the Company Excluded Assets, the "Excluded Assets"):
(A) any of the Subsidiary's accounts receivable
relating to Medicare or Medicaid or any of
the Subsidiary's cash or cash equivalents;
(B) any of the Subsidiary's intercompany
receivables or receivables due from
employees, independent contractors or other
related parties;
(C) any Contract relating to employment or the
engagement of independent contractors
(except as expressly included in the
Assigned Contracts);
(D) any of the other assets or Contracts listed
on EXHIBIT D-4 hereto; or
(E) any computer equipment, software, licenses
or other assets primarily used at the
Company's corporate headquarters in Tampa
Bay, Florida or that is not used by the
Subsidiary in connection with the Acquired
Businesses including, without limitation,
the computer software and licenses set forth
on EXHIBIT D-1, D-2, D-3 OR D-4.
Section 2.02 Purchase Price; Payment.
(a) As consideration for the purchase of the Assets, Purchaser
shall pay to the Sellers, in cash allocated between the Sellers as set forth on
EXHIBIT E hereto, the aggregate sum of Forty-Two Million Dollars and no/100
($42,000,000) (the "Base Price"), subject to increase or decrease, as the case
may be, by the Adjustment Amount as provided in SECTION 2.03 (as adjusted, the
"Purchase Price").
4
<PAGE> 5
(b) At the Closing, Purchaser shall deliver:
(i) to the Sellers, in cash allocated between the
Sellers as set forth on EXHIBIT E-1, an amount equal to (A) the Base Price, as
increased or decreased, as the case may be, by the Estimated Adjustment Amount
as provided in SECTION 2.02(c), minus (B) the Escrow Amount delivered to the
Escrow Agent pursuant to SECTION 2.02(b)(ii) (such amount determined by A-B
being referred to herein as the "Estimated Cash Payment"), by wire transfer of
immediately available funds to the accounts of the Sellers, written notice of
which accounts shall have been provided to Purchaser not less than three (3)
business day prior to the Closing.
(ii) to Southwest Bank of Texas, N.A., as escrow
agent (the "Escrow Agent"), an amount equal to One Million Two Hundred Fifty
Thousand Dollars and no/100 ($1,250,000) (the "Escrow Amount"). The Escrow
Amount shall be maintained by the Escrow Agent pursuant to the terms of an
Escrow Agreement in substantially the form of Exhibit F hereto (the "Escrow
Agreement") by and among Purchaser, the Sellers and the Escrow Agent. Of such
Escrow Amount, an amount equal to Five Hundred Thousand Dollars and no/100
($500,000) shall be held to satisfy the amount, if any, owed by the Sellers to
Purchaser pursuant to Section 2.03 (the "Adjustment Escrow Amount") and such
Adjustment Escrow Amount, plus the earnings thereon, shall be released to
Purchaser and/or the Sellers, as the case may be, upon final resolution of the
Purchase Price pursuant to SECTION 2.03 (provided that any undisputed portion of
the Adjustment Escrow Amount to which the Sellers or Purchaser may be entitled
shall be delivered to the Sellers or Purchaser, as the case may be, as soon as
possible after presentation by Purchaser of the drafts of Closing Date Balance
Sheets), and the remainder shall be held to satisfy indemnification claims of
Purchaser for a period of six-months following the Closing Date as more
specifically set forth in the Escrow Agreement.
The Estimated Cash Payment to be paid by Purchaser to the
Sellers at the Closing plus the Escrow Amount is hereinafter referred to as the
"Estimated Purchase Price."
(c) As soon as reasonably practical, but in no event later
than five (5) business days prior to the Closing Date, the Sellers shall in good
faith cause to be prepared and delivered to Purchaser estimated balance sheets
(as finally agreed upon by the Parties, the "Estimated Closing Date Balance
Sheets") and income statements for the period from January 1, 1999 until the
Closing Date (as finally agreed upon by the Parties, the "Estimated Closing Date
Income Statements") of the Acquired Businesses, on both an individual and
consolidated basis, which shall set forth an estimate of the Current Assets
(defined as the inventory, accounts receivable and prepaid expenses transferred
to Purchaser) and the Balance Sheet Assumed Liabilities (defined as accounts
payable and accrued expenses assumed by Purchaser) as of the Closing Date and an
estimate of the EBITDA for the period from January 1, 1999 until the Closing
Date, such Estimated Closing Date Balance Sheets and Estimated Closing Date
Income Statements to be calculated and prepared in accordance with GAAP, applied
on a basis consistent with past practices of Sellers. Purchaser and the Sellers
shall, after reviewing the balance sheets and income statements prepared by the
Sellers, in good faith attempt to agree upon the Estimated Closing Date Balance
Sheets and the Estimated Closing Date Income Statements. The parties shall agree
within five (5) business days as to the Estimated Closing Date Balance Sheets
and Estimated Closing Date Income Statement or either party may terminate this
Agreement (but such termination shall not effect the rights of the parties with
respect to Breaches prior to such termination). The aggregate of the Current
Assets reflected on the Estimated Closing Date Balance Sheets shall hereinafter
be referred to as the "Estimated Current Asset Amount" and the aggregate of the
Balance Sheet Assumed Liabilities reflected in the Estimated Closing Date
Balance Sheets shall hereinafter be referred to as the "Estimated Balance Sheet
Assumed Liabilities Amount" and the estimated 1999 EBITDA Adjustment based upon
the EBITDA reflected on the Estimated Closing Date Income Statements shall
hereinafter be referred to as the "Estimated 1999 EBITDA
5
<PAGE> 6
Adjustment." Based upon the Estimated Current Asset Amount and the Estimated
Balance Sheet Assumed Liabilities Amount, the parties shall calculate an
estimate of the Working Capital Amount as of the Closing Date (the "Estimated
Working Capital Amount"). For purposes of calculating the Estimated Cash Payment
due to the Sellers at the Closing pursuant to SECTION 2.02(b)(i), the Base Price
shall be (A) (i) increased by the amount by which the Estimated Working Capital
Amount exceeds Two Million Seven Hundred Thirty-Nine Thousand Dollars and no/100
($2,739,000), which amount has been calculated as set forth on EXHIBIT E-2, or
(ii) decreased by the amount by which the Estimated Working Capital Amount is
less than Two Million Seven Hundred Thirty-Nine Thousand Dollars and no/100
($2,739,000), as the case may be, and (B) decreased by the greater of (i) the
amount of the 1998 EBITDA Adjustment Amount or (ii) the amount of the Estimated
1999 EBITDA Adjustment (the aggregate amount of such decreases and increases, if
any, being hereinafter referred to as the "Estimated Adjustment Amount").
Section 2.03 Closing Financial Statements; Purchase Price Adjustments.
(a) As soon as practicable following the Closing but in no
event later than sixty (60) days following the Closing Date, the Parties shall
jointly cause to be prepared and delivered audited balance sheets for the
Acquired Businesses, on a combined basis, dated as of the Closing Date (as
finally agreed upon by the Parties, the "Closing Date Balance Sheets"), and the
related statement of income (the "Closing Date Income Statements") and owners'
equity for the Acquired Businesses, on a combined basis, for the period from
January 1, 1999 and ending as of the Closing Date, of the Acquired Businesses
(as finally agreed upon by the Parties, collectively the "Closing Date Financial
Statements"). Attached to such Closing Date Financial Statements shall be
supplemental schedules which shall set forth the Current Assets and the Balance
Sheet Assumed Liabilities as of the Closing Date and the EBITDA for the period
from January 1, 1999 until the Closing Date and the related 1999 EBITDA
Adjustment, such Closing Date Financial Statements to be calculated and prepared
in accordance with GAAP, applied on a basis consistent with past practices of
Sellers. The audit of the Closing Date Financial Statements shall be performed
by Ernst & Young LLP and the Parties shall jointly hire that firm. The cost of
the preparation and audit of the Closing Date Financial Statements shall be
borne one-half (1/2) by Purchaser and one-half (1/2) by the Sellers. The
aggregate of the Current Assets reflected on the Closing Date Balance Sheets
shall hereinafter be referred to as the "Current Asset Amount" and the aggregate
of the Balance Sheet Assumed Liabilities reflected on the Closing Date Balance
Sheets shall hereinafter be referred to as the "Balance Sheet Assumed
Liabilities Amount." The term "Working Capital Amount" shall mean the amount by
which the Current Assets Amount exceeds the Balance Sheet Assumed Liabilities
Amount. Notwithstanding any of the foregoing, the Prorated Personal Property
Taxes shall be reflected on the Closing Date Balance Sheets as a Balance Sheet
Assumed Liability and no amount shall be included in the calculation of the
Balance Sheet Assumed Liabilities Amount for deferred leasehold improvements.
The Sellers shall cooperate with Purchaser in the preparation of, and, to the
extent necessary, provide Purchaser access to the information reasonably
necessary to prepare, the Closing Date Financial Statements including, without
limitation, providing the accounting records, electronic and otherwise, within
thirty (30) days following the Closing. Each Party shall have reasonable access
throughout the audit to all accounting information, workpapers and conclusions
in connection with the preparation of the Closing Date Financial Statements. On
the basis of the Closing Date Financial Statements, subject, however, to the
rights of Purchaser and the Sellers as provided in SECTIONS 2.03(b) and 2.03(c),
for purposes of calculating the Purchase Price pursuant to SECTION 2.02(a), the
Base Price shall be (A) (i) increased by the amount by which the Working Capital
Amount exceeds Two Million Seven Hundred Thirty-Nine Thousand Dollars and no/100
Dollars ($2,739,000) or (ii) decreased by the amount by which the Working
Capital Amount is less than Two Million Seven Hundred Thirty-Nine Thousand
Dollars and no/100 ($2,739,000), as the case may be, and (B) decreased by the
greater of the amount of the 1998 EBITDA Adjustment or the 1999 EBITDA
Adjustment (the aggregate amount of such decreases and
6
<PAGE> 7
increases, if any, being hereinafter referred to as the "Adjustment Amount").
Within the time period set forth in SECTION 2.03(c), (i) Purchaser shall pay to
the Sellers the amount, if any, by which the Purchase Price exceeds the
Estimated Purchase Price, or (ii) the Sellers shall pay to Purchaser the amount
by which the Estimated Purchase Price exceeds the Purchase Price (to be paid out
of the Adjustment Escrow Amount and thereafter directly by the Sellers to the
extent the Adjustment Escrow Amount is insufficient to pay the amount owed by
the Sellers hereunder).
(b) Within fifteen (15) days after delivery of the Closing
Date Financial Statements, either the Sellers or the Purchaser on the other
hand, may deliver a written notice (a "Financial Statements Protest Notice") to
the other party of any objections, and the basis therefor, which such party may
have to the Closing Date Financial Statements. The failure of either Party to
deliver a Financial Statements Protest Notice within the prescribed time period
(provided that such Party has been given reasonable access to the information as
contemplated in SECTION 2.03(a) above) will constitute such Party's acceptance
of the Financial Statements Balance Sheets as delivered by Purchaser. During the
fifteen (15) business days following receipt of a Financial Statements Protest
Notice, Purchaser and the Sellers shall attempt in good faith to resolve any
disagreement with respect to the Closing Date Financial Statements and the
accuracy thereof. If at the end of the period specified in the immediately
preceding sentence, Purchaser and the Sellers shall have failed to resolve the
disagreement specified in such Financial Statements Protest Notice, the items in
dispute shall be referred to Deloitte & Touche LLP or such other nationally
recognized accounting firm as may be mutually agreed to by the Parties (the
"Adjustment Arbitrator") for final determination within forty-five (45) days.
This provision for arbitration shall be specifically enforceable by the Parties,
and the determination of the Adjustment Arbitrator in accordance with the
provisions hereof shall be final and binding upon the Parties, with no right of
appeal therefrom consistent with the provisions of SECTION 10.02. The fees and
expenses of the Adjustment Arbitrator shall be paid by the party (i.e.,
Purchaser, on the one hand, or the Sellers, on the other hand) whose last
proposed written offer for the settlement of the terms in dispute prior to the
commencement of such arbitration, taken as a whole, was farther away from the
final determination of the Adjustment Arbitrator. If the final determination of
the Adjustment Arbitrator is equal to one-half of the difference between the
last proposed written offers of Purchaser, on the one hand, and the Sellers, on
the other hand, then Purchaser and the Sellers shall each pay one-half (1/2) of
the fees and expenses of the Adjustment Arbitrator.
(c) The Sellers and Purchaser agree that within ten (10) days
after the final determination of the Closing Date Financial Statements and the
amount of the Purchase Price as provided in this SECTION 2.03 (either because no
Financial Statements Protest Notice is delivered or upon receipt of the
Adjustment Arbitrator's final determination or otherwise), the Sellers shall pay
to Purchaser, or Purchaser shall pay to the Sellers, as the case may be, the
amount owed as provided in SECTION 2.03(a), together with interest on the amount
of such payment from the Closing Date until the due date at an annual rate equal
to ten percent (10%); provided, however, such interest shall not be due on the
portion of such amount paid to Purchaser from the Adjustment Escrow Amount and
in lieu thereof Purchaser shall receive the earnings on such amount accrued in
the Escrow Account. In the event that such amount is due, but is not paid when
due, simple interest shall accrue on such obligation and be payable therewith
from the due date to the day preceding the date of payment at the annual rate
equal to the lesser of eighteen percent (18%) or the maximum rate allowed by
applicable law.
(d) In the event that the EBITDA of the Acquired Businesses
for the period from January 1, 1999 until the Closing Date is less than 83% of
Planned EBITDA set forth on EXHIBIT P attached hereto, there shall be a
reduction to the Purchase Price in accordance with SECTION 2.03(a) above equal
to (A)(i) 88% of the Planned EBITDA for the period from January 1, 1999 until
the Closing Date as set forth on EXHIBIT P attached hereto, minus (ii) the
EBITDA for the period from
7
<PAGE> 8
January 1, 1999 until the Closing Date multiplied by (B) six and eight-tenths
(6.8) (such decrease being referred to herein as the "1999 EBITDA Adjustment").
(e) "EBITDA" shall mean and be equal to (i) the sum of all net
income of the Sellers relating to the Acquired Businesses for the subject period
as determined in accordance with GAAP plus (ii) all amounts of interests,
federal and state income taxes, depreciation and amortization of intangibles of
the Sellers relating to the Acquired Businesses (to the extent reflected in the
net income of the Sellers relating to the Acquired Businesses) for such period
as determined in accordance with GAAP plus (iii) all Non-Recurring Charges for
such period which had been included in the calculation of the net income of the
Acquired Businesses minus (iv) all Non-Recurring Revenue and interest income for
such period which had been included in the calculation of the net income of the
Acquired Businesses. In determining the net income of the Sellers relating to
the Acquired Businesses, (i) expenses incurred at, and services provided by, the
corporate offices of the Company that are directly related to the Acquired
Businesses shall be allocated to the Acquired Businesses and included in the
calculation of EBITDA consistent with the allocation made in the Financial
Statements, (ii) the Acquired Businesses shall be charged a reasonable fee for
payroll services provided for the Businesses through the corporate offices
(which Sellers represent is the only additional service provided through the
corporate offices during 1999 that was not provided by the corporate offices
during substantially all of 1998) (iii) net income shall be determined without
regard to the effect of any restructuring charges or expenses directly related
to the Subject Transactions, the Vision World Acquisition Agreement, the Eye
Care Acquisition Agreement, the Drx Acquisition Agreement or the TCOL Stock
Purchase Agreement and (iv) net income shall be determined without giving effect
to the cumulative effect of changes in accounting principles. Set forth on
EXHIBIT P hereto is the Sellers' planned EBITDA of the Acquired Businesses for
fiscal 1999, on a monthly basis (the "Planned EBITDA").
(f) "Non-Recurring Charges" shall mean the types of charges
set forth on EXHIBIT Q. "Non-Recurring Revenues" shall mean, with respect to
EBITDA for 1998 the types of revenues set forth on EXHIBIT Q, and with respect
to EBITDA for 1999, extraordinary items and others revenues recognized by the
Acquired Businesses which were not incurred in the Ordinary Course of Business
or (ii) are not the type of revenues that will be recognized by Purchaser in the
day-to-day operation of the Acquired Businesses from and after the Closing Date
(for example, revenues from the sale of equipment or liquidation of other
assets). Notwithstanding any of the foregoing, any financial impact resulting
from modifications, revisions or adoptions of accounting policies different from
historical practices would not be deemed Non-Recurring Revenues or Non-Recurring
Charges.
(g) As soon as reasonably practical, but in no event later
than July 1, 1999, the Sellers shall in good faith cause to be prepared and
delivered to Purchaser an audited statement of operations of the Minnesota
Business for the six-month period from January 1, 1998 to June 30, 1998 (the
"Stub Period") prepared in conformance with GAAP, consistent with the owner's
past practices (the "Audited Stub Period Statement of Operations"). Purchaser
and the Sellers shall, after reviewing such statement of operations, in good
faith attempt to agree upon the related EBITDA for such period (as finally
agreed upon, the "1998 Stub EBITDA"). In the event the parties are unable to
agree upon the 1998 Stub EBITDA, such dispute shall be referred to the
Adjustment Arbitrator to resolve in accordance with the procedures set forth in
this SECTION 2.03. The "1998 EBITDA Adjustment" shall be an amount equal to (i)
the amount, if any, by which the 1998 Stub EBITDA is less than One Million Six
Hundred Fifty Thousand and no/100 ($1,650,000) multiplied by (ii) six and
eight-tenths (6.8); provided, however, if the 1998 Stub EBITDA is greater than
One Million Five Hundred Twenty-Seven Thousand and no/100 ($1,527,000), the 1998
EBITDA Adjustment shall be zero (0).
8
<PAGE> 9
Section 2.04 Assumption of Liabilities.
(a) Purchaser does not and shall not assume or agree to
assume, and shall not acquire or take over, the liabilities and obligations of
the Sellers of any nature, direct, contingent or otherwise, except:
(i) the obligations which arise solely out of the
actions of Purchaser with respect to its operation of the Acquired Businesses
after the Closing Date;
(ii) the Prorated Personal Property Taxes;
(iii) the accounts payable, trade payables and
accrued expenses to the extent included in the Closing Date Balance Sheet and
the schedule attached thereto (which sets forth the calculation of the Assumed
Liabilities) (collectively, the "Balance Sheet Assumed Liabilities"); and
(iv) the liabilities and obligations of the Sellers
with respect to the performance after the Closing Date under the Contracts
assigned to Purchaser hereunder to the extent expressly listed on EXHIBIT B-1,
B-2, B-3 OR B-4 hereto or, if not listed on EXHIBIT B-1, B-2, B-3 OR B-4 only
if, and to the extent that, Purchaser becomes aware of such Contract and
knowingly exercises any of its rights thereunder after the Closing Date, which
will be assumed by Purchaser at the Closing Date (all of such assumed
liabilities and obligations in this SECTION 2.04(a)(i)-(iv) being hereinafter
referred to as the "Assumed Liabilities"); provided, however, in no event shall
Purchaser assume (i) any obligations for payments owed to the Practice relating
to performance under the Business Management Agreement, or the Practice's
operations, prior to the Closing Date (ii) any obligations for payments to any
employee under an employment agreement to the extent relating to services prior
to the Closing Date, except to the extent reflected on the Closing Date Balance
Sheet and included in the calculation of the Working Capital Amount, or (iii)
any obligation or commitment of the Company to grant any stock options to any of
its employees including, without limitation, any obligation or commitment by the
Company to grant stock options to any employee whose employment agreement has
been assigned to Purchaser hereunder (e.g., any Assigned Contract).
Notwithstanding any provision in this Agreement to the contrary, in no
event will Purchaser assume any accrued liabilities or obligations under the
Collective Bargaining Agreement other than liabilities and obligations arising
from and after the Closing in the performance under such agreement.
(b) Without limiting the generality of the foregoing, it is
expressly agreed that Purchaser shall have no liability or obligation to, for,
or in respect of:
(i) any current or former employee or independent
contractor of the Sellers or the Acquired Businesses (and their dependents or
beneficiaries), except for liabilities or obligations arising solely and
directly due to the employment or engagement of any such person by Purchaser
after the Closing;
(ii) any Taxes of either of the Sellers arising or
relating to any period prior to the Closing Date or any activity of either of
the Sellers prior to or after the Closing Date except for the Prorated Personal
Property Taxes;
(iii) any of the liabilities or obligations of either
of the Sellers to the extent such liabilities or obligations are not included as
Assumed Liabilities in the schedules attached to the Closing Date Balance Sheets
or otherwise expressly set forth in clauses (i), (ii), (iv) or (v) hereof;
9
<PAGE> 10
(iv) any of the liabilities or obligations of either
of the Sellers relating to the performance under the Assigned Contracts prior to
the Closing Date or relating to the performance, before or after the Closing
Date under any Contract not listed on EXHIBITS B-1, B-2, B-3 or B-4 hereto or
otherwise not expressly assumed by Purchaser pursuant to SECTION 2.04(a)(iv)
above; or
(v) any of the liabilities or obligations of either
of the Sellers relating to the Vision World Acquisition Agreement, Eye Care
Acquisition Agreement, Drx Acquisition Agreement or the TCOL Agreement
including, without limitation, any obligation to pay contingent consideration
under Section 2.5 of the Vision World Acquisition Agreement.
(c) Except with respect to obligations expressly assumed
herein in connection with the Assigned Contracts, Purchaser does not assume any
obligation, liability or payment of the Sellers or the Acquired Businesses
associated with any Employee Benefit Plan or any other employee benefit
arrangement or commitment covering employees or independent contractors of the
Acquired Businesses immediately prior to the Closing Date including, without
limitation, any continuation coverage required by COBRA group health
continuation requirements for any employee or other "Qualifying Beneficiary" who
has had a "Qualifying Event" (within the meaning of COBRA group health
continuation requirements) on or before the Closing Date.
