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Filed pursuant to Rule 424(b)(1)
Registration No. 333-03219
PROSPECTUS
LOGO
1,700,000 SHARES
SIGHT RESOURCE CORPORATION
COMMON STOCK
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by Sight Resource Corporation (the
"Company"). The Common Stock is quoted on the Nasdaq National Market under the
symbol "VISN". On June 24, 1996, the last reported sales price of the Common
Stock was $8.25 per share.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE
OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 8.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
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Per Share................... $6.50 $.455 $6.045
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Total(3).................... $11,050,000 $773,500 $10,276,500
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
approximately $676,500 ($717,975 if the Underwriter's over-allotment option
is exercised in full), including the Underwriter's nonaccountable expense
allowance. See "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
255,000 additional shares of Common Stock on the same terms and conditions
as the Common Stock offered hereby solely to cover over-allotments, if any.
If such over-allotment option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $12,707,500, $889,525 and $11,817,975, respectively.
------------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein (the "Offering"). It is expected that delivery of
certificates representing the shares of Common Stock offered hereby will be made
at the offices of Commonwealth Associates at 733 Third Avenue, New York 10017,
on or about June 28, 1996.
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COMMONWEALTH ASSOCIATES
The date of this Prospectus is June 25, 1996
<PAGE> 2
Graphics for the inside front cover will include (i) a photograph of the
Massachusetts Eye and Ear Infirmary, (ii) a photograph of a Cambridge Eye
Doctors storefront, (iii) an industry photograph of an excimer laser system and
patient treatment, (iv) a photograph of an eyeglass fitting and (v) a photograph
of a surgeon.
Graphics for the inside back cover will include (i) a regional map indicating
the location of the Company's laser vision correction sites and (ii) a regional
map indicating the location of the Company's headquarters, optical lab and
distribution center and eye care centers.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. Unless otherwise indicated, all information assumes that the
Underwriters' over-allotment option is not exercised. Unless otherwise indicated
or the context otherwise requires, references in this Prospectus to the term
"Company" refer to Sight Resource Corporation and its subsidiaries on a
consolidated basis. An investment in the securities offered hereby involves a
high degree of risk. See "Risk Factors."
THE COMPANY
Sight Resource Corporation (the "Company") provides a complete range of eye
care products and services through integrated networks of opticians,
optometrists and ophthalmologists. The Company's services are provided primarily
to persons with common vision disorders, as well as to persons with
sight-threatening conditions. The Company's operations currently consist of 30
eye care centers, a centralized optical laboratory and distribution center, two
management service organizations ("MSOs") and eight laser vision correction
("LVC") centers. Each of the Company's eye care centers includes one or more
opticians and a Company-managed optometric office, and provides access to a
Company-affiliated ophthalmologist. The Company's LVC centers are established in
association with hospitals, ambulatory surgery centers and private practice
facilities, and include the Massachusetts Eye and Ear Infirmary, an affiliate of
the Harvard Medical School, and the Medical College of Pennsylvania/Hahnemann
University.
The Company's objective is to become the leading integrated provider of eye
care products and services in select, regional markets. The principal elements
of the Company's business strategy are to (i) acquire and integrate the assets
of regional multi-site eye care centers and the practices of eye care
professionals (optometrists and ophthalmologists), (ii) employ or enter into
management services contracts with these professionals, (iii) establish LVC
centers, (iv) expand strategic affiliations with select hospitals, ambulatory
surgery centers and eye care professionals and (v) continue to market
comprehensive and competitively priced eye care programs to leading HMOs,
insurance companies and other third party payors in the Company's regional
markets:
Acquire and Integrate Assets of Eye Care Centers and Professional
Practices. Acquiring and integrating the assets of eye care centers and
professional practices provide the Company with significant and direct
access to persons with vision disorders and sight-threatening conditions,
thereby establishing a broad patient base for the Company's integrated eye
care strategy. The Company estimates that opticians, optometrists, retail
optical chains and multi-site eye care centers are the primary vision care
providers to approximately 82% of the population with common vision
disorders. The Company's eye care centers sell products and services to
approximately 125,000 customers annually and, through its eye care centers,
the Company maintains an updated customer database of approximately 350,000
individuals who have utilized the services of the Company and its
affiliated eye care professionals over the last few years.