Section 2.05 Conveyance and Transfer; Assumption. At the Closing, and
subject to the terms and conditions hereof, each of the Sellers hereby agrees
that it will execute and deliver to Purchaser and Purchaser will execute and
deliver to each of the Sellers, a Bill of Sale, Assignment and Assumption
Agreement, in the forms of EXHIBITS H-1, H-2, H-3 and H-4 hereto, and such other
bills of sale, endorsements, assignments, releases, and other good and
sufficient instruments of transfer, assignment, and conveyance, in form
satisfactory to Purchaser and its counsel, as shall be effective to convey to
Purchaser good and marketable title in and to the Assets. Simultaneously with
such delivery, the Sellers will take all steps necessary to put Purchaser in
actual possession of the Assets.
Section 2.06 Closing Date. The Closing under this Agreement (the
"Closing") shall be held on the later of (i) July 30, 1999 and (ii) the last
business day of the month in which all of the Parties' respective conditions to
Closing have been satisfied or waived (except for the conditions to be satisfied
at Closing), or such other date as the Parties may agree to in writing and,
unless otherwise indicated, the Closing shall be deemed to have occurred and be
effective as of 11:59 p.m. on such date. Such date and effective time on which
the Closing is to be effective is herein referred to as the "Closing Date."
Notwithstanding the foregoing, the Closing Date shall be no later than August
31, 1999, unless otherwise agreed to in writing by the parties, and the Parties
will use their Best Efforts to close the transactions contemplated hereunder as
expeditiously as reasonably possible. The Closing shall be held at the offices
of Shumaker, Loop & Kendrick, LLP, 101 E. Kennedy Boulevard, Suite 2800, Tampa,
Florida 33602, at 10:00 a.m. on such date, or at such other time and place as
the Parties may agree upon in writing.
Section 2.07 Further Assurances. Each of the Sellers hereby agrees
that, from time to time, at Purchaser's request and without further
consideration, it will execute and deliver to Purchaser such other and further
instruments of conveyance, assignment and transfer and take such other action as
Purchaser may reasonably require to more effectively convey, transfer, and
assign to Purchaser, and to put Purchaser in possession of, the Assets.
Section 2.08 Allocation of Purchase Price. The Purchase Price received
by the Sellers pursuant to this Agreement shall be allocated among the Sellers
as set forth on EXHIBIT E and among the Assets of each of the Sellers as set
forth on EXHIBIT I hereto.
10
<PAGE> 11
Section 2.09 Taxes.
(a) Except as otherwise set forth in SECTION 2.09(b) and
except for Taxes owed by Purchaser as a result of its use of the Assets
subsequent to the Closing Date, Purchaser shall have no liability or
responsibility for any Taxes of any kind relating to or arising out of the
Subject Transactions other than sales and transfer taxes resulting from the sale
of the Assets for which Purchaser and the Sellers shall each pay one-half (1/2)
of the such sales and transfer taxes; provided, however, to the extent such
payment by Sellers or Purchaser is required by law to be paid by one Party, the
other Party shall reimburse the Party required to make such payment for its
proportionate share of such Taxes. The Sellers shall be solely responsible for
the payment of all other Taxes of any kind, arising out of the sale, transfer,
and assignment of the Assets. The Sellers shall immediately reimburse Purchaser
for any such Taxes which Purchaser is required to pay arising out of the sale of
the Assets or the operations of the Acquired Businesses prior to the Closing.
(b) The estimated amount of personal property taxes to be paid
with respect to the Assets for calendar year 1999 shall be allocated and paid
pro rata between Purchaser, on the one hand, and the Sellers, on the other hand.
The pro-rata portion of such estimated taxes payable with respect to the period
from January 1, 1999 through the day the Closing Date (the "Prorated Personal
Property Taxes") shall be reflected on the Closing Date Balance Sheets, included
in the calculation of the Working Capital Amount and assumed by Purchaser
hereunder.
Section 2.10 Collection of Accounts Receivable; Cash Accounts.
(a) Each of the Sellers agrees that it will cooperate with
Purchaser in collecting all of the accounts receivable of each of the Sellers
transferred to Purchaser hereunder and that all payments made with respect
thereto, or by customers for services rendered by Purchaser from and after the
Closing Date, shall be paid to Purchaser, and each of the Sellers further agrees
to remit to Purchaser promptly following its receipt thereof, any such amounts
received by the Sellers. Purchaser agrees to remit to the Sellers promptly
following Purchaser's receipt thereof, any amounts received by it with respect
to the accounts receivable of the Sellers relating to Medicaid or Medicare which
are not being assigned hereunder.
(b) Immediately following the Closing, the Sellers shall
withdraw from the Bank Accounts all of the cash of the Sellers relating to the
Acquired Businesses as of the Closing Date. At the Closing, Purchaser, or one of
its designated representatives, will be designated by each Seller as an
authorized signatory on each of its bank accounts (with respect to the Company's
accounts, only those accounts related to the Company Businesses) (collectively,
the "Bank Accounts"), entitled to make withdrawals therefrom and the Sellers
will not be entitled to make withdrawals therefrom without the consent of
Purchaser and the respective banks will be so notified. At the Closing, the
funds from each Bank Account will immediately be transferred to a bank account
of the Sellers to be designated by the Sellers. Periodically after the Closing
as required by Purchaser, the funds from each Bank Account will then immediately
be transferred to a bank account of Purchaser to be designated by Purchaser.
(c) To facilitate this arrangement, each of the Sellers hereby
agrees as follows:
(i) Each Seller will authorize and direct the banks
at which the Bank Accounts are located to transfer all monies deposited in the
Bank Accounts to Purchaser in the bank account designated by Purchaser and send
all statements and other communications regarding the Bank Account to Purchaser
to facility administration of the Bank Accounts; and
11
<PAGE> 12
(ii) Each Seller will take no action with respect to
its Bank Accounts that is not specifically set forth in this Agreement.
Section 2.11 Maintenance of Records.
(a) All books and records transferred to Purchaser hereunder
shall be retained by Purchaser and shall be made available in San Antonio, Texas
to the Sellers for inspection and copying (at the Sellers' expense), upon five
(5) business days' prior notice, during regular business for a period of six (6)
years from and after the Closing Date; provided, however, that the books and
records transferred to Purchaser shall only be made available to the Sellers
upon a showing of a proper purpose and shall only be available to the extent
such effort does not interfere with the operations of Purchaser or any of its
Affiliates.
(b) All books and records of the Sellers relating to the
Acquired Businesses not transferred hereunder shall be retained by the Sellers
and shall be made available to Purchaser for inspection and copying (at
Purchaser's expense) upon five (5) business days' prior notice, during regular
business for a period of six (6) years from and after the Closing Date.
Section 2.12 Compliance with Bulk Sales; Tax Certificates.
(a) Purchaser hereby waives compliance by the Sellers with the
provisions of the bulk sales law of any state, and each of the Sellers warrants
and agrees to pay and discharge when due all claims of creditors which could be
asserted against Purchaser by reason of such non-compliance to the extent such
liabilities are not specifically assumed by Purchaser under this Agreement.
(b) Each of the Sellers and Purchaser agree to cooperate to
obtain as soon as possible, the following if requested by Purchaser:
(i) With respect to the Minnesota Business and to the
extent available, a statement from the Minnesota Department of Revenue stating
that the Company is in good standing with respect to any taxes administered by
the Department of Revenue, such statement to be requested by the Company from
the taxing authority as soon a practicable after the date hereof.
(ii) With respect to the Wisconsin Business and to
the extent available, a statement from the Wisconsin Department of Revenue a
clearance certificate certifying the payment of all applicable state sales taxes
of the Sellers relating to all taxable periods through the Closing Date, such
statement to be requested by the Company from the taxing authority as soon a
practicable after the date hereof.
(iii) With respect to the New Jersey Business and to
the extent available, a New Jersey Tax Clearance Certificate from the New Jersey
Department of the Treasury, Division of Taxation certifying the payment of all
applicable state taxes of the Company relating to all taxable periods through
the Closing Date, such statement to be requested by the Company from the taxing
authority as soon a practicable after the date hereof.
(iv) With respect to the Subsidiary and to the extent
available, a New Jersey Tax Clearance Certificate from the New Jersey Department
of the Treasury, Division of Taxation, certifying the payment of all applicable
state taxes of the Subsidiary relating to all taxable periods through the
Closing Date, such statement to be requested by the Company from the taxing
authority as soon a practicable after the date hereof.
12
<PAGE> 13
(c) Purchaser and the Sellers shall cooperate to send notices
of the Subject Transactions to the appropriate taxing authorities that are
required or deemed by Purchaser to be desirable to protect Purchaser from
successor liability for any unpaid taxes.
Section 2.13. Termination of Cummins Employment Agreement. Effective on
the Closing Date, the Company shall terminate the Cummins Employment Agreement
upon terms mutually acceptable to the Parties. At the Closing, Purchaser shall
reimburse the Company for one-half of the payments or other benefits expressly
set forth in the settlement agreement with Dr. Cummins, not to exceed 1/2 of the
severance obligations to which Dr. Cummins would be entitled to under the
Cummins Employment Agreement if Dr. Cummins had been terminated by the Company
without cause. Purchaser shall be entitled to participate in the discussions
with the Sellers and Dr. Cummins regarding the termination of the Cummins
Employment Agreement and the other matters contemplated in SECTION 7.12.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLERS
Except as set forth in the disclosure schedules attached hereto (which
disclosure schedules shall specifically identify which of the Acquired
Businesses or the Practice, where applicable, and the SECTION hereof to which
such disclosure or exception applies), the Sellers, jointly and severally,
hereby represent and warrant to Purchaser as follows:
Section 3.01 Existence, Good Standing and Authority.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida. The
Company has the power to own its properties and to carry on its businesses as
now being conducted. The Company is duly qualified to do business in all
jurisdiction(s) in which the character or location of the properties owned or
leased by it or the nature of the businesses conducted by it makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on the Company Businesses. The Company has full
legal right, power and authority to execute and deliver this Agreement and the
Acquisition Documents, to perform its obligations hereunder and thereunder, and,
subject to obtaining the consents disclosed on Schedules 3.11(a), 3.11(b) and
3.23(b) attached hereto, to sell, assign, transfer, convey and deliver the
Company Assets pursuant hereto and thereto. The Company has provided to
Purchaser true and complete copies of all of its Organizational Documents.
(b) The Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey. The
Subsidiary has the power to own its properties and to carry on its businesses as
now being conducted. The Subsidiary is duly qualified to do business in all
jurisdiction(s) in which the character or location of the properties owned or
leased by it or the nature of the businesses conducted by it makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on the Subsidiary. The Subsidiary has full legal
right, power and authority to execute and deliver this Agreement and the
Acquisition Documents, to perform its obligations hereunder and thereunder, and,
subject to obtaining the consents disclosed on Schedules 3.11(a), 3.11(b) and
3.23(b) attached hereto, to sell, assign, transfer, convey and deliver the
Subsidiary Assets pursuant hereto and thereto. The Subsidiary has provided to
Purchaser true and complete copies of all of its Organizational Documents.
13
<PAGE> 14
Section 3.02 Authorization, etc. The Board of Directors and
shareholders of each of the Sellers has taken all actions required by law, its
respective Organizational Documents or otherwise to authorize the execution and
delivery by such Seller, of this Agreement and the other Acquisition Documents
to which it is a party, and the performance of such Sellers' obligations
hereunder and thereunder. This Agreement has been duly executed and delivered by
each of the Sellers and, upon the execution and delivery of the remaining
Acquisition Documents by a duly authorized officer of the Sellers, the remaining
Acquisition Documents to which a Seller is a party will have been duly executed
and delivered by such Seller, and this Agreement is and such other Acquisition
Documents to which a Seller is a party will be, upon due execution and delivery
thereof, the legal, valid and binding obligations of such Seller enforceable
against it according to their terms.
Section 3.03 Title to Assets; Condition.
(a) The Company has good, valid and marketable title to all of
the personal property constituting the Company Assets, free and clear of all
Encumbrances, other than ad valorem taxes not yet due and payable and
Encumbrances on Schedule 3.03(a) which will be released at or prior to Closing
except as otherwise specified on Schedule 3.03(a). There is no material asset
used in, related to or necessary for the operations of the Company Businesses
which is not included in the Company Assets or licensed or leased to the Company
pursuant to one of the Company Assigned Contracts. Upon consummation of the
Subject Transactions, Purchaser will have good, valid and marketable title to
all of the personal property constituting the Company Assets, free and clear of
all Encumbrances except as otherwise specified on Schedule 3.03(a), other than
ad valorem taxes not yet due and payable and Encumbrances arising out of its
operation of the Acquired Businesses from and after the Closing.
(b) The Subsidiary has good, valid and marketable title to all
of the personal property constituting the Subsidiary Assets, free and clear of
all Encumbrances, other than ad valorem taxes not yet due and payable and
Encumbrances on Schedule 3.03(b) which will be released at or prior to Closing
except as otherwise specified on Schedule 3.03(b). There is no material asset
used in, related to or necessary for the operations of the Subsidiary Business
which is not included in the Subsidiary Assets or licensed or leased to the
Subsidiary pursuant to one of the Subsidiary Assigned Contracts. Upon
consummation of the Subject Transactions, Purchaser will have good, valid and
marketable title to all of the personal property constituting the Subsidiary
Assets, free and clear of all Encumbrances except as otherwise specified on
Schedule 3.03(a), other than ad valorem taxes not yet due and payable and
Encumbrances arising out of its operation of the Subsidiary Business.
(c) All of the tangible assets forming a part of the assets
(excluding Inventory which is covered by the representation and warranty set
forth in SECTION 3.31) are set forth on EXHIBITS C-1, C-2, C-3 AND C-4 and:
(i) are generally and materially in good operating
condition and repair, normal wear and tear excepted;
(ii) are suitable for the purpose used for by the
Sellers;
(iii) are adequate and sufficient for all current
operations of the Acquired Businesses;
(iv) conform in all material respects with all
applicable Legal Requirements; and
14
<PAGE> 15
(v) are directly related to the Acquired Businesses.
Section 3.04 Investments. Except as set forth on Schedule 3.04, neither
the Company (to the extent related to the Company Businesses) nor the Subsidiary
owns, directly or indirectly, any capital stock or other equity, ownership or
proprietary interest in any other Person.
Section 3.05 Financial Statements. The Sellers heretofore furnished
Purchaser with the (i) audited balance sheets of each of the Acquired
Businesses, on an individual basis or combined basis, as the case may be, dated
as of December 31, 1997 and December 31, 1998 and the related audited statements
of operations for the years then ended (provided that the statement of
operations of the Minnesota Business for the Stub Period has not been audited as
reflected in the footnote to the audited statement of operations, but the
Audited Stub Period Statement of Operations will be provided to Purchaser prior
to Closing as provided in SECTION 2.02(d)) and (ii) the unaudited interim
balance sheets of the Acquired Businesses on a combined basis, dated as of May
31, 1999 (the "Interim Balance Sheets") and the related unaudited interim
statements of operations for the three-month period ended March 31, 1999
(collectively, including the Audited Stub Period Statement of Operations, the
"Financial Statements"). The balance sheets of each of the Acquired Businesses
and the Practice dated as of December 31, 1998 are hereinafter referred to as
the "Balance Sheets." Except for the absence of footnotes to the Financial
Statements and normal year-end adjustments to such interim Financial Statements,
which such adjustments would not individually or in the aggregate be material,
the Financial Statements have been (or will be with respect to the Audited Stub
Period Statement of Operations) prepared from the books and records of the
Sellers in accordance with GAAP, applied on a basis consistent with past
practices of the then owner of the respective business, and fairly present the
financial condition and results of operations of the Acquired Businesses at the
respective dates thereof. The balance sheets included in the Financial
Statements reflect all claims against and all debts and liabilities of the
Acquired Businesses, fixed or contingent, as at their respective dates. The
statements of income included in the Financial Statements do not contain any
items of special or non-recurring income or any other income not earned in the
Ordinary Course of Business except as expressly specified therein. Except as set
forth on Schedule 3.05, since January 1, 1997, there has been no change in any
method of accounting or auditing practice by the Company relating to the Company
Businesses or by the Subsidiary.
Section 3.06 Insolvency.
(a) Neither the Company, nor any of its subsidiaries
(including, without limitation, the Subsidiary), is Insolvent and neither the
Company nor any of its subsidiaries will become Insolvent as a result of the
consummation of the Subject Transactions.
(b) None of the Board of Directors or officers of the Company
or any of its subsidiaries have contemplated, or have discussed, seeking
protection from creditors under any of the provisions of the Bankruptcy Code or
taking any other action which could result in any other insolvency proceeding of
any character with respect to the Company and its subsidiaries including,
without limitation, bankruptcy, receivership or reorganization. No creditors of
the Company or any of its subsidiaries have commenced or threatened to institute
proceedings against the Company or any of its subsidiaries under the Bankruptcy
Code or to take any other action which could result in any other insolvency
proceeding of any character with respect to the Company and its subsidiaries.
(c) With respect to the representation and warranty set forth
in this SECTION 3.06, the Sellers acknowledge that Purchaser has relied upon the
information set forth in the registration statements, reports, proxy statements
and other materials (collectively "SEC Reports") filed by the Company with the
SEC since December 31, 1998 and represents and warrants that the SEC Reports
15
<PAGE> 16
complied in all material respects with the applicable requirements of the
Securities Act of 1933 and the 1934 Act and the applicable rules and regulations
of the SEC promulgated thereunder, and at the time filed did 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 made therein, in light of
the circumstances in which they were made, not misleading. The consolidated
financial statements of the Company which are a part of the SEC Reports have
been prepared in accordance with GAAP, applied on a basis consistent with past
practices, and fairly present the financial condition and results of operations
of the businesses of the Company at the respective dates thereof and for the
periods referred to therein.
(d) The Board of Directors of the Company have approved the
Subject Transactions, subject to the receipt from Nesbitt Burns Securities Inc.
of an opinion that the consideration to be received by Sellers with respect to
its sale of the Assets is fair, from a financial point of view, to the Sellers.
Nesbitt Burns Securities Inc. has verbally assured the Board of Directors that
absent a change it will render such opinion and the Company does not have any
reason to believe that such opinion will not be delivered.
Section 3.07 Books and Records. The books of account and other records
of the Company relating to the Company Businesses, and the books of account,
minute books and stock record books of the Subsidiary, all of which have been
made available to Purchaser, are complete and correct in all material respects
and have been maintained in accordance with sound business practices, including
the maintenance of an adequate system of internal controls. The minute books of
the Subsidiary contain materially accurate and complete records of all meetings
held of, and corporate action taken by, the shareholders, the Board of
Directors, and committees of the Board of Directors, as the case may be, of the
Subsidiary since January 1, 1998, and no meeting of the shareholders, Board of
Directors, and/or committees of the Board of Directors of the Subsidiary has
been held since January 1, 1998 for which minutes have not been prepared and are
not contained in such minute books.
Section 3.08 Accounts Receivable. Schedule 3.08 sets forth a complete
list of all accounts and other receivables of the Company relating to the
Company Businesses, and of the Subsidiary and of the Practice, as of March 31,
1999, showing the amounts due and an aging analysis thereof. The accounts and
other receivables shown on Schedule 3.08 and those receivables arising after
March 31, 1999 and shown on the books and records of the Company relating to the
Company Businesses, and of the Subsidiary and of the Practice, have arisen in
the Ordinary Course of Business, are not in dispute with the respective obligors
therefor, and are collectible (except to the extent of any provision or reserve
set forth in the Balance Sheets or Closing Date Balance Sheets), and none of
such accounts receivable or other debts are subject to any counterclaim or
set-off (except to the extent of any provision or reserve set forth in the
Balance Sheets, the Interim Balance Sheets or Closing Date Balance Sheets).
There has been no material adverse change since the Balance Sheet Date in the
amount of accounts receivable of the Company relating to the Company Businesses,
or of the Subsidiary or of the Practice or other debts due or the allowances
with respect thereto, or accounts payable by the Acquired Businesses or the
Practice from that reflected in the Balance Sheets.
Section 3.09 Real Property and Leases.
(a) The Company does not own any real property which is used
in, related to or necessary for the operation of the Acquired Businesses. The
Subsidiary does not own any real property.
(b) Schedule 3.09(b) contains a true and complete list of all
real property leases (collectively, the "Leases") to which the Company or the
Subsidiary is a party which are used in,
16
<PAGE> 17
related to or necessary for the operation of the Acquired Businesses, in each
case specifying the name of the lessor or sublessor, the lessee, any sublessee,
the lease term, the basic annual rental and other amounts paid or payable with
respect thereto and any purchase or renewal options exercised or exercisable by
the Company or the Subsidiary, as the case may be. Except with respect to the
premises provided under the Business Management Agreement, to the Knowledge of
the Sellers, the Practice is not a party to any real property lease or sublease.
Except as set forth on Schedule 3.09(b), each of the Company, or the Subsidiary,
as the case may be, enjoys peaceful possession under each Lease, and each Lease
is in good standing and in full force and effect. Except as set forth on
Schedule 3.09(b), none of the Company, the Subsidiary, the Practice, or to the
Knowledge of the Sellers, any other party to any of the Leases, has breached any
of the Leases in any material respect or is in material default thereunder and,
no breach of or default under any of the Leases has occurred which would prevent
the exercise by the Company or the Subsidiary of any right to renew or extend
such Lease. Except as set forth on Schedule 3.09(b), subject to receipt of any
required consents or approvals, the consummation of the Subject Transactions in
accordance with this Agreement will not result in the termination of any Lease
or acceleration or increases in rent thereunder, and immediately after the
Closing, all Leases will continue in full force and effect without the
imposition of any burdensome condition or other obligation on Purchaser or its
Affiliates resulting from the consummation of the Subject Transactions. The real
property subject to the Leases is sufficient to conduct the Acquired Businesses
in the respective manner in which they are conducted on the date hereof.
Section 3.10 Material Contracts.
(a) Set forth on Schedule 3.10, which incorporates by
reference EXHIBITS B-1, B-2, B-3 and B-4 and EXHIBITS D-1, D-2, D-3 and D-4 (to
the extent Contracts are specifically listed therein), is a complete list of all
of the following Contracts to which the Company, the Subsidiary or the Practice
is a party or by which any of them is bound, used in, related to or necessary
for the operation of the Acquired Businesses or the Practice, provided, however,
with respect to the Practice except as set forth herein, only those Contracts
relating to the operations of the Practice managed by the Company pursuant to
and including the Business Management Agreement are required to be set forth on
Schedule 3.10:
(i) all Contracts relating to the employment of any
person, and all bonus, deferred compensation, pension, profit sharing, stock
option, employee stock purchase, phantom stock, retirement and other employee
benefit plans;
(ii) all Contracts which contain restrictions with
respect to payment of dividends or any other distribution in respect of its
capital stock;
(iii) all Contracts relating to capital expenditures
in excess of $15,000;
(iv) all loans, advances to, and investments in, any
other Person, and all Contracts relating to the making of any such loan, advance
or investment;
(v) all guarantees and other contingent liabilities
with respect to any indebtedness or obligation of any other Person (other than
the endorsement of negotiable instruments for collection in the Ordinary Course
of Business);
(vi) all management services, consulting and any
other similar type contracts;
17
<PAGE> 18
(vii) all leases of personal property providing for
lease payments in excess of $5,000 per annum and a term of more than two years;
(viii) all Contracts materially limiting the freedom
of the Company to engage in any line of business or to compete with any other
Person;
(ix) all Contracts not entered into in the Ordinary
Course of Business;
(x) all Contracts (other than contracts relating to
capital expenditures) which involve the expenditure by the Company or the
Subsidiary, as the case may be, of more than $10,000;
(xi) any Contract with any director, officer or
employee of either of the Sellers or Contract with any Related Person of either
of the Sellers;
(xii) all Contracts which might reasonably be
expected to have a potential Material Adverse Effect on the business or
operations of either of the Sellers;
(xiii) all Contracts with Payors or contracts to
provide optometric services or health care services;
(xiv) all Contracts engaging a person to perform
services as an independent contractor and/or consultant; and
(xv) all other Contracts material to the business,
operations and assets of the Sellers or the Practice.
(b) Except as set forth on Schedule 3.10, each Contract set
forth on Schedule 3.10 is a valid and binding agreement of the Company, the
Subsidiary or the Practice, as the case may be, and in full force and effect and
enforceable in accordance with its terms. Subject to obtaining the requisite
consents set forth on Schedule 3.11(a), 3.11(b) or 3.23(b) hereto, the
enforceability of such Contracts will not be affected in any manner by the
execution and delivery of this Agreement and the consummation of the Subject
Transactions. None of the Company, the Subsidiary or the Practice has violated
any of the material terms or conditions of any of the Contracts set forth on
Schedule 3.10 to which it is a party and none of the Company, the Subsidiary or
the Practice is otherwise in material default thereof, and, to the Knowledge of
the Sellers, except as set forth on Schedule 3.10, all of the material terms and
conditions to be performed by any party thereto other than the Company, the
Subsidiary and the Practice have been fully performed and each such Contract is
free from any right of termination on the part of any party thereto. There
exists no default or event of default under any of the Contracts set forth on
Schedule 3.10 or event, occurrence, condition or act (including the purchase of
the Assets hereunder, subject to obtaining the requisite consents set forth on
Schedule 3.11(a), 3.11(b) or 3.23(b) hereto) which, with the giving of notice,
the lapse of time or the happening of any other event or condition, would become
a default or event of default thereunder. None of the parties to any of the
Contracts has given notice (written or oral) of its intent to terminate such
Contract and neither the Company nor the Subsidiary has Knowledge that any party
thereto intends to terminate any Contract prior to or following the consummation
of the Subject Transactions. There have been no amendments or modifications to
any of the Contracts except as set forth on Schedule 3.10.
18
<PAGE> 19
Section 3.11 No Conflict.
(a) Except as set forth on Schedule 3.11(a), 3.11(b) or
3.23(b), neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Subject Transactions will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of either of the
Sellers, or (B) any resolution adopted by the Board of Directors or shareholders
of either of the Sellers;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Subject Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which either of the
Sellers or any of the Assets, may be subject;
(iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by either of the Sellers or that
otherwise relates to the Acquired Businesses, the Practice or any of the Assets;
(iv) to the Knowledge of the Sellers, cause Purchaser
to become subject to, or to become liable for, the payment of any Tax other than
the Prorated Personal Property Taxes;
(v) contravene, conflict with, or result in a
violation or Breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Contract; or
(vi) result in the imposition or creation of any
Encumbrance upon or with respect to any of the Assets.
(b) Except as set forth on Schedule 3.11(a), 3.11(b) or
3.23(b), neither of the Sellers is, nor will it be, required to give any notice
to or obtain any Consent from any Person in connection with the execution and
delivery of this Agreement or the consummation or performance of any of the
Subject Transactions.
Section 3.12 Litigation. Except as set forth on Schedule 3.12, there is
no Proceeding by any Person, or by or before (or any investigation by) any
Governmental Body, pending, or to the Knowledge of the Sellers, threatened
against or affecting (i) either of the Sellers, the Practice, the Acquired
Businesses or the Assets which could materially and adversely affect the right
or ability of the Sellers to carry on the Acquired Businesses as now conducted,
or which could have a Material Adverse Effect upon the ability of Purchaser to
carry on the Acquired Businesses subsequent to the Closing, or (ii) the Subject
Transactions or the Sellers' ability to consummate the Subject Transactions; and
neither of the Sellers has any Knowledge of any valid basis for any such
Proceeding. None of the Company, the Subsidiary or the Practice is subject to,
or in default under, any Order entered in any Proceeding which may have an
adverse effect on Purchaser or on its ability to acquire any property or to
carry on the Acquired Businesses in any area after the Closing.
Section 3.13 Tax Returns and Payments.
(a) The Sellers have filed or caused to be filed (on a timely
basis since inception) all Tax Returns that are or were required to be filed by
or with respect to it, either separately or as a
19
<PAGE> 20
member of a group of corporations, pursuant to applicable Legal Requirements.
The Sellers have delivered or made available to Purchaser copies of all such Tax
Returns relating to income or franchise taxes filed since inception. The Sellers
have paid, or made provision for the payment of, all Taxes that have or may have
become due pursuant to those Tax Returns or otherwise, or pursuant to any
assessment received by either of the Sellers, except such Taxes, if any, as are
listed on Schedule 3.13(a) and are being contested in good faith and as to which
adequate reserves (determined in accordance with GAAP, applied on a basis
consistent with past practices) have been provided in the financial statements
which are a part of the SEC Reports.
(b) The Tax Returns of the Sellers subject to such Taxes have
been audited by the IRS or relevant state tax authorities or are closed by the
applicable statute of limitations for all taxable years through December 31,
1992. Schedule 3.13(b) contains a complete and accurate list of all audits of
all such Tax Returns, including a reasonably detailed description of the nature
and outcome of each audit. All deficiencies proposed as a result of such audits
have been paid, reserved against, settled, or, as described on Schedule 3.13(b),
are being contested in good faith by appropriate proceedings. Schedule 3.13(b)
describes all adjustments to the Tax Returns filed by the Sellers or any group
of corporations including either of the Sellers for all taxable years since
1993, and the resulting deficiencies proposed by the IRS or relevant state tax
authorities. Except as described on Schedule 3.13(b), neither of the Sellers has
been given or been requested to give any waiver or extension (or is or would be
subject to a waiver or extension given by any other Person) of any statute of
limitations relating to the payment of Taxes of either of the Sellers or for
which either of the Sellers may be liable.
(c) The charges, accruals, and reserves with respect to Taxes
on the books of the Sellers are adequate (determined in accordance with GAAP,
applied on a basis consistent with past practices) and are at least equal to the
Sellers' liability for Taxes. There exists no proposed tax assessment against
either of the Sellers except as disclosed in the financial statements included
in the SEC Reports or on Schedule 3.13(c). No consent to the application of
Section 341(f)(2) of the Code has been filed with respect to any property or
assets held, acquired, or to be acquired by the Company. All Taxes that either
of the Sellers is or was required by Legal Requirements to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the proper Governmental Body or other Person. None of the material or
property used by either of the Sellers is subject to a lease, other than a
"true" lease for federal income tax purposes.
Section 3.14 Liabilities. Neither of the Sellers is, and none of the
Assets are, subject to, any outstanding claims, liabilities or indebtedness,
accrued, contingent or otherwise, and whether due or to become due, except as
set forth in their respective Financial Statements or referred to in the
footnotes thereto or on Schedule 3.14, other than liabilities incurred
subsequent to the Balance Sheet Date in the Ordinary Course of Business not
involving borrowings by the Sellers or the Practice. Neither of the Sellers is
in default in respect of the terms or conditions of any indebtedness, nor do
either of the Sellers have Knowledge of any facts which, with the passage of
time, would result in any such default. The reserves reflected in the Balance
Sheets are adequate, appropriate and reasonable in accordance with GAAP, applied
on a basis consistent with past practices. Neither of the Sellers has any
Knowledge of any basis for the assertion against either of the Sellers of any
such liability not fully reflected or accrued for in the Balance Sheets.
Section 3.15 Insurance. Set forth on Schedule 3.15 is a complete list,
with a summary thereof, of all insurance policies ("Insurance Policies") which
the Sellers and the Practice maintain with respect to the Acquired Businesses
and the Practice and their respective properties or employees, which Insurance
Policies are in full force and effect. None of the Sellers or the Practice has
violated any of the terms or conditions of the Insurance Policies and none of
the Sellers or the Practice is otherwise in default thereof. To the Knowledge of
the Sellers, all of the terms and conditions to be
20
<PAGE> 21
performed by the issuers of the Insurance Policies have been fully performed and
the Insurance Policies are free from and no event has occurred which would
trigger any right of termination on the part of the issuers of the Insurance
Policies to entitle the insurer to deny coverage thereunder. Since January 1,
1997, there has not been any material adverse change in the relationship of
either of the Sellers or the Practice with its insurers or in the premiums
payable pursuant to the Insurance Policies. Following the Closing, the Insurance
Policies will remain in full force and effect covering occurrences arising prior
to the Closing Date with respect to the Acquired Businesses and their respective
properties or employees. To the Knowledge of the Sellers, all claims made or
threatened against the Sellers or the Practice in excess of their respective
deductibles are covered by the Insurance Policies. Except as set forth on
Schedule 3.15, the Insurance Policies are "occurrence" policies and not "claims
made" policies.
Section 3.16 Intellectual Properties. Set forth on Schedule 3.16 are
all patents, patent rights, licenses, trademarks, trademark rights, trade names,
trade name rights, service marks, service mark rights, copyrights or similar
rights used in connection with the Acquired Businesses (collectively,
"Intellectual Property Rights"), all of which are owned by the Company or the
Subsidiary, as the case may be, unless otherwise indicated on Schedule 3.16.
Except as set forth on Schedule 3.16, the Sellers have valid and enforceable
rights to utilize the Intellectual Property Rights in the Acquired Businesses as
they are presently operated, free and clear of any Encumbrances. The Sellers are
not infringing, or otherwise acting adversely to, the right of any Person under
or in respect to, any of the Intellectual Property Rights, there is no claim by
any Person pending or, to the Knowledge of the Sellers, threatened against
either of the Sellers or the Practice with respect thereto and to the Knowledge
of the Sellers there is no Person infringing upon any of the Intellectual
Property Rights. The Practice does not own any of the intellectual property
rights used in connection with the business managed by the Company under the
Business Management Agreement and uses such intellectual property rights under
the terms of the Business Management Agreement.
Section 3.17 Compliance with Laws. Except as set forth on Schedule
3.17, the Sellers and the Practice are, and have been in compliance with all
Legal Requirements of any Governmental Body including, without limitation, the
Federal Occupational Safety and Health Act, ERISA, all Legal Requirements
relating to the safe conduct of business and all Environmental and Safety
Requirements. Except as set forth on Schedule 3.17, none of the Sellers or the
Practice have received any notice of any asserted present or past failure of
either of the Sellers or the Practice to comply with any of such Legal
Requirements.
Section 3.18 Employees.
(a) Schedule 3.18(a) contains a complete and accurate list as
of July 1, 1999 of the following information for each employee of the Sellers
who works, directly or indirectly, in any of the Acquired Businesses, including
each employee on leave of absence or layoff status, but excluding certain of the
employees of the Company performing the management services described on
Schedule 3.18(a): employer; name; job title; work location; exempt or non-exempt
status; current compensation paid or payable and any change in compensation
since December 31, 1998; vacation accrued; sick and/or personal pay accrued; and
service credited (reflected on such schedule by the anniversary date) for
purposes of vesting and eligibility to participate under the Sellers' respective
pension, retirement, profit-sharing, thrift-savings, deferred compensation,
stock bonus, stock option, cash bonus, employee stock ownership (including
investment credit or payroll stock ownership), severance pay, insurance,
medical, welfare, or vacation plan, or any other Employee Benefit Plan. The
Practice does not have any employees other than Dr. Charles M. Cummins.
21
<PAGE> 22
(b) Schedule 3.18(b) contains a complete and accurate list of
the following information, to the extent applicable, for each optometrist
engaged as an independent contractor by a Seller or the Practice who works,
directly or indirectly, in any of the Acquired Businesses or the Practice,
including: name; work location; current compensation paid or payable and any
change in compensation since December 31, 1998; severance pay, and a description
of any other benefits to which such optometrists is entitled.
(c) To the Knowledge of the Sellers, no employee of, or
optometrist engaged as an independent contractor by, a Seller or the Practice
who works, directly or indirectly, in any of the Acquired Businesses or the
Practice is a party to, or is otherwise bound by, any agreement or arrangement
including, without limitation, any confidentiality, noncompetition, or
proprietary rights agreement, between such employee and any other Person
("Proprietary Rights Agreement") that in any way will:
(i) significantly interfere with the performance of
his duties as an employee of Purchaser or the Practice; or
(ii) adversely affect the ability of Purchaser to
conduct the Acquired Businesses, subsequent to the Closing, including any
Proprietary Rights Agreement with the Company or the Subsidiary by any such
employee or independent contractor.
(d) To the Knowledge of the Sellers, no key employee or
optometrist engaged as an independent contractor of the Company, the Subsidiary
or the Practice who works, directly or indirectly, in any of the Acquired
Businesses or the Practice, intends to:
(i) terminate his or her employment or independent
contractor relationship with the Company, the Subsidiary or the Practice, as the
case may be, prior to Closing; or
(ii) reject employment or engagement as an
independent contractor by Purchaser, or terminate an existing employment or
independent contractor relationship with Purchaser or the Practice, after the
Closing.
(e) Except as set forth in Schedule 3.18(e), none of the
Sellers or the Practice is a party to any employment agreement, employee leasing
agreement or employee services agreement with respect to any employee of (i) the
Company or the Subsidiary who works, directly or indirectly, in the Acquired
Businesses or (ii) the Practice.
Section 3.19 Labor Relations; Compliance; Policies.
(a) Except as set forth on Schedule 3.19, none of the Company,
the Subsidiary or the Practice is, or has ever been, a party to any collective
bargaining or other labor Contract. Since January 1, 1996, there has not been,
there is not presently pending or existing, and to the Knowledge of the Sellers
there is not threatened:
(i) any strike, slowdown, picketing, work stoppage,
or employee grievance process;
(ii) any Proceeding against or affecting the Company,
the Subsidiary or the Practice relating to the alleged violation of any Legal
Requirement pertaining to labor relations or employment matters, including any
charge or complaint filed by an employee or union with the National Labor
Relations Board, the Equal Employment Opportunity Commission, or any comparable
22
<PAGE> 23
Governmental Body, or any organizational activity, or other labor or employment
dispute against or affecting the Company, the Subsidiary, the Practice or their
respective premises; or
(iii) any application for certification of a
collective bargaining agent. To the Knowledge of the Sellers, no event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute.
(b) There is no lockout of any employees by the Company or the
Subsidiary, and no such action is contemplated by the Company or the Subsidiary.
(c) The Company (with respect to the Acquired Businesses), the
Subsidiary and the Practice have complied in all material respects with all
Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment of social security and similar taxes, occupational safety and
health, and plant closings. None of the Company (with respect to the Acquired
Businesses), the Subsidiary or the Practice has:
(i) liabilities in connection with the payment of any
compensation, damages, taxes, fines, penalties, or other amounts, however
designated, for failure to comply with any of the foregoing Legal Requirements;
or
(ii) unfair labor practice charges or complaints or
racial, color, religious, sex, sexual orientation, national origin, age,
disability or handicap discrimination charges or complaints pending or, to the
Knowledge of the Sellers, threatened against the Company, the Subsidiary or the
Practice.
(d) None of the Company, the Subsidiary or the Practice has
engaged in any unfair labor practices or discriminated on the basis of race,
color, religion, sex, sexual orientation, national origin, age, disability or
handicap in its employment conditions or practices.
(e) Schedule 3.19(e) contains a complete and accurate list of
all employee manuals and all material policies, procedures and work-related
rules that apply to employees of the Company or the Subsidiary who work,
directly or indirectly, in any of the Acquired Businesses (the "Employee
Policies and Procedures"). The Sellers have provided or made available to
Purchaser a copy of all written Employee Policies and Procedures and a written
description of all material unwritten Employee Policies and Procedures.
(f) All employees of, and to the Knowledge of the Sellers, the
independent contractors engaged by, the Company, the Subsidiary and the Practice
who work, directly or indirectly, in any of the Acquired Businesses or the
Practice, are citizens of, or are authorized in accordance with federal
immigration laws to be employed or engaged in, the United States.
Section 3.20 Employee Benefit Plans.
(a) List of Plans. Set forth on Schedule 3.20(a) is a complete
and accurate list of all Employee Benefit Plans established, maintained or
contributed to by the Company or the Subsidiary for employees of, and
independent contractors engaged by, the Company, the Subsidiary or the Practice
who work, directly or indirectly, in the Acquired Businesses or the Practice at
any time on or after January 1, 1998. To the Knowledge of the Sellers, the
Practice does not maintain any Employee Benefit Plans.
23
<PAGE> 24
(b) For purposes of this Agreement, the term "Employee Benefit
Plans" means (A) all employee benefit plans within the meaning of ERISA Section
3(3), whether or not any such employee benefit plans are exempt from the
provisions of ERISA; and (B) all stock option plans, bonus or incentive award
plans, severance pay policies or agreements, parachute payment arrangements,
deferred compensation agreements, supplemental income arrangements, vacation
plans, and all other employee benefit plans, agreements and arrangements not
described in (A) above, which such plans cover employees of the Company or the
Subsidiary who work directly or indirectly in the Acquired Businesses.
(c) Status of Plans. Neither the Company nor the Subsidiary
takes part in, is a party to, or has taken part in or been a party to, (i)
maintaining or contributing to any Employee Benefit Plan subject to ERISA which
is not in material compliance with ERISA and the Code, (ii) maintaining or
contributing to, at any time, a defined benefit plan within the meaning of
Section 3(35) of ERISA, (iii) maintaining or contributing to, at any time, a
multiemployer plan within the meaning of Section 3(37) of ERISA, or (iv)
maintaining or contributing to any employee benefit plans other than those
listed on Schedule 3.20(b). The assets of the Employee Benefit Plans are
adequate to pay all debts, liabilities and claims with respect to such plan to
the extent that claims have been made on or prior to the Closing Date. No
Employee Benefit Plan ever maintained by the Company or the Subsidiary has ever
provided health care or any other non-pension benefits to any employees after
their employment was terminated (other than severance pay benefits or continued
health care as required by COBRA) or has ever promised to provide such
post-termination benefits. There are no promised increases in benefits (whether
expressed, implied, oral or written) under any Employee Benefit Plan maintained
by the Company or the Subsidiary, nor are there any obligations, commitments or
understandings to continue any such Employee Benefit Plans (whether expressed,
implied, oral or written), except as required by COBRA. Each Employee Benefit
Plan maintained by the Company or the Subsidiary as of the Closing Date is
subject to termination by the Company or the Subsidiary without any further
liability or obligation on the part of the Company or the Subsidiary to make
further contributions to any such plan following such termination, and the
termination of any Employee Benefit Plan would not accelerate or increase any
benefits payable under such Employee Benefit Plan. Neither the execution and
delivery of this Agreement nor the consummation of the Subject Transactions will
(i) result in any payment to be made by the Company or the Subsidiary
(including, without limitation, severance, unemployment compensation, golden
parachute (defined in Section 280G of the Code), or otherwise) becoming due to
any employee, director or consultant, or (ii) increase any benefits otherwise
payable under any Employee Benefit Plan.
(d) Tax Qualification and Employee Benefits. Each Employee
Benefit Plan intended to be qualified under Section 401(a) of the Code has been
determined to be so qualified by the IRS and nothing has occurred since the date
of the last such determination which resulted or is likely to result in the
revocation of such determination. Full payment has been made of all amounts
which the Company, the Subsidiary is required, under applicable law or under any
Employee Benefit Plan or any agreement relating to any Employee Benefit Plan to
which the Company or the Subsidiary is a party, to have paid as contributions
thereto as of the Closing Date. Contributions to Employee Benefit Plans that
have not yet been made by the Company or the Subsidiary because they are not yet
due under the terms of the relevant Employee Benefit Plan or related agreement
are adequately reflected in the Company's financial statements in a manner
consistent with GAAP. Benefits under all Employee Benefit Plans are as
represented and have not been increased subsequent to the date as of which
documents have been provided.
(e) Transactions. There has not been any material failure by
the Company or the Subsidiary to comply with any law applicable to any Employee
Benefit Plan maintained by the Company or the Subsidiary. None of the Company or
the Subsidiary has engaged in any transaction
24
<PAGE> 25
with respect to the Employee Benefit Plans which would subject the Company or
the Subsidiary to a tax, penalty or liability for prohibited transactions under
ERISA or the Code (for which no exemption is available), and none of its
directors, officers or employees to the extent they or any of them are
fiduciaries with respect to such plans, has breached, in any material respect,
any of their responsibilities or obligations imposed upon fiduciaries under
Title I of ERISA or has taken or failed to take any action that would result in
any material claim being made under, by or on behalf of any such plans by any
party with standing to make such claim. To the Knowledge of Sellers, no
litigation, claim, arbitration, governmental proceeding, audit, or investigation
or other proceeding (other than those relating to routine claims for benefits)
is pending or threatened with respect to any Employee Benefit Plan.