Enter into Management Services Contracts with Eye Care
Professionals. By entering into management services contracts with eye
care professionals, the assets of whose practices the Company has acquired,
the Company earns revenues from the management, administrative, marketing
and other services it provides to such affiliated professionals. These
professionals, in turn, benefit from the services and resources provided by
the Company's MSOs.
Establish LVC Centers. By establishing LVC centers in association
with hospitals, ambulatory surgery centers, ophthalmologic practice groups
and ophthalmologists, the Company is able to provide LVC services to its
eye care center customers and the patients of its affiliated eye care
professionals. In addition, under the Company's Open Access Plan(TM), the
Company's laser systems are made available for use by all ophthalmologists
in the local market; thus the Company earns fees from such non-affiliated
professionals' use of the Company's laser systems to perform LVC.
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Expand Strategic Affiliations. The Company intends to both expand its
existing LVC center strategic affiliations and enter into new strategic
affiliations with health care providers, including hospitals, ambulatory
surgery centers, ophthalmologic practice groups and ophthalmologists. The
Company's goals in expanding its strategic affiliations are to broaden its
service capabilities and afford the Company, for itself and on behalf of
its affiliated eye care professionals, significant opportunities for cross-
referrals and volume contracting with third party payors and their
intermediaries.
Market Eye Care Programs to Third Party Payors. The Company intends
to build on its existing managed care contracts and integrated eye care
strategy to market comprehensive and competitively priced eye care service
programs to leading HMOs, insurance companies and other third party payors
in the Company's regional markets. Approximately 40 million Americans
currently receive eye care benefits via third party payor programs. Through
its integrated approach to eye care, the Company believes that it offers a
complete range of eye care products and services at competitive cost;
consequently, payors benefit from contracting with the Company's networks
of integrated and efficient providers.
LVC STRATEGY. The Company has established a model for the delivery of LVC
services. The Company's LVC strategy is based upon (i) generating and
controlling patient flow, (ii) delivering LVC through eye care centers and (iii)
promoting cooperation with local ophthalmologists and optometrists through the
Company's Open Access Plan. In October 1995, the U. S. Food and Drug
Administration (the "FDA") approved the use of ophthalmic excimer lasers to
correct nearsightedness. In FDA-required clinical trials involving the treatment
and subsequent follow up, studies found that one year after treatment 98.8% of
treated eyes were corrected to 20/40 or better without eyeglasses or contact
lenses, and 80.5% were 20/20 or better without eyeglasses or contact lenses.
Industry studies indicate that 60 to 70 million Americans are nearsighted and
that more than 90% of these people have a refractive disorder that falls within
the LVC treatment parameters approved by the FDA. Industry sources
conservatively estimate that an aggregate of approximately four million LVC
procedures for nearsighted patients will be performed in the U.S. by the year
2000, resulting in a potential annual market in excess of $1 billion in the year
2000. In addition, LVC for farsightedness and astigmatism is currently
undergoing FDA-required clinical testing. Consistent with the Company's strategy
to provide a complete range of eye care services, as new technologies or
procedures are approved for refractive correction, the Company intends to
incorporate these technologies and procedures into the services provided by the
Company.
ACQUISITION STRATEGY. The Company also intends to continue its acquisition
program to expand the number of eye care centers which it owns and operates and
the number of eye care professionals whose business the Company owns or manages
or with whom the Company has a strategic affiliation. Eye care products and
services in the U.S. are delivered through a fragmented system of local
providers, including approximately 65,000 opticians, 31,000 optometrists and
16,500 ophthalmologists. The Company believes that approximately $20 billion is
annually spent on eye care products and services, including eyeglasses, contact
lenses and professional eye care services. Within this large and fragmented
market, the Company believes that significant opportunities exist (i) to
participate in the consolidation of multi-site eye care centers, (ii) to enter
into management services and other agreements with eye care professionals and
(iii) to provide technologically advanced services, such as LVC. Acquisitions in
existing markets (a) permit the Company to effect economies of scale and realize
other operating efficiencies, (b) provide the Company with the opportunity to
expand its patient base and revenues without a proportionate increase in
administrative costs and (c) permit the Company to strategically complement
existing operations. For example, the Company's centralized optical laboratory
and distribution center has the capacity to service additional multi-site eye
care centers. The Company believes that it will be an attractive acquiror to
owners of independent multi-site eye care centers and ophthalmic and optometric
practices because of the Company's (i) fee structure, which allows owners and
professionals to participate in the cost efficiencies and revenue growth
realized by the affiliated centers and practices and (ii) transaction structure,
which permits owners and professionals to become stockholders of the Company,
thus permitting ownership liquidity and alignment of the interests of the owners
and professionals with the Company's business strategy.