(f) Documents. The Company and the Subsidiary have delivered
or caused to be delivered to Purchaser and its counsel true and complete copies
of (i) all Employee Benefit Plans in effect on the date hereof together with all
amendments thereto already adopted which will become effective at a later date,
as well as the latest IRS determination letter obtained with respect to any such
Employee Benefit Plan qualified under Section 401 or 501 of the Code, (ii) Form
5500 for the fiscal year ended December 31, 1997 for each Employee Benefit Plan
required to file such form, (iii) a current Summary Plan Description for each
Employee Benefit Plan, together with any summary of material modifications
thereto, (iv) any insurance or annuity policy (including any fiduciary liability
insurance policy) related to any Employee Benefit Plan, and (v) the three (3)
most recent summary annual reports provided to participants for each Employee
Benefit Plan.
(g) COBRA. The Company and the Subsidiary have complied in all
material respects with the Consolidated Omnibus Budget Reconciliation Act of
1984, as amended ("COBRA"), and all of the rules and regulations promulgated
thereunder.
Section 3.21 No Changes Prior to Closing Date. Except as set forth on
Schedule 3.21, since December 31, 1998 (the "Balance Sheet Date"), except as
otherwise expressly contemplated by this Agreement, none of the Company (with
respect to the Company Businesses), the Subsidiary or, to the Knowledge of the
Sellers, the Practice has:
(a) suffered any material adverse change in its working
capital, financial condition, assets, liabilities, business or prospects,
experienced any labor difficulty or suffered any material casualty loss (whether
or not insured);
(b) incurred any liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), except in the Ordinary
Course of Business;
(c) permitted any of its assets to be subjected to any
Encumbrances;
(d) paid, discharged or satisfied any material claim,
Encumbrance or liability other than those which are reflected on the Balance
Sheets or which were incurred after the Balance Sheet Date in the Ordinary
Course of Business;
(e) sold, transferred or otherwise disposed of any assets, or
relocated any of its assets then located in an office of the Acquired Businesses
(other than relocating such assets to another office of the Acquired Businesses)
except in the Ordinary Course of Business;
(f) made any capital expenditure or commitment therefor,
except in the Ordinary Course of Business;
25
<PAGE> 26
(g) made any distribution on any shares of its capital stock,
or redeemed, purchased or otherwise acquired any shares of its capital stock;
(h) made any bonus or profit sharing distribution or payment
of any kind;
(i) increased its indebtedness for borrowed money, except
current borrowings from banks in the Ordinary Course of Business, or made any
loan to any Person;
(j) written down the value of any inventory or written off as
uncollectible any notes or accounts receivable, except write-offs in the
Ordinary Course of Business charged to applicable reserves, none of which
individually or in the aggregate is material to the Acquired Businesses;
(k) granted any increase in the rate of wages, salaries,
bonuses or other remuneration of any executive employee or other employees other
than as reflected on Schedules 3.18(a) and 3.18(b) ;
(l) canceled or waived any claims or rights of substantial
value;
(m) made any change in any method of accounting or auditing
practice;
(n) lost or terminated any employee, customer or supplier that
has, individually or in the aggregate, resulted in a Material Adverse Effect to
any of the Acquired Businesses or the Practice;
(o) otherwise conducted its business or entered into any
transaction except in the usual and ordinary manner and in the Ordinary Course
of Business; or
(p) agreed, whether or not in writing, to do any of the
foregoing or take any action or in action which would result in a Breach of any
of the representations and warranties set forth in this ARTICLE III.
Section 3.22 Broker's or Finder's Fees. Except for Prudential
Securities and Nesbitt Burns Securities Inc., no agent, broker, person or firm
acting on behalf of the Company or the Subsidiary is, or will be, entitled to
any commission or investment banking, broker's or finder's fees from either of
the Sellers, or from any Affiliate of either of the Sellers, in connection with
any of the Subject Transactions. No Person is entitled to any commission or
investment banking, broker's or finder's fees from Purchaser for its services on
behalf of the Company in connection with any of the Subject Transactions.
Section 3.23 Licenses, Permits, Consents and Approvals.
(a) Set forth on Schedule 3.23(a) is a list and description of
each of the Governmental Authorizations required for use or used in the Acquired
Businesses and the Practice, together with the respective expiration or renewal
date of such Governmental Authorizations, which are all Governmental
Authorizations required to conduct the Acquired Businesses and the Practice.
(b) Except as set forth on Schedule 3.23(b) and except with
respect to Governmental Authorizations that Purchaser is required to obtain to
operate the Acquired Businesses after the Closing (e.g., Governmental
Authorizations that are not assignable to Purchaser hereunder), no Consent,
notice or other action of any kind by the Company, the Subsidiary, the Practice
or
26
<PAGE> 27
Purchaser will be required as a result of the execution and delivery of the
Acquisition Documents or the consummation of the Subject Transactions to:
(i) avoid the loss of any Governmental Authorization
or the violation, breach or termination of, or any default under, or the
creation of any Encumbrances on any Asset pursuant to the terms of any Legal
Requirement or any Contract binding upon the Company, the Subsidiary or the
Practice or to which any such Asset may be subject; or
(ii) enable Purchaser to continue to operate the
Acquired Businesses substantially as conducted prior to the Closing Date.
(c) All such filings and consents (other than Governmental
Authorizations that Purchaser is required to obtain to operate the Acquired
Businesses after the Closing) will be duly filed, given, obtained or taken on
prior to the Closing Date and will be in full force and effect on the Closing
Date.
Section 3.24 Environmental and Health and Safety Matters.
(a) Except as set forth on Schedule 3.24:
(i) Each of the Company, the Subsidiary and, to the Knowledge
of the Sellers, the Practice is and has been in material compliance at all times
with all Environmental and Safety Requirements applicable to the Acquired
Businesses or the Practice, and the Sellers have not received any notice, report
or information regarding any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise), or any corrective, investigatory or remedial
obligations, arising under Environmental and Safety Requirements with respect to
the past or present operations or properties of the Acquired Businesses or the
Practice.
(ii) Each of the Company, the Subsidiary and the Practice has
obtained, and is and has been in material compliance at all times with all terms
and conditions of, all permits, licenses and other authorizations required
pursuant to Environmental and Safety Requirements for the occupation of the
properties of the Acquired Businesses and the conduct of the operations of the
Acquired Businesses.
(iii) None of the following exists at any property owned or
occupied by the Company, the Subsidiary or the Practice which is used in,
related to or necessary for the operations of any of the Acquired Businesses:
(A) asbestos-containing material in any form or
condition;
(B) polychlorinated biphenyl-containing
materials or equipment; or
(C) underground storage tanks.
(iv) The Subject Transactions do not impose any obligations
under Environmental and Safety Requirements for site investigation or cleanup or
notification to or consent of any Governmental Body or Person.
(v) No facts, events or conditions relating to the past or
present properties or operations of the Acquired Businesses, the Practice or, to
the Knowledge of the Sellers, properties contiguous thereto will (x) prevent,
hinder or limit continued compliance by Purchaser with
27
<PAGE> 28
Environmental and Safety Requirements, (y) give rise to any corrective,
investigatory or remedial obligations on the part of Purchaser pursuant to
Environmental and Safety Requirements, or (z) give rise to any liabilities on
the part of Purchaser (whether accrued, absolute, contingent, unliquidated or
otherwise) pursuant to Environmental and Safety Requirements including, without
limitation, those liabilities relating to on-site or off-site hazardous
substance releases, personal injury, property damage or natural resources
damage.
(vi) Neither of the Sellers has assumed any liabilities or
obligations of any Person under Environmental and Safety Requirements with
respect to any property used in, related to or necessary for the operation of
the Acquired Businesses.
(b) The Sellers have delivered or made available to Purchaser
true, complete and correct copies of all environmental reports, analyses, tests
or monitorings in the possession of the Company or the Subsidiary pertaining to
any property used in, related to or necessary for the operation of the Acquired
Businesses or the Practice and a true, complete and correct list identifying all
third-party facilities at which contaminants generated in connection with the
Acquired Businesses or the Practice (whether by the Company, the Subsidiary, the
Practice or any prior owner or occupant) have been transported, treated, stored,
handled or disposed within the past five (5) years.
Section 3.25 Certain Payments. Neither the Company nor the Subsidiary
nor to the Knowledge of the Sellers, any of their respective directors,
officers, agents or employees, nor any other Person associated with or acting
for or on behalf of the Company, the Subsidiary or the Practice, has directly or
indirectly (a) made, offered or agreed to offer any contribution, gift, bribe,
rebate, payoff, influence payment, kickback, or other payment to any Person,
private or public, regardless of form, whether in money, property, or services
(i) to obtain favorable treatment in securing business or to pay for favorable
treatment for business secured, (ii) to obtain special concessions or to pay for
or special concessions already obtained, for or in respect of the Company, the
Subsidiary, the Practice or any of their respective Affiliates, or (iii) in
violation of any Legal Requirement, or (b) established or maintained any
material fund or asset that has not been recorded in the books and records of
the Company, the Subsidiary or the Practice.
Section 3.26 Relationships with Affiliates. Except as set forth on
Schedule 3.26, no Affiliate of the Company or the Subsidiary has or has had or,
to the Knowledge of the Sellers, any of the Prior Owners has, any interest in
any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to any of the Acquired Businesses or the
Practice. Except as set forth on Schedule 3.26, no Affiliate of the Company or
the Subsidiary owns or has owned (of record or as a beneficial owner) or, to the
Knowledge of the Sellers, any of the Prior Owners owns (of record or as a
beneficial owner), an equity interest or any other financial or profit interest
in, a Person that has (i) had business dealings or a material financial interest
in any transaction relating to the Acquired Businesses or the Practice other
than business dealings or transactions conducted in the Ordinary Course of
Business with the Company or the Subsidiary or the Practice at substantially
prevailing market prices and on substantially prevailing market terms, or (ii)
engaged in competition with the Company or the Subsidiary or the Practice with
respect to any line of the products or services of the Acquired Businesses or
the Practice (a "Competing Business") in any market in which an Acquired
Business or the Practice currently operates except for the ownership of less
than one percent (1%) of the outstanding capital stock of any Competing Business
that is publicly traded on any recognized exchange or in the over-the-counter
market. No Affiliate of the Company or the Subsidiary or any of the Prior Owners
is a party to any Contract with, or has any claim or right against, the Company
(with respect to the Company Businesses), the Subsidiary or the Practice.
28
<PAGE> 29
Section 3.27 Fraud and Abuse. None of the Company, the Subsidiary or,
to the Knowledge of the Sellers, the Practice has engaged in any activity that
is prohibited under federal Medicare and Medicaid statutes, 42 U.S.C. Section
1320a-7b, the False Claims Act, or the regulations promulgated pursuant to such
statutes, or any similar federal, state or local statutes or regulations or
which are prohibited by binding rules of professional conduct, including,
without limitation to the following:
(a) knowingly and willfully making or causing to be made a
false statement or representation of a material fact in any applications for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
(c) failing to disclose knowledge by a claimant of the
occurrence of any event affecting the initial or continued right to any benefit
or payment on its own behalf or on behalf of another, with intent to secure such
benefit or payment fraudulently; and
(d) knowingly and willfully soliciting or receiving any
remuneration (including any kickback, bribe or rebate), directly or indirectly,
overtly or covertly, in cash or in kind or offering to pay such remuneration (i)
in return for referring an individual to a person for the furnishing or
arranging for the furnishing of any item or service for which payment may be
made in whole or in part by Medicare, Medicaid or other applicable third party
Payors, or (ii) in return for purchasing, leasing or ordering or arranging for
or recommending the purchasing, leasing or order of any good, facility, service,
or item for which payment may be made in whole or in part by Medicare, Medicaid
or other applicable third party Payors.
Section 3.28 Year 2000 Compliance.
(a) Except as set forth on Schedule 3.28(a), each item of software,
hardware, firmware, third-party software and goods with computer chips used by
the Company in the Company Businesses or used by the Subsidiary (collectively,
the "Internal Systems"), is, or will be on the Closing Date, Year 2000 Compliant
(as hereinafter defined) through the year 2002.
(b) For purposes of this Agreement, "Year 2000 Compliant" means that
the item:
(i) functions without interruption or human intervention with
four-digit year processing on all data, input, or output which includes an
indication of date (collectively, "Date Data"), including errors or
interruptions from functions which may involve Date Data from more than one
century, leap years, or the date September 9, 1999, regardless of the date of
processing or date of Date Data;
(ii) provides results from any operation accurately reflecting
any Date Data used in the operation performed, with output in any form, except
graphics, having four digit years;
(iii) accepts two digit year Date Data in a manner that
resolves any ambiguities as to century in a defined manner; and
(iv) provides data interchange in the ISO8601:1988 standard of
CCYYMMDD.
Section 3.29 Medicare and Medicaid Programs. Each of the Company, the
Subsidiary, the Practice and, to the Company's and the Subsidiary's Knowledge,
their respective professional
29
<PAGE> 30
employees and independent contractors is qualified for participation in the
Medicare and Medicaid programs and is party to provider agreements for such
programs which are in full force and effect with no events of default having
occurred thereunder. Each of the Company, the Subsidiary, the Practice and, to
the Knowledge of the Sellers, their respective professional employees and
independent contractors, has timely filed all claims or other reports required
to be filed prior to the Closing Date with respect to the purchase of services
by third-party payors ("Payors"), including but not limited to Medicare and
Medicaid programs, except where the failure to file would not, individually or
in the aggregate, result in a Material Adverse Effect of the Acquired Businesses
or the Practice. All such claims or reports are complete and accurate in all
material respects. Each of the Company, the Subsidiary, the Practice and, to the
Knowledge of the Sellers, their respective professional employees and
independent contractors has paid or has properly recorded on the Financial
Statements all actually known and undisputed refunds, discounts or adjustments
which have become due pursuant to such claims, and none of the Company, the
Subsidiary, the Practice or, to the Knowledge of the Sellers, any of their
professional employees or independent contractors has any material liability to
any Payor with respect thereto, except as has been reserved for in the Closing
Balance Sheet. There are no pending appeals, overpayment determinations,
adjustments, challenges, audits, litigation or notices of intent to reopen
Medicare and/or Medicaid claims determinations or other reports required to be
filed by the Company, the Subsidiary, the Practice or, to the Knowledge of the
Sellers, any of their respective professional employees or independent
contractors in order to be paid by a Payor for services rendered. None of the
Company's, the Subsidiary's, the Practice's or to the Knowledge of the Sellers,
any of their respective directors, officers, employees, consultants, or
independent contractors (providing optometric services) has been convicted of,
or pled guilty or nolo contendere to, patient abuse or neglect, or any other
Medicare or Medicaid program-related offense. None of the Company's, the
Subsidiary's, the Practice's or, to the Knowledge of the Sellers, any of their
respective directors, officers, shareholders, employees, independent contractors
or consultants has committed any offense which may serve as the basis for
suspension or exclusion from the Medicare and Medicaid programs, including
without limitation, defrauding a government program, loss of a license to
provide health services, and failure to provide quality care.
Section 3.30 Payors. Schedule 3.30 sets forth a true, correct and
complete list of the names and addresses of each Payor, including any private
pay patient as a single Payor, of the Acquired Businesses or the Practice which
accounted for more than ten percent (10%) of the revenues of such Acquired
Business or the Practice in the three (3) previous fiscal years. Except as set
forth on Schedule 3.30, each of the Company, the Subsidiary and the Practice
does not have, and has not had, any disputes (other than immaterial disputes
arising in the Ordinary Course of Business) which have not been resolved to the
mutual satisfaction of both parties thereto, and none of such Payors has
notified the Company, the Subsidiary or the Practice that it intends to
discontinue its relationship with the Company, the Subsidiary or the Practice or
to deny any claims submitted to such Payor for payment.
Section 3.31 Inventory. Except as set forth on Schedule 3.31:
(i) the qualities and quantities of Inventory are reasonable
and adequate for the current operations of the Acquired Businesses and
materially consistent with past practices; and
(ii) there has been no material decrease in the Inventory
since the Balance Sheet Date other than in the Ordinary Course of Business.
Section 3.32 Acquisition Agreements. Except as set forth on Schedule
3.32, there has not been any material breach by the Company, or to the Knowledge
of the Sellers, any material breach by any other party, of any representation,
warranty, covenant or agreement under any of the Vision World
30
<PAGE> 31
Acquisition Agreement, the Eye Care Acquisition Agreement, the Drx Acquisition
Agreement or the TCOL Stock Purchase Agreement. Except as set forth on Schedule
3.32, all filings with, notices to, and consents of, any Governmental Body or
other third parties necessary or appropriate to consummate the transactions
contemplated by the Vision World Acquisition Agreement, the Eye Care Acquisition
Agreement, the Drx Acquisition Agreement or the TCOL Stock Purchase Agreement
have been duly filed, given, obtained or taken.
Section 3.33 Bank Accounts. Schedule 3.33 to be provided on or before
15 days prior to Closing, sets forth an accurate and complete list showing the
name and address of each bank in which the Company (with respect to the Company
Businesses) or the Subsidiary has an account, the number of any such account and
the names of all persons authorized to draw thereon.
Section 3.34 Disclosure. To the Knowledge of the Sellers, none of this
Agreement, or any Schedule, Exhibit or certificate delivered in accordance with
the terms hereof or any document or statement in writing which has been supplied
by or on behalf of either of the Sellers in connection with the Subject
Transactions contains any untrue statement of a material fact or omits any
statement of a material fact necessary in order to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading. Neither the Company nor the Subsidiary has Knowledge of any fact
(other than general economic conditions or legislative or administrative changes
in health care delivery) which materially and adversely affects the Acquired
Businesses, the Practice or the properties or assets related thereto, which has
not been set forth in this Agreement or in the Schedules, Exhibits or
certificates or statements in writing furnished in connection with the Subject
Transactions.
Section 3.35 Disclaimer of Other Representations, Warranties and
Covenants. Except as expressly set forth in this Article III, Sellers make no
representations or warranties, express or implied, at law or in equity, in
respect to any of the Assets, the Assumed Liabilities or the operations of the
Acquired Businesses, including, without limitation, with respect to
merchantability or fitness for any particular purpose, and any such other
representations and warranties are expressly disclaimed.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in the disclosure schedules attached hereto (which
disclosure schedules shall specifically identify the SECTION hereof to which
such disclosure or exception applies), Purchaser hereby represents and warrants
to the Sellers as follows:
Section 4.01 Existence and Good Standing of Purchaser. Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. Purchaser has the power to own its properties and carry
on its businesses as now being conducted. The Purchaser is duly qualified to do
business in all jurisdiction(s) in which the character or location of the
properties owned or leased by it or the nature of the businesses conducted by it
makes such qualification necessary, except where the failure to be so qualified
would not have a Material Adverse Effect on the Purchaser.
Section 4.02 Power and Authority. Purchaser has the full legal right,
corporate power and authority to make, execute, deliver and perform this
Agreement, and this Agreement has been duly authorized and approved by all
required action of Purchaser. Purchaser has taken, or will take before the
Closing Date, all actions required by law, Purchaser's Articles of
Incorporation, Bylaws, or otherwise, to authorize the execution and delivery of
this Agreement and the other Acquisition
31
<PAGE> 32
Documents, and the performance of its obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by Purchaser and, upon the
execution and delivery of the remaining Acquisition Documents by a duly
authorized officer of Purchaser, the remaining Acquisition Documents will have
been duly executed and delivered by Purchaser, and this Agreement is, and such
other Acquisition Documents will be, upon due execution and delivery thereof,
the legal, valid, and binding obligations of Purchaser enforceable against it in
accordance with the respective terms thereof.
Section 4.03 Broker's or Finder's Fees. No agent, broker, person or
firm acting on behalf of Purchaser is, or will be, entitled to any commission or
investment banking, or broker's or finder's fees from any of the Parties, or
from any Affiliate of the Parties, in connection with any of the Subject
Transactions.
Section 4.04 No Conflict.
(a) Except as set forth on Schedule 4.04 or with respect to
the HSR Act, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Subject Transactions will, directly or
indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of Purchaser, or
(B) any resolution adopted by the Board of Directors or shareholders of
Purchaser as currently in effect;
(ii) contravene, conflict with, or result in a
violation of, or give any Governmental Body or other Person the right to
challenge any of the Subject Transactions or to exercise any remedy or obtain
any relief under, any Legal Requirement or any Order to which Purchaser may be
subject;
(iii) contravene, conflict with or result in a
violation of any of the terms or requirements of, or give any Governmental Body
the right to revoke, withdraw, suspend, cancel, terminate, or modify, any
Governmental Authorization that is held by Purchaser;
(iv) contravene, conflict with, or result in a
violation or Breach of any provision of, or give any Person the right to declare
a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any Contract to which
Purchaser is a party;
(b) Except as set forth on Schedule 4.04 or the HSR Act,
Purchaser is not required, and will not be required, to give any notice to or
obtain any Consent from any Person in connection with the execution and delivery
of this Agreement or the consummation or performance of any of the Subject
Transactions.
(c) The representations and warranties of Purchaser set forth
in the Strategic Agreement are true as of the date hereof, except to the extent
relating to the execution and delivery thereof which will be true and correct on
the Closing Date.
Section 4.05 Litigation. There is no Proceeding by any Person, or by or
before (or any investigation by) any Governmental Body, pending, or to the
Knowledge of Purchaser threatened, against or affecting the Subject Transactions
or Purchaser's ability to consummate the Subject Transactions, and Purchaser
does not know of any valid basis for any such Proceeding.
32
<PAGE> 33
Section 4.06 Insolvency.
(a) Neither the Purchaser, nor any of its subsidiaries is
Insolvent and neither the Purchaser nor any of its subsidiaries will become
Insolvent as a result of the consummation of the Subject Transaction.
(b) None of the Board of Directors or officers of the
Purchaser or any of its subsidiaries have contemplated, or have discussed,
seeking protection from creditors under any of the provisions of the Bankruptcy
Code or taking any other action which could result in any other insolvency
proceeding of any character with respect to the Purchaser and its subsidiaries
including, without limitation, bankruptcy, receivership or reorganization. No
creditors of the Purchaser or any of its subsidiaries have commenced or
threatened to institute proceedings against the Purchaser or any of its
subsidiaries under the Bankruptcy Code or to take any other action which could
result in any other insolvency proceeding of any character with respect to the
Purchaser and its subsidiaries.
(c) With respect to the representation and warranty set forth
in this SECTION 4.06, the Sellers acknowledge that Purchaser has relied upon the
information set forth in the registration statements, reports and other
materials (collectively "ECCA SEC Reports") filed by the Company with the SEC
since December 31, 1998 and represents and warrants that the ECCA SEC Reports
complied in all material respects with the applicable requirements of the
Securities Act of 1933 and the 1934 Act and the applicable rules and regulations
of the SEC promulgated thereunder, and at the time filed did 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 made therein, in light of
the circumstances in which they were made, not misleading. The consolidated
financial statements of Purchaser which are a part of the SEC Reports have been
prepared in accordance with GAAP, applied on a basis consistent with past
practices, and fairly present the financial condition and results of operations
of the businesses of Purchaser at the respective dates thereof and for the
periods referred to therein.
Section 4.07 Acknowledgment of Seller's Disclaimer. Except as expressly
set forth in Article III, Purchaser acknowledges that Sellers make no
representations or warranties, express or implied, at law or in equity, in
respect to any of the Assets, the Assumed Liabilities or the operations of the
Acquired Businesses, including, without limitation, with respect to
merchantability or fitness for any particular purpose, and any such other
representations and warranties are expressly disclaimed.
Section 4.08 Acknowledgment of Purchaser's Financing. Purchaser
acknowledges that it has received a verbal commitment for financing all funding
required hereunder and is not aware of any current facts or circumstances that
are likely to impact such financing.
ARTICLE V
CONDUCT OF BUSINESS; REVIEW; CONFIDENTIALITY; NONCOMPETITION
Section 5.01 Conduct of Business of the Company.
(a) Except as otherwise contemplated herein, during the period
from the date of this Agreement to and including the Closing Date, the Sellers
shall conduct the Acquired Businesses only according to and including the
Ordinary Course of Business and shall use their respective Best Efforts to
preserve intact the Acquired Businesses and the Practice, keep available the
services of the officers, employees and optometrists engaged as independent
contractors of the Company, the
33
<PAGE> 34
Subsidiary or the Practice working directly in the Acquired Businesses or the
Practice and maintain satisfactory relationships with licensors, suppliers,
distributors, lessees, clients and others having business relationships with any
of the Acquired Businesses or the Practice.
(b) Except as otherwise contemplated herein, during the period
from the date hereof to and including the Closing Date, the Sellers shall pay
all undisputed accounts payable and other payables relating to the Acquired
Businesses or the Practice in a timely manner in the Ordinary Course of
Business.
(c) Pending the Closing and except as may be first approved by
Purchaser or as is otherwise permitted or required by this Agreement, the
Sellers will, with respect to the Acquired Businesses, and will use their Best
Efforts to cause the Practice to:
(i) maintain the Organizational Documents and other
governing documents of the Sellers in their respective forms on the date of this
Agreement;
(ii) maintain the compensation payable or to become
payable by the Sellers or the Practice to any officer, employee or agent working
directly in the Acquired Businesses or the Practice at their levels on the date
of this Agreement, except for increases in the Ordinary Course of Business to
non-exempt employees in store, doctor offices or lab locations consistent with
past practices;
(iii) refrain from making any bonus, pension,
retirement or insurance payment or arrangement to or with any employee or
independent contractor, except those that may have already been accrued, and
bonus and insurance payments in the Ordinary Course of Business;
(iv) refrain from entering into any Contract or
commitment except contracts in the Ordinary Course of Business;
(v) refrain from paying or declaring any dividends or
making any distribution in cash or in property to any of its shareholders;
(vi) refrain from creating, incurring, or assuming
any long-term or short-term debt (other than accounts payable incurred in the
Ordinary Course of Business) whether for money borrowed or otherwise;
(vii) refrain from assuming, guarantying, endorsing
or otherwise becoming liable or responsible for the obligation of any Person;
(viii) refrain from making any loans, advances or
capital contributions to, or investments in, any other Person (other than
accounts receivables arising in the Ordinary Course of Business);
(ix) refrain from making any change affecting any
bank, safe deposit or power of attorney arrangements of the Sellers or the
Practice;
(x) refrain from incurring or committing to any
capital expenditure, obligations or liabilities in respect thereof which would
exceed $5,000 on an individual basis;
34
<PAGE> 35
(xi) refrain from any action which may subject the
assets of the Acquired Businesses or the Practice to any Encumbrance of any kind
or character except in the Ordinary Course of Business; and
(xii) refrain from taking any action, the taking of
which, or from omitting to take any action, the omission of which, would cause
any of the representations and warranties contained in ARTICLE III to fail to be
true and correct in all respects as of the Closing Date as though made on and as
of the Closing Date.
(d) During the period from the date of this Agreement to and
including the Closing Date, the Sellers shall confer on a regular and frequent
basis with one or more designated Representatives of Purchaser to report
material operational matters and to report the general status of ongoing
operations of the Acquired Businesses and the Practice. The Sellers shall notify
Purchaser of any unexpected emergency or other change in the normal course of
their respective businesses or in the operation of their respective properties
or the business or operation of the Practice and of any Proceeding (or
communications indicating that the same may be contemplated) involving any
material property of the Acquired Businesses or the Practice, and shall keep
Purchaser fully informed of such events and permit its representatives prompt
access to all materials prepared in connection therewith. Except as otherwise
expressly permitted by this Agreement, and without limiting the generality of
the foregoing, between the date of this Agreement to and including the Closing
Date, the Sellers will not, without the prior written consent of Purchaser, take
any affirmative action, or fail to take any reasonable action within their or
its control, as a result of which any of the changes or events listed in SECTION
3.21 hereof is likely to occur.
Section 5.02 Review of the Sellers.
(a) The Sellers shall:
(i) permit Purchaser and its Representatives to have,
after the date of execution hereof, full and complete access to the premises and
to all the properties, assets, books, records and other documents of the Sellers
relating to or used in the Acquired Businesses or the Practice to enable
Purchaser to make an examination of the business, properties, assets, books,
records and other documents of the Acquired Businesses and the Practice as
Purchaser and its Representatives may determine; and
(ii) cause the officers of the Sellers to furnish
Purchaser with such financial and operating data and other information with
respect to the Acquired Businesses and the Practice as Purchaser shall from time
to time reasonably request.
(b) Purchaser and its Representatives hereby agree to conduct
such examinations so as to not unreasonably interfere with the conduct of the
Acquired Businesses or the Practice. As part of such examination, Purchaser and
its Representatives may make such inquiries of such persons having business
relationships with either of the Sellers or the Practice (including, without
limitation, to suppliers, licensees, distributors and customers) as Purchaser
and its Representatives shall determine and the Sellers shall cooperate fully
with Purchaser and its Representatives in connection therewith.
Section 5.03 No Negotiation. Until such time, if any, as this Agreement
is terminated pursuant to SECTION 10.01, the Sellers and their respective
Representatives will not, directly or indirectly solicit, initiate, or encourage
any inquiries or proposals from, discuss or negotiate with, provide any
non-public information to, or consider the merits of any unsolicited inquiries
or proposals from, any Person (other than Purchaser) relating to any transaction
involving the sale of, or change of
35
<PAGE> 36
control with respect to, the Acquired Businesses or the Assets (other than in
the Ordinary Course of Business), whether by a sale of assets or stock, merger,
consolidation, business combination, or similar transaction involving the
Sellers. The Sellers will promptly communicate to Purchaser the terms of any
proposal received or the fact that the Sellers have received inquiry with
respect to, or have participated in discussions or negotiations in respect of,
any such transaction, and the identity of any Persons who initiated or
participated in such discussions or negotiations.
Section 5.04 Non-Competition.
(a) Purchaser and the Sellers agree that the Purchase Price
was fixed on the basis that the transfer of the Assets to Purchaser would
provide Purchaser with the full benefit and goodwill of the Acquired Businesses
as they existed on the Closing Date. The Sellers acknowledge that it is proper
for Purchaser to have assurance that the value of the Assets will not be
diminished by acts of the Sellers after the Closing Date. Accordingly, the
Sellers covenant and agree that they will not:
(i) commencing on the Closing Date and ending on the
fourth anniversary of the Closing Date, directly or indirectly engage in, or
own, manage, operate, or control or participate in the ownership, management,
operation or control of, or provide consulting services or financial resources
to, or act as guarantor for, any Person which is engaged in, any business which
engages in the retail sale of optical goods (including, without limitation, eye
glasses, contact lenses and sunglasses) with operations within a three (3) mile
radius of one of the stores operated or managed by any of the Acquired
Businesses as constituted on the Closing Date (the "Restricted Business");
provided, however, the Sellers may continue to provide management services to
the optometrists and ophthalmologists to whom they are providing services, and
only at the locations being serviced, as of the Closing Date, a complete list of
which has been provided to Purchaser; and provided further, the Sellers may
provide consulting, administrative and other similar services to optometrists
and ophthalmologists provided such services do not directly relate to, or
provide direction relative to, the retail sale of optical goods.
(ii) commencing on the Closing Date and ending on the
second anniversary of the Closing Date, without the prior written consent and
approval of Purchaser, directly or indirectly hire or attempt to hire for
employment or otherwise retain as a consultant or otherwise, any person any of
Purchaser's or its Affiliates respective employees, consultants, agents, or
independent contractors who are providing services with respect to the Acquired
Businesses or the Practice (for this purpose, the terms "employees,"
"consultants," "agents," and "independent contractors" shall include any persons
having such status with regard to Purchaser, its Affiliate or the Practice, as
the case may be, at any time during the six (6) months preceding any
solicitation in question); or
(iii) commencing on the Closing Date and ending on
the fourth anniversary of the Closing Date, solicit, interfere with, or endeavor
to entice away from Purchaser or any of its Affiliates or the Practice, for
itself or on behalf of any Person, any customer or supplier of the Acquired
Businesses or the Practice.
(b) The foregoing provisions shall not apply to investments in
shares of stock of a corporation traded on a national securities exchange or on
the national over-the-counter market which shall constitute less than one
percent (1%) of the outstanding shares of such stock of such corporation.
Further, the foregoing restrictions set forth in SECTION 5.04(A) shall not
prohibit the sale, whether through merger, consolidation, reorganization or
similar transaction, of all or substantially all of the stock or assets of the
Company or a material business unit of the Company to a Person engaged in the
Restricted Business, provided that (i) following such transaction, the Company
and its subsidiaries (or
36
<PAGE> 37
the material business unit of the Company acquired by such Person), shall
continue to be subject to the restrictions set forth in SECTION 5.04(a) and (ii)
the restrictions in SECTION 5.04(a) shall not apply to the Person acquiring the
Company or the material business unit and such parent's other subsidiaries
provided that the personnel, assets, information and other resources of the
Company and its subsidiaries (or the material business unit acquired by such
Person) are not materially used in connection with such restricted activities.
The restrictions set forth in clauses (ii) and (iii) of SECTION 5.04(a) shall
not prohibit general advertisements in newspapers or other widely distributed
publications, media or mail, whether electronic or otherwise.
(c) The Company and the Subsidiary acknowledge that certain of
the Prior Owners entered into non-competition covenants with the Company in
connection with the acquisition by the Company of the Company Businesses and all
of the capital stock of the Subsidiary. To the extent such non-competition
covenants are not assigned to Purchaser hereunder, or Purchaser is not entitled
to enforce such non-competition agreements, the Company agrees to enforce such
non-competition agreements as may be reasonably necessary to protect the
interest of Purchaser in the Acquired Businesses.
(d) Purchaser covenants and agrees that, for the period
commencing on the date hereof and ending on the earlier of the Closing Date (if
the Subject Transactions are consummated) and the second anniversary of the date
hereof (if the Subject Transactions are not consummated), Purchaser will not,
directly or indirectly, solicit to leave his or her employment or engagement
with the Sellers any of their respective employees, consultants, agents, or
independent contractors who primarily provide services in connection with the
Acquired Businesses (for purposes of this SECTION 5.04(D), the terms
"employees," "consultants," "agents," and "independent contractors" shall
include any persons having such status with regard to either of the Sellers at
the time of execution of this Agreement or during the period from time the date
of execution of this Agreement to the date of termination of this Agreement);
provided, however the foregoing restrictions shall not prohibit general
advertisements in newspapers or other widely distributed publications, media or
mail, whether electronic or otherwise.
(e) If any of the Sellers or the Purchaser commits a breach,
or threatens to commit a breach, of any of the provisions of this SECTION 5.04
or SECTION 6.03 or 6.04, the non-breaching party shall have the right and
remedy, in addition to any others, to have the provisions of this SECTION 5.04
or SECTION 6.03 or 6.04, as the case may be, specifically enforced by the
arbitrator in accordance with SECTION 10.02 (with respect to a permanent
injunction) and any court having equity jurisdiction (with respect to a
temporary restraining order or preliminary injunction), together with an
accounting therefor, it being acknowledged and understood by the Sellers that
any such breach or threatened breach will cause irreparable injury to Purchaser
and that money damages will not provide an adequate remedy therefor.
Section 5.05 Use of Name; Change of Name. The Sellers have transferred
to Purchaser all of their respective rights to use the names "Vision World,"
"Stein Optical," "EyeCare One," and "Eye Drx". The Sellers expressly agree not
to use the names "Vision World," "Stein Optical," "EyeCare One," and "Eye Drx"
or any variation thereof. Concurrent with, or immediately following the Subject
Transactions, the Sellers shall file Articles of Abandonment and such other
documents (including, without limitation, abandoning any assumed name
designations) as may be necessary to effectuate such transfer.
Section 5.06 Termination of Partnership Agreements. With respect to
those certain five partnership agreements between the Practice and certain of
the optometrists providing services in connection with the New Jersey Business
and with respect to which the Company has assumed certain
37
<PAGE> 38
obligations, identified on Schedules 3.04 and 3.10 hereof (the "Partnership
Agreements"), the Sellers shall be obligated to pay all amounts owed to the
optometrists under the Partnership Agreements in connection with the dissolution
or termination thereof or any buyout related thereto to the extent required
under the Partnership Agreements; provided, however, that the Sellers'
obligations under this SECTION 5.06 shall be limited to those written
obligations contained in the Partnership Agreements (which, to the Knowledge of
the Sellers' have not been orally amended) that are directly related to the
termination or dissolution thereof. Purchaser shall reimburse the Sellers
one-half of such amounts within ten (10) days of written request to Purchaser
after payment of sums by the Sellers, provided that Purchaser's aggregate
obligation hereunder shall not exceed $200,000.
Section 5.07 No Liability for Changes in the New Jersey Business.
Purchaser acknowledges and agrees that (i) the termination of the Cummins
Employment Agreement and the dissolution or termination of the Partnership
Agreements could result in an adverse affect on the New Jersey Businesses and
(ii) the Sellers shall not be liable to Purchaser for Damages to the extent
resulting from such adverse affects.
Section 5.08 Interim Financial Statements. As soon as possible
following the date hereof, but in no event later than three days prior to the
Closing Date, the Sellers shall deliver to Purchaser the unaudited interim
balance sheets of each of the Acquired Businesses, on both an individual and
combined basis, dated as of April 30, 1999, May 31, 1999, June 30, 1999 and the
end of any other months thereafter ending on or before 30 days or more prior to
the Closing and the related unaudited interim statements of operations for each
one-month period ended April 30, 1999, May 31, 1999 and June 30, 1999 and each
subsequent month thereafter ending on or before 30 days or more prior to the
Closing.
ARTICLE VI
MUTUAL COVENANTS
Purchaser, on the one hand, and the Sellers, jointly and severally, on
the other hand, each covenant that:
Section 6.01 Return of Documents; Disclosure; Nonsolicitation. If this
Agreement is terminated for any reason pursuant to SECTION 10.01, (i) each Party
shall return all documents and materials and copies thereof which shall have
been furnished by or on behalf of the other Parties, (ii) each Party hereby
covenants that such Party will not disclose to any Person any confidential or
proprietary information about the other Parties or any information regarding the
Subject Transactions, except insofar as may be necessary to assert its rights
hereunder or as required by law.
Section 6.02 Cooperation. Subject to the terms and conditions herein
provided, each Party will use such Party's Best Efforts to take, or cause to be
taken, such actions, to execute and deliver, or cause to be executed and
delivered, such additional documents and instruments and to do, or cause to be
done, all things necessary, proper or advisable under the provisions of this
Agreement and applicable law to consummate and make effective all of the Subject
Transactions.
Section 6.03 Publicity. Unless the Parties mutually agree in advance or
are required by Legal Requirements, prior to the Closing, the Parties shall keep
this Agreement strictly confidential and may not make any disclosure of this
Agreement or the Subject Transactions to any Person, other than disclosure by
Purchaser as it may deem necessary or advisable in connection with the Subject
Transactions (including the financing of such transactions). The Parties will
consult with each other concerning the means by which the Sellers' employees,
customers, and suppliers and others having dealings with the Sellers will be
38
<PAGE> 39
informed of the Subject Transactions, and Purchaser will have the right to be
present for any such communication. Notwithstanding anything contained herein,
the Parties agree that a public announcement or similar publicity with respect
to this Agreement approved by the Parties, which approval shall not be
unreasonably withheld by any Party, will be issued as soon as reasonably
possible and advisable following the date hereof (as may be mutually agreed by
the Parties).
Section 6.04 Confidentiality. Before and after the Closing, each of the
Parties shall, and shall cause their respective Representatives and Affiliates
to, hold in strict confidence and not use or disclose to any other Person
without the prior written consent of the other Parties, all confidential
information obtained from the other Parties in connection with the Subject
Transactions and all information relating to the Assets and the Acquired
Businesses; provided, however, that such information may be used or disclosed
(i) when required by any regulatory authorities or governmental agencies, (ii)
if required by court order or decree or applicable law, (iii) if it is publicly
available other than as a result of a breach of this Agreement, (iv) if it is
otherwise contemplated herein, or (v) by Purchaser from and after the Closing.
Section 6.05 Notification.
(a) Between the date of this Agreement and the Closing Date,
the Sellers will promptly notify Purchaser in writing if either of the Sellers
becomes aware of any fact or condition that causes or constitutes a Breach of
any of the Sellers' representations and warranties as of the date of this
Agreement, or if either of the Sellers becomes aware of the occurrence after the
date of this Agreement of any fact or condition that would (except as expressly
contemplated by this Agreement) cause or constitute a Breach of any such
representation or warranty had such representation or warranty been made as of
the time of occurrence or discovery of such fact or condition. Should any such
fact or condition require any change in the Schedules attached hereto if such
Schedules were dated the date of the occurrence or discovery of any such fact or
condition, the Sellers will promptly deliver to Purchaser a supplement to such
Schedule specifying such change. During the same period, the Sellers will
promptly notify Purchaser of the occurrence of any Breach of any covenant of
either of the Sellers in ARTICLE V OR VI or otherwise under this Agreement or of
the occurrence of any event that may make the satisfaction of the conditions in
ARTICLE VII OR VIII impossible or unlikely.
(b) Between the date of this Agreement and the Closing Date,
Purchaser will promptly notify the Sellers in writing if Purchaser becomes aware
of any fact or condition that causes or constitutes a Breach of any of
Purchaser's representations and warranties as of the date of this Agreement, or
if Purchaser becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition. Should any such fact or condition require
any change in the Schedules attached hereto if such Schedules were dated the
date of the occurrence or discovery of any such fact or condition, Purchaser
will promptly deliver to the Sellers a supplement to such Schedules specifying
such change. During the same period, Purchaser will promptly notify the Sellers
of the occurrence of any Breach of any covenant of Purchaser in ARTICLE VI or
otherwise under this Agreement or of the occurrence of any event that may make
the satisfaction of the conditions in ARTICLE VII OR VIII or impossible or
unlikely.
Section 6.06 Required Approvals; HSR Act.
(a) As promptly as practicable after the date of this
Agreement, the Sellers will make all filings required by Legal Requirements to
be made by them in order to consummate the Subject Transactions including,
without limitation, the filing, if any, required under the HSR Act.
39
<PAGE> 40
Between the date of this Agreement and the Closing Date, the Sellers will (a)
cooperate with Purchaser with respect to all filings that Purchaser elects to
make or is required by Legal Requirements to make in connection with the Subject
Transactions, and (b) obtain all consents identified in Schedules 3.11(a),
3.11(b) and 3.23(b).
(b) As promptly as practicable after the date of this
Agreement, Purchaser will make all filings required by Legal Requirements to be
made by it in order to consummate the Subject Transactions including, without
limitation, the filing, if any, required under the HSR Act. Between the date of
this Agreement and the Closing Date, Purchaser shall (a) cooperate with the
Sellers with respect to all filings that the Sellers elect to make or are
required by Legal Requirements to make in connection with the Subject
Transactions, and (b) cooperate with the Sellers in obtaining all consents
identified in Schedules 3.11(a), 3.11(b) and 3.23(b).
(c) HSR Act. As soon as practicable, and in any event no later
than five (5) business days after the date hereof, each of the Parties will file
any Notification and Report Forms and related material required to be filed by
it with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act with respect to the transactions
contemplated hereby, will use its reasonable efforts to obtain an early
termination of the applicable waiting period, and shall promptly make any
further filings pursuant thereto that may be necessary proper or advisable;
provided, however, that Purchaser shall not be required hereunder to divest or
hold separate any portion of its business or assets. Any filing fee(s) relating
to any filings required under the HSR Act shall be borne one-half (1/2) by
Purchaser and one-half (1/2) by the Sellers.
Section 6.07 Employees; Collective Bargaining Agreement .
(a) Concurrent with the Closing, Purchaser may, in its sole
discretion, offer employment or an independent contractor position to any of the
active employees or independent contractors set forth on Schedule 3.18(a) or (b)
as well as the employees or independent contractors hired to work directly in
the Acquired Businesses between the date hereof and the Closing Date, (i) on an
"at will basis" and upon such terms and conditions as determined by Purchaser in
its sole discretion or (i) if Purchaser desires, in its sole discretion, under
an employment agreement or independent contractor agreement, which agreement
will be on terms and conditions acceptable to Purchaser. Except with respect to
the Collective Bargaining Agreement and certain other agreements with
optometrists in the following sentence which will be assumed by Purchaser,
Purchaser shall be under no obligation to assume any employment agreement, or
agreement relating to independent contractors of the Sellers or the Practice.
Notwithstanding the foregoing, Purchaser will assume the contracts between the
Company and certain optometrists to provide services as independent contractors
to the extent such contracts are included as Assigned Contracts and therefore
such optometrists will be engaged by Purchaser at the Closing Date.
(b) Effective as of the Closing Date, the Sellers will
terminate all of their respective employees who work directly in the Acquired
Businesses and with respect to whom Purchaser elects to offer employment or
engage as independent contractors and release such employees from any
commitments or restrictions that would prohibit them from providing their
services to Purchaser.
(c) Effective on or before the Closing Date, the Sellers shall
terminate all employment agreements or independent contractor agreements (other
than the independent contractor agreements included as Assigned Contracts
expressly assumed by Purchaser) with employees or independent contractors that
Purchaser elects to offer employment or engage as independent
40
<PAGE> 41
contractors pursuant to this SECTION 6.07 and release such employees or
independent contractors from any commitments or restrictions that would prohibit
them from providing their services to Purchaser.
(d) The Sellers shall remain responsible for and retain any
and all liabilities and obligations (whether statutory or contractual) relating
in any manner to their employees, former employees or independent contractors
(and their dependents and beneficiaries) arising in connection with the events
or circumstances incurred or existing on or prior to the Closing (including,
without limitation, the Subject Transactions), including with respect to any
employment agreement or collective bargaining agreement, or any state, municipal
or federal wage-hour, workmen's compensation, discrimination, employment,
benefit or labor law, statute, regulation or rule of law. The Sellers shall
remain the employer with responsibility for compliance with all federal, state
and local laws relating to benefits, healthcare continuation coverage, closings,
layoffs or reductions in force with respect to the Subject Transactions
contemplated by this Agreement.
(e) Reference is made to those certain letters dated on or
about December 31, 1998 from the Company and distributed to certain employees of
the Company relating to certain severance benefits upon termination in
connection with the reorganization of the Company (the "Severance Letters").
Prior to Closing, the Sellers shall have delivered to such employees a letter,
in a form reasonably satisfactory to Purchaser, clarifying that their severance
benefits under the Severance Letter are payable by the Company as follows: (i)
if such employee is not offered employment by Purchaser and such employee is
terminated by the Company in connection with the Subject Transactions, payable
upon such termination of employment with the Company, or (ii) if such employee
is employed by Purchaser after the Closing and is terminated by Purchaser on or
prior to December 31, 1999 (and crediting for purposes of such payment any time
worked with Purchaser as if worked for the Company), payable at the time of such
termination of employment with Purchaser. The Company shall make all severance
payments to such employees contemplated in this SECTION 6.07(e) in accordance
with the terms of the Severance Letters, it being understood that the Company is
the sponsor of the subject severance plans and shall retain liability for any
obligations or claims in connection therewith. Notwithstanding any provision to
contrary, Purchaser shall promptly reimburse the Company for one-half of the
contractual severance obligations under the Severance Letters (but only to the
extent disclosed on the disclosure schedules) with respect to any employee hired
by Purchaser and terminated by Purchaser during the period commencing on the
90th day following the Closing Date and ending December 31, 1999. Such
reimbursement will be made within ten (10) days of written request to Purchaser
after the Sellers have made any such payments.
Section 6.08 Accounts Receivable. Purchaser shall use its Best Efforts
to collect the accounts receivables of the Acquired Businesses on and after the
Closing Date.
Section 6.09 Releases. Purchaser shall use its Best Efforts to obtain
releases of the Sellers from all Leases and personal property leases being
assumed by Purchaser hereunder, but will not be required to pay additional sums
for such releases.
Section 6.10 Leased Space. For a period of six-months following the
Closing (or such shorter period ending upon the termination of the underlying
lease), Purchaser shall provide office space for 6 persons employed by VIPA at a
reasonable rental rate based upon a pro rata allocation (based upon square
footage) of the underlying rent of the subject property.
41
<PAGE> 42
ARTICLE VII
CONDITIONS TO PURCHASER'S OBLIGATIONS
All obligations of Purchaser to be discharged under this Agreement at
the Closing are subject to the fulfillment, prior to or at the Closing, of each
of the following conditions, unless waived in writing by Purchaser prior to or
at the Closing:
Section 7.01 Truth of Representations and Warranties. The
representations and warranties of the Sellers contained in this Agreement or in
any Schedule delivered pursuant hereto (i) that are qualified as to materiality,
shall be true and correct when made and as of the Closing Date and (ii) that are
not qualified as to materiality, shall be true and correct in all material
respects when made and as of the Closing Date (in both cases, without giving
effect to any supplement to a Schedule delivered pursuant to this Agreement),
and the Sellers shall have each executed and delivered to Purchaser a
certificate, dated the Closing Date, to such effect.
Section 7.02 Covenants and Agreements of the Company. The Sellers shall
have caused all covenants, agreements, and conditions required by this Agreement
to be performed or complied with by them in all material respects prior to or at
the Closing to be so performed or complied with, and the Sellers shall have each
executed and delivered to Purchaser a certificate, dated the Closing Date, to
such effect.
Section 7.03 Good Standing and Tax Certificates. The Sellers shall have
delivered to Purchaser (a) copies of the Organizational Documents of each of the
Sellers, certified by the Secretary of State of the respective jurisdictions of
their incorporation and (b) certificates as to the existence, authorization to
do business and tax status of the Sellers and the Practice certified by the
appropriate authority in the respective jurisdictions of incorporation and/or
qualification in which the Sellers are qualified to do business and conduct the
Acquired Businesses.
Section 7.04 No Material Adverse Change. Prior to the Closing Date,
there shall have been no material adverse change in the assets or liabilities,
the business or condition, financial or otherwise, the results of operations, or
prospects of the Acquired Businesses or the Practice since the Balance Sheet
Date, except as set forth on Schedule 3.21 (without giving effect to any
supplement to a Schedule delivered pursuant to this Agreement) and there shall
not have been any events, circumstances or developments which, with the passage
of time, might reasonably be expected to have a Material Adverse Effect on the
Acquired Businesses, the Practice or the Assets being transferred hereunder, and
the Sellers shall have each executed and delivered to Purchaser a certificate,
dated the Closing Date, to such effect.
Section 7.05 No Litigation Threatened. No Proceeding shall have been
instituted or, to the Knowledge of the Sellers, threatened to restrain or
prohibit any of the Subject Transactions, and the Sellers shall have each
executed and delivered to Purchaser a certificate, dated the Closing Date, to
such effect.
Section 7.06 Approvals; Filings. All Consents necessary to permit the
consummation of the Subject Transactions shall have been received. All filings
(other than those, if any, which may be required to be filed, given, obtained or
taken solely by Purchaser) shall have been duly filed, given, obtained or taken
on or prior to the Closing Date and will be in full force and effect on the
Closing Date, and the Sellers shall have each executed and delivered to
Purchaser a certificate, dated the Closing Date, to such effect.
42
<PAGE> 43
Section 7.07 Proceedings. All actions or proceedings to be taken in
connection with the Subject Transactions and all documents incident thereto
shall be reasonably satisfactory in form and substance to Purchaser and its
counsel and Purchaser shall have received copies of all such documents and other
evidences as it or its counsel may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
Section 7.08 Opinion of Counsel. The Sellers shall have furnished
Purchaser with a favorable opinion, dated the Closing Date, of Shumaker,
Kendrick & Loop, LLP in substantially the form of EXHIBIT J attached hereto.
Section 7.09 Key Employees and Independent Contractors. No more than a
reasonably acceptable to Purchaser number of optometrists employed or engaged as
independent contractors by the Acquired Businesses, or engaged as independent
contractors by the Practice, shall have indicated that they will not accept
Purchaser's offer of employment or engagement as an independent contractor by
Purchaser, or continue their engagement by the Practice, following the Closing
Date.
Section 7.10 Escrow Agreement. The Escrow Agent and the Sellers shall
have executed and delivered the Escrow Agreement.
Section 7.11 Leases; Landlord Estoppel Letters. The landlords, with
respect to each of the Leases, shall have delivered estoppel certificates (the
"Landlord Estoppel Certificates") each in substantially the form of EXHIBIT L
hereto, with such changes, additions and deletions reasonably acceptable to, or
required by Purchaser. Each of the Leases shall be assigned by the Company or
the Subsidiary, as the case may be, to VPI and concurrently sublet to a
subsidiary of Purchaser or an optometrist acceptable to Purchaser, each such
sublease (the "Sublease Agreements") to be in substantially the form of EXHIBIT
M hereto with such changes, additions and deletions acceptable to Purchaser. The
forms of Assignment of Lease (the "Assignments") assigning each such Lease to
VPI shall be in substantially the form of EXHIBIT N hereto with such changes,
additions and deletions acceptable to or requested by Purchaser. To the extent
required under the applicable Lease, each Landlord Estoppel Certificate shall so
reflect the landlord's consent to such assignment and concurrent sublease.
Section 7.12 Business Management Agreement; The Practice.
(a) The Business Management Agreement shall have been amended
as required by Purchaser and agreed to by the Company, and the Cummins
Employment Agreement shall have been terminated.
(b) To the extent terminated or dissolved prior to the Closing
Date, Purchaser shall have received evidence reasonably satisfactory to it that
the Partnership Agreements have been terminated (and the partnerships created
thereby dissolved).
Section 7.13 Governmental Authorizations. Purchaser shall have obtained
all Governmental Authorizations necessary or appropriate to conduct the Acquired
Businesses after the Closing unless the failure to obtain such Governmental
Authorization will not have a Material Adverse Effect on the ability of
Purchaser to operate the Businesses after the Closing.
Section 7.14 Intercompany Accounts. All accounts between the Company
and the Subsidiary, and between the Company or the Subsidiary and the Acquired
Businesses, shall have been settled or paid in full as of the Closing Date.
43
<PAGE> 44
Section 7.15 Fairness Opinion. An opinion that the consideration to be
received by Sellers pursuant to ARTICLE II hereof with respect to its sale of
the Assets is fair, from a financial point of view, to the Sellers, in a form
customary for fairness opinions for transactions similar to the Subject
Transactions, shall have been delivered by Nesbitt Burns Securities Inc. to the
Board of Directors of the Sellers dated as of the Closing Date, which opinion
shall not have been withdrawn.
Section 7.16 INTENTIONALLY DELETED
Section 7.17 Bank Accounts. The permitted signatories on each of the
Bank Accounts shall have been changed as instructed by Purchaser and the banks
shall have received the instructions contemplated in SECTION 2.10.
Section 7.18 Trenholme Dispute. Purchaser shall have been advised of
the status of that certain dispute between the Company and Russell Trenholme and
Takako Trenholme regarding the contingent payment under the Vision World
Acquisition Agreement and the status shall be satisfactory to Purchaser, in its
sole discretion.
Section 7.19 Stub Period; Interim Financial Statements.
(a) The Sellers shall have delivered to Purchaser the Audited Stub
Period Statement of Operations and the parties shall have agreed upon the Stub
Period EBITDA.
(b) The Sellers shall have delivered to Purchaser the unaudited interim
balance sheets of each of the Acquired Businesses on both an individual and
combined basis, dated as of April 30, 1999, May 31, 1999 and June 30, 1999 (and
the end of any month thereafter ending at least 30 days prior to the Closing)
and the related unaudited interim statements of operations for each one-month
period ended April 30, 1999, May 31, 1999 and June 30, 1999 (and the end of any
month thereafter ending at least 30 days prior to the Closing).
ARTICLE VIII
CONDITIONS TO THE SELLERS' OBLIGATIONS
All obligations of the Sellers to be discharged under this Agreement at
the Closing are subject to the fulfillment, in all material respects, prior to
or at the Closing, of each of the following conditions, unless waived in writing
by the Sellers prior to or at the Closing:
Section 8.01 Truth of Representations and Warranties. The
representations and warranties of Purchaser contained in this Agreement (i) that
are qualified as to materiality, shall be true and correct when made and as of
the Closing Date and (ii) that are not qualified as to materiality, shall be
true and correct in all material respects when made and as of the Closing Date
(in both cases, without giving effect to any supplement to a Schedule delivered
pursuant to this Agreement), and Purchaser shall have executed and delivered to
the Sellers a certificate, dated the Closing Date, to such effect.
Section 8.02 Covenants and Agreements of Purchaser. Purchaser shall
have caused all covenants, agreements and conditions required by this Agreement
to be performed or complied with by it in all material respects prior to or at
the Closing to be so performed or complied with, and Purchaser shall have
executed and delivered to the Sellers a certificate, dated the Closing Date, to
such effect.
44
<PAGE> 45
Section 8.03 No Litigation Threatened. No Proceeding shall have been
instituted or, to the Knowledge of Purchaser, threatened before a court or other
government body or by any public authority to restrain or prohibit any of the
Subject Transactions, and Purchaser shall have executed and delivered to the
Sellers a certificate, dated the Closing Date, to such effect.
Section 8.04 Approvals; Filings. All Consents, if any, necessary to
permit the consummation of the Subject Transactions shall have been received.
All filings (other than those, if any, which may be required to be filed, given,
obtained or taken solely by the Sellers) shall have been duly filed, given,
obtained or taken on or prior to the Closing Date and will be in full force and
effect on the Closing Date.
Section 8.05 Proceedings. All actions or proceedings to be taken in
connection with the Subject Transactions and all documents incident thereto,
shall be reasonably satisfactory in form and substance to the Sellers and their
counsel, and the Sellers shall have received copies of all such documents and
other evidences as it or its counsel may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
Section 8.06 Escrow Agreement. The Escrow Agent and Purchaser shall
have executed and delivered the Escrow Agreement.
Section 8.07 Agreement Regarding Strategic Alliance. The Purchaser
shall have executed the Strategic Agreement in substantially the form agreed to
by the parties on or before the date hereof.
Section 8.08 Opinion of Counsel. Purchaser shall have furnished the
Sellers with a favorable opinion, dated the Closing Date, of Cox & Smith,
Incorporated, in substantially the form to be reasonably agreed to by Sellers
and the Company.
Section 8.09 Certificate of Cummins. The Company shall have received
from Dr. Cummins a certificate certifying that the representations and
warranties relating to the Practice set forth herein are true and correct in all
respects and Dr. Cummins shall have executed all documentation required
thereunder.
Section 8.10 Fairness Opinion. An opinion that the consideration to be
received by Sellers pursuant to ARTICLE II hereof with respect to its sale of
the Assets is fair, from a financial point of view, to the Sellers, in a form
customary for fairness opinions for transactions similar to the Subject
Transactions, shall have been delivered by Nesbitt Burns Securities Inc. to the
Board of Directors of the Sellers dated as of the Closing Date, which opinion
shall not have been withdrawn.
ARTICLE IX
INDEMNIFICATION; REMEDIES
Section 9.01 Survival. Except as otherwise expressly provided herein
and subject to the time period limitations set forth in SECTION 9.05, all
representations, warranties, covenants, and obligations in this Agreement and
the Schedules attached hereto, and the certificates and documents delivered
pursuant to this Agreement, shall survive the Closing. The waiver of any
condition based upon the accuracy of any representation or warranty, or upon the
performance of or compliance with any covenant or obligation, shall only be
effective if in writing.
45
<PAGE> 46
Section 9.02 Indemnification and Payment of Damages by the Sellers.
(a) The Sellers, jointly and severally, will indemnify and
hold harmless Purchaser and its Representatives, shareholders, directors,
officers, controlling persons and Affiliates (collectively, the "Purchaser
Indemnified Persons") for, and will pay to the Purchaser Indemnified Persons the
amount of any actual loss, liability, claim or damage or expense (including
costs of investigation and defense and reasonable attorneys' fees), whether or
not involving a third-party claim (collectively, "Damages"), arising, directly
or indirectly, from or in connection with:
(i) any Breach of any representation or warranty made
by the Company or the Subsidiary in this Agreement or any Schedule attached
hereto, or any other certificate or document delivered by the Company or the
Subsidiary pursuant to this Agreement (without regard to any qualification as to
"materiality" or substantiality" contained in any such representation or
warranty);
(ii) any Breach by the Company or the Subsidiary of
any covenant or obligation of the Company or the Subsidiary in this Agreement or
any document executed pursuant to this Agreement;
(iii) any product sold, or any services provided by
the Company or the Subsidiary prior to the Closing Date;
(iv) any claim by any Person for investment banking,
broker's or finder's fees or commissions, investment balancing fees or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with the Company or the Subsidiary (or any Person acting on its
behalf) in connection with any of the Subject Transactions.
(v) any liability or obligation of the Company or the
Subsidiary (or any of their respective predecessors relating to their operations
of the Acquired Businesses prior to the Closing Date) other than the Assumed
Liabilities;
(vi) any liability or obligation of the Sellers
arising out of the Vision World Acquisition Agreement, the Eye Care Acquisition
Agreement, the Drx Acquisition Agreement or the TCOL Stock Purchase Agreement;
(vii) the failure to make all filings with, or give
all notices to, and obtain all consents of, any Governmental Body or other third
parties required to consummate the transactions contemplated by the Vision World
Acquisition Agreement, the Eye Care Acquisition Agreement, the Drx Acquisition
Agreement or the TCOL Stock Purchase Agreement that could have a Material
Adverse Effect on the Acquired Businesses;
(viii) any liability or obligation relating to claims
by any current or former employee or independent contractor of the Company, or
the Subsidiary (or their spouses or dependents) or the Practice relating to
matters on or prior to the Closing Date or any matter for which the Sellers have
retained responsibility under SECTION 6.07, including, without limitation, any
claim for COBRA benefits arising out of their employment with the Company, the
Subsidiary or the Practice;
(ix) any environmental liabilities or obligations
with respect to the Minnesota corporate headquarters or otherwise disclosed on
Schedule 3.24;
46
<PAGE> 47
(ix) any of the costs or expenses arising out the
failure of the Sellers to fulfill their obligations under SECTION 5.06 in excess
of the $200,000 required to be reimbursed by Purchaser thereunder;
(x) any liability or obligation arising under the
Severance Letters except to the extent the Company is entitled to reimbursement
from Purchaser in accordance with SECTION 6.07(e);
(xi) any obligation or commitment of the Company to
grant any stock options to any of its employees including, without limitation,
any obligation or commitment by the Company to grant stock options to any
employee whose employment agreement has been assigned to Purchaser hereunder
(e.g., any Assigned Contract); and
(xii) any of the matters described on Schedule 3.12.
(b) In determining the loss to be indemnified, any insurance
proceeds received by the Purchaser Indemnified Persons with respect to such loss
shall be taken into account, and the Company's obligation to indemnify the
Purchaser Indemnified Persons hereunder shall be reduced by the amount of such
insurance proceeds.
(c) In the event that the Company is entitled to
indemnification under the Vision World Acquisition Agreement, the Eye Care
Acquisition Agreement, the Drx Acquisition Agreement or the TCOL Stock Purchase
Agreement, the Company shall use reasonable efforts to collect the amounts owed
and such amounts shall be paid to Purchaser to satisfy any indemnification
claims by Purchaser arising out of the same or similar events or circumstances
that resulted in the indemnification claim by the Company; provided, however,
the Sellers' indemnification obligations hereunder shall be independent from the
Sellers' collection of any indemnification claims under the Vision World
Acquisition Agreement, the Eye Care Acquisition Agreement, the Drx Acquisition
Agreement or the TCOL Stock Purchase Agreement and all indemnification payments
owed by the Sellers hereunder shall be paid by the Sellers promptly without
regard to the Company's collection of any indemnity claim under such acquisition
agreements.
(d) Any amounts paid in satisfaction of an indemnification
claim under this SECTION 9.02 shall be deemed for all purposes as a decrease to
the Purchase Price.
(e) With respect to any Damages arising out of a Breach by a
Seller of a representation or warranty for which Purchaser is entitled to
indemnification hereunder and does receive full payment thereof from the
Sellers, to the extent that either of the Sellers assigned a warranty or other
chose of action to Purchaser hereunder relating to the action giving rise to
such indemnifiable claim, Purchaser shall assign such rights against a third
party to the Sellers who may pursue a cause of action against such third-party.
Section 9.03 Indemnification and Payment of Damages by Purchaser.
(a) Purchaser will indemnify and hold harmless the Sellers and
their respective Representatives, shareholders, controlling persons, and
Affiliates (collectively, the "Sellers' Indemnified Persons"), and will pay to
the Sellers' Indemnified Persons the amount of any Damages arising, directly or
indirectly, from or in connection with:
(i) any Breach of any representation or warranty made
by Purchaser in this Agreement or in any certificate delivered by Purchaser
pursuant to this Agreement (without regard
47
<PAGE> 48
to any qualification as to "materiality" or "substantiality" contained in any
such representation or warranty);
(ii) any Breach by Purchaser of any covenant or
obligation of Purchaser in this Agreement or any document executed pursuant to
this Agreement;
(iii) any claim by any Person for investment banking,
broker's or finder's fees or commissions, investment banking fees or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Purchaser (or any Person acting on its behalf) in connection
with any of the Subject Transactions; and
(iv) the failure of Purchaser to fully pay and
discharge any Assumed Liability in accordance with its terms to the extent due
on or after the Closing Date.
(b) In determining the loss to be indemnified, any insurance
proceeds received by the Seller Indemnified Persons with respect to such loss
shall be taken into account, and Purchaser's obligation to indemnify the
Sellers' Indemnified Persons hereunder shall be reduced by the amount of such
insurance proceeds.
(c) Any amounts paid in satisfaction of an indemnification
claim under this SECTION 9.03 shall be deemed for all purposes as an increase to
the Purchase Price.
Section 9.04 Time Limitations. If the Closing occurs, the Sellers will
have no liability with respect to any representation or warranty (other than
those in SECTIONS 3.03, 3.13, 3.20, 3.24, 3.25 AND 3.27 which shall survive as
hereinafter provided), unless on or before the second anniversary of the Closing
Date, Purchaser notifies the Sellers of a claim, specifying the factual basis of
that claim in reasonable detail to the extent then known by Purchaser; provided,
however, a claim with respect to SECTION 3.13, 3.20, 3.25 OR 3.27 may be made by
Purchaser at any time prior to the expiration of the applicable statute of
limitations, including any extension thereof; and further provided that a claim
with respect to SECTION 3.03 (solely with respect to title) or SECTION 3.24, or
a claim for indemnification or reimbursement not based upon any representation
or warranty, may be made at any time. If the Closing occurs, Purchaser will have
no liability with respect to any representation or warranty, unless on or before
the second anniversary of the Closing Date, the Sellers notify Purchaser of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by the Sellers.
Section 9.05 Limitations on Amount.
(a) Neither Purchaser nor any of the other Purchaser
Indemnified Persons shall be entitled to seek indemnification under this ARTICLE
IX with respect to a claim for a Breach of any representation or warranty
hereunder (other than the representations or warranties of the Sellers contained
in SECTION 3.03 or the representations or warranties otherwise qualified by
materiality) until the aggregate amount of all such Damages to which all of the
Purchaser Indemnified Persons are entitled to indemnification hereunder exceeds
$350,000 (the "Basket"), at which time the Purchaser Indemnified Persons shall
be entitled to the full amount of such Damages in excess of the Basket. Neither
Purchaser nor any of the other Purchaser Indemnified Persons shall be entitled
to seek indemnification under this ARTICLE IX with respect to a claim for a
Breach of any representation or warranty hereunder (other than the
representations or warranties of the Sellers contained in SECTION 3.03) for
Damages which exceed the Purchase Price. Notwithstanding any of the foregoing,
the Parties acknowledge that the limitations in this SECTION 9.05(a) apply only
to indemnification claims with respect to representations and warranties and
that such limitations shall not include Damages in
48
<PAGE> 49
connection with either of the Seller's failure to satisfy or perform any of its
covenants or obligations under this Agreement. To the extent of any Damages that
Purchaser would otherwise be entitled to indemnification hereunder but for the
Purchase Price Adjustment which satisfies such Damages claim, such amount shall
not be deemed to count against the Basket.
(b) Neither of the Sellers nor any of the other Sellers'
Indemnified Persons shall be entitled to seek indemnification under this ARTICLE
IX with respect to a claim for a Breach of any representation or warranty
hereunder (other than the representations or warranties of the Purchaser which
are qualified by materiality) until the aggregate amount of all such Damages to
which all of the Sellers' Indemnified Persons are entitled to indemnification
hereunder exceeds $350,000, at which time the Sellers' Indemnified Persons shall
be entitled to the full amount of such Damages in excess of the Basket.
Notwithstanding any of the foregoing, the Parties acknowledge that the
limitations in this SECTION 9.05(b) apply solely to indemnification claims with
respect to representations and warranties and that such limitations shall not
include Damages in connection with Purchaser's failure to pay the Purchase Price
or Purchaser's failure to satisfy or perform any of its covenants or obligations
under this Agreement.
(c) Notwithstanding the foregoing, the limitations in SECTIONS
9.05(a) and 9.05(b) will not apply to (i) any Damages arising out of any
intentional Breach by the Party against whom such indemnification claim is made
or (ii) claims or losses arising from fraud, willful misfeasance, gross
negligence or misconduct committed by the Party against whom such
indemnification claim is made.
Section 9.06 Procedure for Indemnification -- Third Party Claims.
(a) Promptly after receipt by an indemnified party under
SECTION 9.02 or 9.03 of notice of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made against an indemnifying
party under such section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to receive such notice.
(b) If any Proceeding referred to in SECTION 9.06(a) is
brought against an indemnified party and the indemnified party gives notice to
the indemnifying party of the commencement of such Proceeding, the indemnifying
party will be entitled to participate in such Proceeding and, to the extent that
it wishes (unless (i) the indemnifying party is also a party to such Proceeding
and the indemnified party determines in good faith that joint representation
would be inappropriate, or (ii) the indemnifying party fails to provide
reasonable assurance to the indemnified party of its financial capacity to
defend such Proceeding and provide indemnification with respect to such
Proceeding), to assume the defense of such Proceeding with counsel reasonably
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this ARTICLE IX for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
49
<PAGE> 50
violation of the rights of any Person by Purchaser or any of its Affiliates and
no effect on any other claims that may be made against the indemnified party,
and (B) the sole relief provided is monetary damages that are paid in full by
the indemnifying party; and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an indemnifying party of the commencement of any
Proceeding and the indemnifying party does not, within ten (10) days after the
indemnified party's notice is given, give notice to the indemnified party of its
election to assume the defense of such Proceeding, the indemnifying party will
be bound by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its Affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its prior written
consent (which may not be unreasonably withheld).
(d) The Sellers hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any Purchaser
Indemnified Person for purposes of any claim that an Purchaser Indemnified
Person may have under this Agreement with respect to such Proceeding or the
matters alleged therein.
Section 9.07 Procedure for Indemnification -- Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the Party from whom indemnification is sought.
Section 9.08 Escrow. The parties acknowledge that Purchaser will be
depositing One Million Two Hundred Fifty Thousand Dollars and no/100
($1,250,000) with the Escrow Agent pursuant to SECTION 2.02(b)(ii). Purchaser
may assert an indemnification claim pursuant to SECTION 9.02 against the Escrow
Amount in accordance with the terms of the Escrow Agreement.
Section 9.09. Exclusivity of Remedies. Subject to the right to
injunctive relief set forth in SECTION 5.04 hereof, the indemnification in this
Article IX shall be the exclusive remedy available to one Party against the
other, either in law or in equity, in any action seeking Damages or any other
form of monetary relief brought by any Party against another Party with respect
to any provision of this Agreement other than any claim arising from fraud or
willful misconduct. This Article IX shall survive Closing.
ARTICLE X
MISCELLANEOUS
Section 10.01 Termination.
(a) This Agreement may, by notice given prior to or at the
Closing, be terminated:
(i) by the mutual written agreement of Purchaser and
the Sellers;
50
<PAGE> 51
(ii) by Purchaser, on the one hand, or the Sellers,
on the other hand, if a material Breach of any provision of this Agreement has
been committed by either of the Sellers, in the case of Purchaser, or Purchaser,
in the case of the Sellers, and such Breach has not been waived or cured;
(iii) (A) by Purchaser, if any of the conditions
contained in ARTICLE VII has not been satisfied as of the Closing Date, or if
satisfaction of any such condition is or becomes impossible (other than through
the failure of Purchaser to comply with its obligations under this Agreement)
and Purchaser has not waived such condition on or before August 31, 1999;
(B) by the Sellers, if any of the conditions
in ARTICLE VIII has not been satisfied as of the Closing Date, or if
satisfaction of any such condition is or becomes impossible (other than
through the failure of the Sellers to comply with their respective
obligations under this Agreement) and the Sellers have not waived such
condition on or before August 31, 1999; or
(iv) if the Closing shall not have occurred (other
than through the failure of any Party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) as of August 31, 1999,
or such later date as the Parties may agree upon in writing.
(b) In the event this Agreement is terminated pursuant to this SECTION
10.01, there shall be no further obligations or liabilities on the part of the
Parties except liabilities arising out the Breach of any representation,
warranty, covenant or agreement contained herein prior to the termination of
this Agreement and nothing herein shall relieve any Party of any liability for a
Breach of this Agreement prior to the termination hereof. Notwithstanding any
provision in this Agreement to the contrary, the liabilities and obligations set
forth in SECTIONS 5.04(d), 6.01 and 6.04 and ARTICLES IX and X (other than
SECTION 10.01 thereof) shall survive any termination of this Agreement.
Section 10.02 Arbitration. Arbitration; Waiver of Trial By Jury (a) Any
and every dispute of any nature whatsoever that may arise between the parties,
whether sounding in contract, statute, tort, fraud, misrepresentation,
discrimination or any other legal theory, including, but not limited to,
disputes relating to or involving the construction, performance or breach of
this Agreement, or any schedule, certificate or other document delivered by any
party hereto, or any other agreement between the parties, whether entered into
prior to, on, or subsequent to the date of this Agreement, or those arising
under any federal, state or local law, regulation or ordinance, shall be
determined by binding arbitration in accordance with the then--current
commercial arbitration rules of the American Arbitration Association, to the
extent such rules do not conflict with the provisions of this paragraph. If the
amount in controversy in the arbitration exceeds Two Hundred Fifty Thousand
Dollars ($250,000), exclusive of interest, attorneys' fees and costs, the
arbitration shall be conducted by a panel of three (3) neutral arbitrators.
Otherwise, the arbitration shall be conducted by a single neutral arbitrator.
The parties shall endeavor to select neutral arbitrators by mutual agreement. If
such agreement cannot be reached within thirty (30) calendar days after a
dispute has arisen which is to be decided by arbitration, any party or the
parties jointly shall request the American Arbitration Association to submit to
each party an identical panel of fifteen (15) persons. Alternate strikes shall
be made to the panel, commencing with the party bringing the claim, until the
names of three (3) persons remain, or one (1) person if the case is to be heard
by a single arbitrator. The parties may, however, by mutual agreement, request
the American Arbitration Association to submit additional panels of possible
arbitrators. The person(s) thus remaining shall be the arbitrator(s) for such
arbitration. If three (3) arbitrators are selected, the arbitrators shall elect
a chairperson to preside at all meetings and hearings. The arbitrator(s), or a
majority of them, shall have the power to determine all
51
<PAGE> 52
matters incident to the conduct of the arbitration, including without
limitation all procedural and evidentiary matters and the scheduling of any
hearing. The award made by a majority of the arbitrators shall be final and
binding upon the parties thereto and the subject matter. The arbitration shall
be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court having jurisdiction thereof. The arbitrators shall have authority to award
damages, arbitration costs, attorneys' fees, declaratory relief and permanent
injunctive relief, if applicable, in accordance with the terms of this
Agreement. Unless otherwise agreed by the parties, the arbitration shall be held
in Atlanta, Georgia. This SECTION 10.02 shall not prevent either party from
seeking a temporary restraining order or temporary or preliminary injunctive
relief from a court of competent jurisdiction in order to protect its rights
under this Agreement. In the event a party seeks such injunctive relief pursuant
to this Agreement, such action shall not constitute a waiver of the provisions
of this SECTION 10.02, which shall continue to govern any and every dispute
between the parties, including without limitation the right to damages,
permanent injunctive relief and any other remedy, at law or in equity.
(b) EACH OF THE PARTIES TO THIS AGREEMENT WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY DISPUTE OF ANY NATURE WHATSOEVER THAT MAY ARISE BETWEEN THEM,
INCLUDING, BUT NOT LIMITED TO, THOSE DISPUTES RELATING TO OR INVOLVING, IN ANY
WAY THE CONSTRUCTION, PERFORMANCE OR BREACH OF THIS AGREEMENT OR ANY OTHER
AGREEMENT BETWEEN THE PARTIES, THE PROVISIONS OF ANY FEDERAL, STATE OR LOCAL
LAW, REGULATION OR ORDINANCE NOTWITHSTANDING. By execution of this Agreement,
each of the parties hereto acknowledges and agrees that he/she/it has had an
opportunity to consult with legal counsel and that he/she/it knowingly and
voluntarily waives any right to a trial by jury of any dispute pertaining to or
relating in any way to the transactions contemplated by this Agreement, the
provisions of any federal, state or local law, regulation or ordinance
notwithstanding.
Section 10.03 Expenses. Except as otherwise provided in this Agreement,
the Parties shall pay all of their own expenses relating to the Subject
Transactions including, without limitation, the fees and expenses of their
respective counsel and financial advisors; provided, however, any filing fee(s)
relating to any filings required under the HSR Act shall be borne one-half (1/2)
by Purchaser and one-half (1/2) by the Sellers.
Section 10.04 Governing Law. The interpretation and construction of
this Agreement, the Subject Transactions and all matters relating hereto, shall
be governed by the internal laws of the State of Delaware without regard to
conflict of laws principles. The Parties acknowledge that although neither of
the Sellers or Purchaser is incorporated in Delaware, Purchaser intends to
assign certain of its rights and obligations under this Agreement to one or more
of its subsidiaries that are, or will be at the time of Closing, incorporated in
Delaware.
Section 10.05 Enforcement; Service of Process. In the event any Party
shall seek enforcement of any covenant, warranty or other term or provision of
this Agreement or seek to recover damages for the breach thereof, the Party
which prevails in such proceedings shall be entitled to recover reasonable
attorneys' fees and expenses actually incurred by it in connection therewith.
The Parties agree that the service of process or any other papers upon any of
them by any of the methods specified in and in accordance with SECTION 10.07
(other than by facsimile) shall be deemed good, proper, and effective service
upon them.
Section 10.06 Captions; References. The Article and Section captions
used herein are for reference purposes only, and shall not in any way affect the
meaning or interpretation of this
52
<PAGE> 53
Agreement. References to an "Article" or "Section" when used without further
attribution shall refer to the particular article or section of this Agreement.
Section 10.07 Notices. Any notice or other communications required or
permitted hereunder shall be in writing and, unless otherwise provided herein,
shall be deemed to have been duly given upon delivery in person, by facsimile,
by overnight courier or by certified or registered mail, return receipt
requested, as follows:
If to the Company or the Subsidiary: Vision Twenty-One, Inc.
7360 Bryan Dairy Road
Largo, Florida 33777
Attention: Theodore N. Gillette, CEO
Facsimile: (727) 547-4371
With a copy to: Shumaker, Loop & Kendrick, LLP
101 E. Kennedy Boulevard
Suite 2800
Tampa, Florida 33602
Attention: Darrell C. Smith, Esquire
Facsimile: (813) 229-1660
If to Purchaser: Eye Care Centers of America, Inc.
11103 West Avenue
San Antonio, Texas 78213-1392
Attention: Bernard W. Andrews, CEO
Facsimile: (210) 524-6996
With a copy to: Cox & Smith Incorporated
112 E. Pecan, Suite 1800
San Antonio, Texas 78205
Attention: James B. Smith, Jr.
Facsimile: (210)226-8395
or at such other address or telecopy number as shall have been furnished in
writing by any such Party, except that such notice of such change shall be
effective only upon receipt. Each such notice or other communication shall be
effective when received or, if given by mail, when delivered at the address
specified in this SECTION 10.07 or on the fifth business day following the date
on which such communication is posted, whichever occurs first. Notwithstanding
any provision in this Agreement to the contrary, any notice properly delivered
to the Company shall be deemed properly delivered to the Subsidiary.
Section 10.08 Parties in Interest. This Agreement shall be binding upon
and shall inure to the benefit of the Parties and their respective successors
and permitted assigns. This Agreement may not be transferred, assigned, pledged
or hypothecated by the Sellers prior to the Closing Date. Purchaser shall have
the right, at or before the Closing Date, to designate one or more entities to
which it may assign all or part of its rights and obligations hereunder
respecting the purchase of the Assets.
Section 10.09 Counterparts. This Agreement may be executed in two or
more counterparts, all of which taken together shall constitute one instrument.
53
<PAGE> 54
Section 10.10 Entire Agreement. This Agreement, including the other
documents referred to herein which form a part hereof or any other written
agreements that the parties enter into pursuant to or relating to the Subject
Transactions, contains the entire understanding of the Parties with respect to
the subject matter contained herein and therein. This Agreement supersedes all
prior agreements and understandings between the Parties with respect to such
subject matter. All Exhibits and Schedules referred to herein and attached
hereto are incorporated herein by reference.
Section 10.11 Amendments. This Agreement may not be changed orally, but
only by an agreement in writing signed by Purchaser and the Sellers.
Section 10.12 Severability. In case any provision of this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions hereof will not in any way be
affected or impaired thereby.
Section 10.13 Third Party Beneficiaries. Each Party intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any Person other than the Parties.
Section 10.14 Joint Preparation. This Agreement has been prepared by
the joint efforts of the respective attorneys to each of the Parties. No
provision of this Agreement shall be construed on the basis that such Party was
the author of such provision.
Section 10.15 Waiver. The rights and remedies of the Parties are
cumulative and not alternative. Neither the failure nor any delay by any Party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, (a) no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one Party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other Parties; (b) no waiver that may be
given by a Party will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on one Party will be deemed to be a
waiver of any obligation of such Party or of the right of the Party giving such
notice or demand to take further action without notice or demand as provided in
this Agreement or the documents referred to in this Agreement.
54
<PAGE> 55
IN WITNESS WHEREOF, Purchaser, the Company and the Subsidiary have
executed this Agreement to be effective as of the day and year first above
written.
"Purchaser"
EYE CARE CENTERS OF AMERICA, INC.
By:
------------------------------------------
Bernard W. Andrews
Chairman and Chief Executive Officer
The "Company"
VISION TWENTY-ONE, INC.
By:
----------------------------------------
Title:
------------------------------------
The "Subsidiary"
THE COMPLETE OPTICAL LABORATORY, LTD., CORP.
By:
----------------------------------------
Title:
------------------------------------
55
<PAGE> 56
EXHIBIT A
DEFINITIONS
"Adjustment Escrow Amount" has the meaning set forth in SECTION
2.02(b).
"Acquired Businesses" has the meaning set forth in the recitals.
"Acquisition Documents" means this Agreement, all exhibits and
schedules hereto, and all agreements contemplated herein, but excluding the
Business Management Agreement or any amendments or modifications thereto.
"Adjustment Amount" has the meaning set forth in SECTION 2.03(a).
"Adjustment Arbitrator" has the meaning set forth in SECTION 2.03(b).
"Affiliate" is used in this Agreement to indicate a relationship with
one or more persons and when used shall mean any corporation, limited liability
company or other organization of which such person is an executive officer,
manager, director, member or partner or is directly or indirectly the beneficial
owner of one percent (1%) or more of any class of equity securities or financial
interest therein; any trust or other estate in which such person has a
beneficial interest or as to which such person serves as trustee or in any
similar fiduciary capacity; any relative or spouse of such person, or any
relative of such spouse (such relative being related to the person in question
within the second degree); any director, manager or executive officer of such
person; or any person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
"Agreement" means this Asset Purchase Agreement.
"Asset Amount" has the meaning set forth in SECTION 2.03(a).
"Assets" has the meaning set forth in SECTION 2.01.
"Assigned Contracts" has the meaning set forth in SECTION 2.01.
"Assignments" has the meaning set forth in SECTION 8.15.
"Assumed Liabilities" has the meaning set forth in SECTION 2.04.
"Assumed Liabilities Amount" has the meaning set forth in SECTION
2.03(a).
"Audited Stub Period Statement of Operations" has the meaning set forth
in SECTION 2.03(g).
"Balance Sheet" has the meaning set forth in SECTION 3.05.
"Balance Sheet Date" has the meaning set forth in SECTION 3.21.
"Balance Sheet Assumed Liabilities" has the meaning set forth in
SECTION 2.04.
"Balance Sheet Assumed Liabilities Amount" has the meaning set forth in
SECTION 2.03(a).
<PAGE> 57
"Bank Account" has the meaning set forth in SECTION 2.10(b).
"Bankruptcy Code" means Title 11 of the United States Code, 11 U.S.C.
s. 101, et seq.
"Base Price" has the meaning set forth in SECTION 2.02(a).
"Best Efforts" means the reasonable commercial efforts that a prudent
Person desirous of achieving a result would use in similar circumstances to
ensure that such result is achieved as expeditiously as possible; provided,
however, that an obligation to use Best Efforts under this Agreement does not
require the Person subject to that obligation to take actions that would result
in a materially adverse change in the benefits of this Agreement and the Subject
Transactions to such Person.
"Breach" means that a "Breach" of a representation, warranty, covenant,
obligation, or other provision of this Agreement or any instrument delivered
pursuant to this Agreement will be deemed to have occurred if there is or has
been (a) any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision,
or (b) any claim (by any Person) or other occurrence or circumstance that is or
was inconsistent with such representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such inaccuracy, breach,
failure, claim, occurrence, or circumstance.
"Business Management Agreement" means that certain Business Management
Agreement, dated January 1, 1998, by and among the Company and Cummins PA, as
has been amended as reflected in the Schedules attached hereto.
"Closing" has the meaning set forth in SECTION 2.06.
"Closing Date" has the meaning set forth in SECTION 2.06.
"Closing Date Balance Sheets" has the meaning set forth in SECTION
2.03(a).
"Closing Date Financial Statements" has the meaning set forth in
SECTION 2.03(a)
"Closing Date Income Statements" has the meaning set forth in SECTION
2.03(a).
"COBRA" has the meaning set forth in SECTION 3.20(g).
"Code" means the Internal Revenue Code of 1986 or any successor law,
and regulations issued by the IRS pursuant to the Internal Revenue Code or any
successor law.
"Collective Bargaining Agreement" means the Agreement between Charles
M. Cummins, O.D. - Elliot L. Shack, O.D., P.A., The Complete Optical Laboratory
Ltd. and International Union, United Automobile, Aerospace and Agricultural
Implement Workers of America Local 260.
"Company" means Vision Twenty-One, Inc., a Florida corporation.
"Company Businesses" has the meaning set forth in the recitals.
"Competing Business" has the meaning set forth in SECTION 3.26.
2
<PAGE> 58
"Consent" means any approval, consent, ratification, waiver, or other
authorization (including, without limitation, any Governmental Authorization).
"Contract" means any agreement, contract, instrument, obligation,
promise, commitment or undertaking (whether written or oral and whether express
or implied) that is legally binding.
"Cummins Employment Agreement" means that certain employment agreement,
dated January 1, 1998, by and between Dr. Cummins and the Company.
"Cummins PA" or the "Practice" means Charles M. Cummins, O.D. , P.A., a
New Jersey professional association doing business as Drx and formerly known as
Charles M. Cummins, O.D. and Elliot L. Shack, O.D., P.A.
"Current Assets" means the inventory, accounts receivable, prepaid
expenses and accounts receivable transferred by the Sellers to Purchaser
hereunder and reflected on the Closing Date Balance Sheet.
"Damages" has the meaning set forth in SECTION 9.02.
"Date Data" has the meaning set forth in SECTION 3.28(b).
"Drx Acquisition Agreement" means that certain Asset Purchase Agreement
dated January 1, 1998 by and among Elliot L. Shack, O.D., P.A., a New Jersey
professional association, Charles M. Cummins and Elliot L. Shack, O.D., P.A., a
New Jersey professional association, and the Company.
"EBITDA" has the meaning set forth in SECTION 2.03(e).
"ECCA SEC Reports" has the meaning set forth in SECTION 4.06.
"Employee Benefit Plans" has the meaning set forth in SECTION 3.20(b).
"Employee Policies and Procedures" has a meaning set forth in SECTION
3.19(e).
"Encumbrance" means any charge, claim, community property interest,
condition, covenant, equitable interest including any equitable servitude, lien,
option, pledge, security interest, right of first refusal, or restriction of any
kind, including any restriction on use, voting, transfer, receipt of income, or
exercise of any other attribute of ownership.
"Environmental and Safety Requirements" means all federal, state and
municipal statutes, regulations, common law and similar provisions having force
or effect of law, all orders, permits, licenses and approvals with respect to
environmental, public health and safety, occupational health and safety, product
liability and transportation including, without limitation, all such standards
of conduct or bases of obligations relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, control or
cleanup of any contaminant, waste, hazardous materials, substances, chemical
substances or mixtures, pesticides, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise or radiation.
"ERISA" means the Employee Retirement Income Security Act of 1974 or
any successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Escrow Agent" has the meaning set forth in SECTION 2.02(b)(ii).
3
<PAGE> 59
"Escrow Agreement" has the meaning set forth in SECTION 2.02(b)(ii).
"Escrow Amount" has the meaning set forth in SECTION 2.02(b)(ii).
"Estimated Adjustment Amount" has the meaning set forth in SECTION
2.02(c).
"Estimated Balance Sheet Assumed Liabilities Amount" has the meaning
set forth in SECTION 2.02(c).
"Estimated Cash Payment" has the meaning set forth in SECTION 2.02(b).
"Estimated Closing Date Balance Sheets" has the meaning set forth in
SECTION 2.02(c).
"Estimated Closing Date Income Statements" has the meaning set forth in
SECTION 2.02(c).
"Estimated Current Asset Amount" has the meaning set forth in SECTION
2.02(c).
"Estimated 1999 EBITDA Adjustment" has the meaning set forth in SECTION
2.02(c).
"Estimated Purchase Price" has the meaning set forth in SECTION
2.02(b).
"Estimated Working Capital Amount" has the meaning set forth in SECTION
2.02(c).
"Excluded Assets" has the meaning set forth in SECTION 2.01.
"Eye Care Acquisition Agreement" means that certain Agreement and Plan
of Reorganization dated March 31, 1998 by and between the Company, Eyecare One
Corp., a Delaware corporation, and Martin F. Stein, Robert L. Sowinski, Eugene
H. Edson, Stephen L. Chernoff and John C. Colman, not individually but solely as
Trustee of the John C. Colman Trust u/t/a/ August 5, 1994 and Stephen L.
Chernoff and Daniel J. Stein, not individually but solely in their capacities as
Trustees of the Daniel J. Stein Irrevocable Trust u/a/d April 3, 1996 and
Stephen L. Chernoff and Lawrence Stein, not individually but solely in their
capacities as Trustees of the Lawrence Stein Irrevocable Trust u/a/d April 5,
1996.
"Eye Care One" means Eyecare One Corp., a Delaware corporation doing
business as Stein Optical.
"Financial Statements" has the meaning set forth in SECTION 3.05.
"Financial Statements Protest Notice" has the meaning set forth in
SECTION 2.03(b).
"GAAP" means generally accepted United States accounting principles.
Whenever the term GAAP is followed by the phrase "applied on a basis consistent
with past practices" or other similar phrase, the Parties acknowledge that the
past practices also must comply with GAAP.
"Governmental Authorization" means any approval, consent, license,
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body or pursuant to any
Legal Requirement.
4
<PAGE> 60
"Governmental Body" means any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
"HSR Act" means the Hart-Scott-Rodino Antitrust-Improvements Act of
1976, as amended.
"Indemnified Persons" has the meaning set forth in SECTION 9.02.
"Insolvent" means:
(i) A Person is unable to pay their debts or other obligations
as they become due; or
(ii) the aggregate fair valuation of a Person's debts are in
excess of the aggregate fair valuation of such Person's assets.
"Insurance Policies" has the meaning set forth in SECTION 3.15.
"Intellectual Property Rights" has the meaning set forth in SECTION
3.16.
"Internal Systems" has the meaning set forth in SECTION 3.28.
"Interim Balance Sheet" has the meaning set forth in SECTION 3.05.
"Inventory" shall mean all inventory used by, relating to or necessary
for the Acquired Businesses.
"IRS" means the Internal Revenue Service.
"Knowledge" means an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter without independent investigation.
The Company and the Subsidiary together will be deemed to have
"Knowledge" if Theodore N. Gillette, Richard T. Welch, Richard Sanchez, Robert
Sowinski, Charles Cummins, O.D., Robert Collins, Sue Peterson, Joseph Farina,
Darrin Johnson, Cloe Malfatto, Dan Bagnall, Susan Kapall or any director of the
Company has, or at any time had, Knowledge of such fact or other matter.
5
<PAGE> 61
The Purchaser will be deemed to have "Knowledge" if any individual who
is serving as a director or officer of the Purchaser has, or at any time had,
knowledge of such fact or other matter.
"Landlord Estoppel Certificates" has the meaning set forth in SECTION
7.11.
"Leases" has the meaning set forth in SECTION 3.09(b).
"Legal Requirement" means any federal, state, local, municipal,
foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
"Material Adverse Effect" means, with respect to any Person, any event,
condition or change which materially and adversely affects or may materially and
adversely affect the business, financial condition, prospects, assets or results
of operations of such Person.
"Medicare" means that federal program authorized under Title XVIII of
the Social Security Act.
"Medicaid" means that federal program authorized under Title XIX of the
Social Security Act.
"Non-Recurring Charges" has the meaning set forth in SECTION 2.03(f).
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" means an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent (both in frequency and amount)
with the past practices of such Person and is taken in the ordinary course of
the normal day-to-day operations of such Person;
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
"Organizational Documents" means (a) the articles or certificate of
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) the articles of organization and organizational agreement of a
limited liability company, (e) any charter or similar document adopted or filed
in connection with the creation, formation, or organization of a Person; and (f)
any amendment to any of the foregoing.
"Parties" means the Company, the Subsidiary and Purchaser.
"Payor" has the meaning set forth in SECTION 3.29.
6
<PAGE> 62
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Planned EBITDA" has the meaning set forth in SECTION 2.03(e).
"Practice" has the meaning set forth in the definition of Cummins PA.
"Prior Owners" shall mean Vision World, Inc., a Minnesota corporation,
Eyecare One Corp., a Delaware corporation, Elliot L. Shack, O.D., P.A., a New
Jersey professional association, Charles M. Cummins and Elliot L. Shack, O.D.,
P.A., a New Jersey professional association and each of their respective
stockholders.
"Proceeding" means any action, arbitration, audit, charge, complaint,
hearing, inquiry, investigation, litigation, or suit (whether civil or criminal,
judicial, administrative or regulatory, formal or informal, at law or in equity)
commenced, brought, conducted, or heard by or before, or otherwise involving,
any Governmental Body or arbitrator.
"Proprietary Rights Agreement" has the meaning set forth in SECTION
3.18(c).
"Prorated Personal Property Taxes" has the meaning set forth in SECTION
2.09(b).
"Purchase Price" has the meaning set forth in SECTION 2.02(a)(i).
"Purchaser" means Eye Care Centers of America, Inc., a Texas
corporation.
"Purchaser Indemnified Persons" has the meaning set forth in SECTION
9.02.
"Representative" means, with respect to a particular Person, any
director, officer, employee, agent, consultant, advisor, or other representative
of such Person, including legal counsel, accountants, and financial advisors.
"Restricted Business" has the meaning set forth in SECTION 6.04(a).
"Schedule" means any schedule delivered by the Company, the Subsidiary
or Purchaser pursuant to, and referred to in, ARTICLE III OR IV of this
Agreement.
"Sellers" means the Company and the Subsidiary.
"Sellers' Indemnified Persons" has the meaning set forth in SECTION
9.03.
"SEC" means the Securities and Exchange Commission.
"SEC Reports" has the meaning set forth in SECTION 3.34.
"Severance Letters" has the meaning set forth in SECTION 6.07(e).
"Strategic Agreement" has the meaning set forth in the recitals.
"Stub Period" has the meaning set forth in SECTION 2.03(g).
7
<PAGE> 63
"Subject Transactions" means all of the transactions contemplated by
this Agreement, including:
(a) the sale of the Assets to, and the assumption of the
Assumed Liabilities hereunder;
(b) the execution, delivery, and performance of the
Acquisition Documents, including without limitation the Sublease Agreements and
the Assignments;
(c) the performance by the parties of their respective
covenants and obligations under this Agreement; and
(d) Purchaser's acquisition, ownership and exercise of control
over the Assets and the Businesses.
"Sublease Agreements" has the meaning set forth in SECTION 7.11.
"TCOL Stock Purchase Agreement" means that certain Stock Purchase
Agreement dated January 1, 1998 by and among Elliot L. Shack, O.D., P.A., a New
Jersey professional association, Charles M. Cummins, O.D. and Elliot L. Shack,
O.D., P.A., a New Jersey professional association and the Company.
"Tax" means any tax (including, without limitation, any tax on gross
income, net income, franchise, gross receipts, royalty, capital gains, value
added, sales, property, ad valorem, transfer, license, use, profits, windfall
profits, withholding on amounts paid to or by the Company, payroll, employment,
excise, severance, stamp, occupation, premium, gift, or estate), levy,
assessment, tariff, duty (including customs duty), deficiency, or other fee, and
any related charge or amount (including any fine, penalty, interest, or addition
to tax), imposed, assessed, or collected by or under the authority of any
Governmental Body or payable pursuant to any tax-sharing agreement or any other
Contract relating to the sharing or payment of any such tax, levy, assessment,
tariff, duty, deficiency, or fee.
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form, or other document or information
filed with or submitted to, or required to be filed with or submitted to, any
Governmental Body in connection with the determination, assessment, collection,
or payment of any Tax or in connection with the administration, implementation,
or enforcement of or compliance with any Legal Requirement relating to any Tax.
"Vision World" means Vision World, Inc., a Minnesota corporation.
"Vision World Acquisition Agreement" means that certain Asset Purchase
Agreement dated June 30, 1998 by and among Vision World, Inc., a Minnesota
corporation, Russell Trenholme, Takako Trenholme and the Company.
"VIPA" means Vision Insurance Plan of America, Inc.
"VPI" means Visionary Properties, Inc., a Delaware corporation.
"Working Capital Amount" has the meaning set forth in SECTION 2.03(a).
"Year 2000 Compliant" has the meaning set forth in SECTION 3.28(b).
8
<PAGE> 64
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"1998 EBITDA Adjustment" has the meaning set forth in SECTION 2.03(g).
"1998 Stub EBITDA" has the meaning set forth in SECTION 2.03(g).
"1999 EBITDA Adjustment" has the meaning set forth in SECTION 2.03(d).
9
<PAGE> 65
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Definitions
Exhibit B-1 Assigned Contracts with respect to the Wisconsin Business
Exhibit B-2 Assigned Contracts with respect to the Minnesota Business
Exhibit B-3 Assigned Contracts with respect to the New Jersey Business
Exhibit B-4 Assigned Contracts with respect to the Subsidiary
Exhibit C-1 Fixed Assets with respect to the Wisconsin Business
Exhibit C-2 Fixed Assets with respect to the Minnesota Business
Exhibit C-3 Fixed Assets with respect to the New Jersey Business
Exhibit C-4 Fixed Assets with respect to the Subsidiary
Exhibit D-1 Excluded Assets with respect to the Wisconsin Business
Exhibit D-2 Excluded Assets with respect to the Minnesota Business
Exhibit D-3 Excluded Assets with respect to the New Jersey Business
Exhibit D-4 Excluded Assets with respect to the Subsidiary
Exhibit E-1 Allocation of Purchase Price between Sellers
Exhibit E-2 Calculation of Working Capital
Exhibit F Form of Escrow Agreement
Exhibit G [INTENTIONALLY DELETED]
Exhibit H-1 Form of Bill of Sale, Assignment and Assumption Agreement (Wisconsin)
Exhibit H-2 Form of Bill of Sale, Assignment and Assumption Agreement (Minnesota)
Exhibit H-3 Form of Bill of Sale, Assignment and Assumption Agreement (New Jersey)
Exhibit H-4 Form of Bill of Sale, Assignment and Assumption Agreement (The Subsidiary)
Exhibit I Allocation of Purchase Price among Assets
Exhibit J Form of Opinion from the Company' counsel
Exhibit K [INTENTIONALLY DELETED]
Exhibit L Form of Landlord Estoppel Certificate
Exhibit M Form of Sublease Agreement
Exhibit N Form of Assignment of Lease
Exhibit O [INTENTIONALLY DELETED]
Exhibit P Planned EBITDA
Exhibit Q Non-Recurring Charges
</TABLE>
<TABLE>
<S> <C>
Schedule 3.02 Title to Assets; Condition
Schedule 3.03 Existence, Good Standing and Authority
Schedule 3.04 Investments
Schedule 3.06 No Material Changes
Schedule 3.08 Accounts Receivable
Schedule 3.09 Real Property Leases
Schedule 3.10 Material Contracts
Schedule 3.11(a) Conflicts
Schedule 3.11(b) Consents
Schedule 3.14 Liabilities
Schedule 3.15 Insurance
Schedule 3.16 Intellectual Properties
Schedule 3.17 Compliance with Laws
Schedule 3.18(a) Employees
Schedule 3.18(b) Independent Contractors
Schedule 318(e) Employment Agreements
Schedule 3.20(a) Employee Benefit Plans
</TABLE>
10
<PAGE> 66
<TABLE>
<S> <C>
Schedule 3.21 No Changes Prior to Closing Date
Schedule 3.22 Broker's or Finder's Fees
Schedule 3.23(a) Government Authorizations
Schedule 3.23(b) Consents
Schedule 3.24 Environmental and Health and Safety Matters
Schedule 3.28(a) Year 2000 Compliance
Schedule 3.30 Payors
Schedule 3.31 Inventory
Schedule 3.32 Acquisition Agreements
Schedule 3.33 Bank Accounts
Schedule 4.04 Consents
</TABLE>
11
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
EYE DRX RETAIL MANAGEMENT, INC.
-----------------------------
FIRST: The name of the corporation is Eye Drx Retail Management, Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
corporation at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, par
value $.01 per share.
FIFTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors and the directors need not be
elected by ballot unless required by the bylaws of the Corporation.
SIXTH: The duration of the corporation shall be perpetual.
SEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, alter, adopt, amend, change or repeal the bylaws of the
corporation.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by the laws of the State of Delaware. All
rights herein conferred are granted subject to this reservation.
NINTH: The corporation shall indemnify to the fullest extent permitted by,
and in the manner permissible under, the laws of the State of Delaware any
person (and heirs, executors, administrators and estate of such person) made,
or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the corporation, or served another corporation, partnership, joint venture,
trust or other enterprise as a director, advisory director, officer, employee
or agent at the request of the corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. The foregoing rights of indemnification shall not be deemed
exclusive of any other rights to which any such person may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise. The Board of Directors in its discretion shall have the power on
behalf of the corporation to indemnify similarly any person, other than a
director or officer, made party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was an advisory
director, employee or agent of the corporation. The provisions of this Article
Ninth shall be applicable to persons who have ceased to be directors, advisory
directors, officers, employees or agent of the corporation and shall inure to
the benefit of their heirs, executors and administrators.
<PAGE> 2
Pursuant to section 102(b)(7) (or any successor statute) of the General
Corporation Law of the State of Delaware, the personal liability of a director
to the corporation or the stockholders of the corporation for monetary damages
for breach of fiduciary duty is hereby eliminated. The terms of the preceding
sentence, however, shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the corporation or the
stockholders of the corporation, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 (or a successor statute) of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment or repeal of this paragraph shall apply
to or have effect on the liability of any director of the corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
TENTH: The incorporator is Steven A. Elder, whose mailing address is 112
East Pecan, Suite 1800, San Antonio, Texas 78205.
The undersigned, being the incorporator named above, for the purposes of
organizing a corporation pursuant to the General Corporation law of the State of
Delaware, does make this certificate, hereby declaring and certifying that this
is his act and deed and the facts herein stated are true, and accordingly has
hereunto set his hand this 13th day of July, 1999.
/s/ Steven A. Elder
-------------------------------------
Steven A. Elder, Incorporator
2
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
STEIN OPTICAL, INC.
-----------------------------
FIRST: The name of the corporation is Stein Optical, Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
corporation at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, par
value $.01 per share.
FIFTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors and the directors need not be
elected by ballot unless required by the bylaws of the Corporation.
SIXTH: The duration of the corporation shall be perpetual.
SEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, alter, adopt, amend, change or repeal the bylaws of the
corporation.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by the laws of the State of Delaware. All
rights herein conferred are granted subject to this reservation.
NINTH: The corporation shall indemnify to the fullest extent permitted by,
and in the manner permissible under, the laws of the State of Delaware any
person (and heirs, executors, administrators and estate of such person) made,
or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the corporation, or served another corporation, partnership, joint venture,
trust or other enterprise as a director, advisory director, officer, employee
or agent at the request of the corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. The foregoing rights of indemnification shall not be deemed
exclusive of any other rights to which any such person may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise. The Board of Directors in its discretion shall have the power on
behalf of the corporation to indemnify similarly any person, other than a
director or officer, made party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was an advisory
director, employee or agent of the corporation. The provisions of this Article
Ninth shall be applicable to persons who have ceased to be directors, advisory
directors, officers, employees or agent of the corporation and shall inure to
the benefit of their heirs, executors and administrators.
<PAGE> 2
Pursuant to section 102(b)(7) (or any successor statute) of the General
Corporation Law of the State of Delaware, the personal liability of a director
to the corporation or the stockholders of the corporation for monetary damages
for breach of fiduciary duty is hereby eliminated. The terms of the preceding
sentence, however, shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the corporation or the
stockholders of the corporation, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 (or a successor statute) of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment or repeal of this paragraph shall apply
to or have effect on the liability of any director of the corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
TENTH: The incorporator is Steven A. Elder, whose mailing address is 112
East Pecan, Suite 1800, San Antonio, Texas 78205.
The undersigned, being the incorporator named above, for the purposes of
organizing a corporation pursuant to the General Corporation law of the State of
Delaware, does make this certificate, hereby declaring and certifying that this
is his act and deed and the facts herein stated are true, and accordingly has
hereunto set his hand this 13th day of July, 1999.
/s/ Steven A. Elder
-------------------------------------
Steven A. Elder, Incorporator
2
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
VISION WORLD, INC.
-----------------------------
FIRST: The name of the corporation is Vision World, Inc.
SECOND: The address of the registered office of the corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
corporation at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, par
value $.01 per share.
FIFTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors and the directors need not be
elected by ballot unless required by the bylaws of the Corporation.
SIXTH: The duration of the corporation shall be perpetual.
SEVENTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, alter, adopt, amend, change or repeal the bylaws of the
corporation.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by the laws of the State of Delaware. All
rights herein conferred are granted subject to this reservation.
NINTH: The corporation shall indemnify to the fullest extent permitted by,
and in the manner permissible under, the laws of the State of Delaware any
person (and heirs, executors, administrators and estate of such person) made,
or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he is or was a director or officer of
the corporation, or served another corporation, partnership, joint venture,
trust or other enterprise as a director, advisory director, officer, employee
or agent at the request of the corporation, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. The foregoing rights of indemnification shall not be deemed
exclusive of any other rights to which any such person may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise. The Board of Directors in its discretion shall have the power on
behalf of the corporation to indemnify similarly any person, other than a
director or officer, made party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that he is or was an advisory
director, employee or agent of the corporation. The provisions of this Article
Ninth shall be applicable to persons who have ceased to be directors, advisory
directors, officers, employees or agent of the corporation and shall inure to
the benefit of their heirs, executors and administrators.
<PAGE> 2
Pursuant to section 102(b)(7) (or any successor statute) of the General
Corporation Law of the State of Delaware, the personal liability of a director
to the corporation or the stockholders of the corporation for monetary damages
for breach of fiduciary duty is hereby eliminated. The terms of the preceding
sentence, however, shall not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the corporation or the
stockholders of the corporation, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 (or a successor statute) of the General Corporation Law of the State
of Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment or repeal of this paragraph shall apply
to or have effect on the liability of any director of the corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment or repeal.
TENTH: The incorporator is Steven A. Elder, whose mailing address is 112
East Pecan, Suite 1800, San Antonio, Texas 78205.
The undersigned, being the incorporator named above, for the purposes of
organizing a corporation pursuant to the General Corporation law of the State of
Delaware, does make this certificate, hereby declaring and certifying that this
is his act and deed and the facts herein stated are true, and accordingly has
hereunto set his hand this 13th day of July, 1999.
/s/ Steven A. Elder
-------------------------------------
Steven A. Elder, Incorporator
2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> JUL-03-1999
<CASH> 1,575
<SECURITIES> 0
<RECEIVABLES> 9,382
<ALLOWANCES> 559
<INVENTORY> 24,527
<CURRENT-ASSETS> 37,008
<PP&E> 129,797
<DEPRECIATION> 64,229
<TOTAL-ASSETS> 214,640
<CURRENT-LIABILITIES> 43,589
<BONDS> 232,686
0
34,959
<COMMON> 74
<OTHER-SE> (103,120)
<TOTAL-LIABILITY-AND-EQUITY> 214,640
<SALES> 143,324
<TOTAL-REVENUES> 144,847
<CGS> 47,723
<TOTAL-COSTS> 129,679
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,883
<INCOME-PRETAX> 3,285
<INCOME-TAX> 392
<INCOME-CONTINUING> 2,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 491
<NET-INCOME> 2,402
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