The Company believes that its integrated approach to eye care provides
significant advantages, benefits and opportunities to patients, providers and
payors. Patients benefit from the convenience of eye care products
4
<PAGE> 5
and services delivered or accessed efficiently at a single location. Eye care
professionals benefit from the supplemental management and administrative
services and resources provided by the Company, permitting them to continue to
dedicate their time and effort to their patients and professional practices.
Payors benefit from the Company's ability to provide a complete range of eye
care products and services in select regional markets at lower cost.
The Company's executive offices are located at 67 South Bedford Street,
Burlington, Massachusetts 01803 and its telephone number is (617) 229-1100.
5
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THE OFFERING
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Common Stock Offered by the Company.......... 1,700,000 shares
Common Stock Outstanding before the
Offering................................... 6,346,715 shares(1)
Common Stock to be Outstanding after the
Offering................................... 8,046,715 shares(1)(2)
Use of Proceeds.............................. Working capital and general corporate
purposes, including acquisitions.
Nasdaq National Market Symbols............... Common Stock -- VISN
Warrants -- VISNZ
Risk Factors................................. The Common Stock offered hereby involves a
high degree of risk. Prospective investors
should carefully consider the factors
discussed under the heading "Risk Factors."
</TABLE>
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(1) Excludes (i) 2,472,100 shares of Common Stock issuable upon the exercise of
2,472,100 Warrants (defined below) outstanding as of the date of this
Prospectus, (ii) 215,000 shares of Common Stock included in, and 215,000
shares of Common Stock issuable upon the exercise of warrants included in,
Units (defined below) issuable in connection with the exercise of Unit
Purchase Options (defined below), (iii) 85,000 shares of Common Stock
issuable upon exercise of, and 85,000 shares of Common Stock issuable upon
the exercise of warrants issuable upon exercise of, the IPO Representative's
Warrants (defined below), (iv) 85,000 shares of Common Stock issuable upon
the exercise of the Class A Warrants (defined below) and (v) 901,333 shares
of Common Stock issuable upon the exercise of stock options outstanding as
of the date of this Prospectus (the "Outstanding Stock Options"). See
"Description of Securities."
(2) Excludes 170,000 shares of Common Stock included in the Representative's
Warrants. See "Description of Securities" and "Underwriting."
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SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------- -----------------
1992(1) 1993 1994 1995(2) 1995 1996
------- ------- ------- ------- ------- ------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net revenues.......................... $ -- $ 155 $ 529 $18,240 $ 4,200 $5,660
Cost of revenue....................... -- 292 928 8,147 1,872 2,262
Selling, general and administrative... 34 1,434 2,492 15,265 3,518 4,082
------ ------- ------- ------- ------- ------
Loss from operations........ (34) (1,571) (2,891) (5,172) (1,190) (684)
------ ------- ------- ------- ------- ------
Other income (expense):
Interest income..................... -- 43 183 387 119 94
Interest expense.................... (14) (7) (48) (253) (57) (58)
Other............................... -- 5 (189) 150 -- --
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Total other income
(expense)................. (14) 41 (54) 284 62 36
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Net loss.............................. $ (48) $(1,530) $(2,945) $(4,888) $(1,128) $ (648)
====== ======= ======= ======= ======= ======
Net loss per common share............. $ (0.04) $ (0.74) $ (0.94) $ (0.89) $ (0.22) $(0.10)
====== ======= ======= ======= ======= ======
Weighted average number of common
shares outstanding.................. 1,307 2,057 3,122 5,488 5,194 6,347
====== ======= ======= ======= ======= ======
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<CAPTION>
MARCH 31, 1996
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ACTUAL AS ADJUSTED(3)
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(UNAUDITED)
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BALANCE SHEET DATA:
Total assets........................................................ $ 22,418 $ 32,018
Working capital..................................................... 5,135 14,735
Long term obligations, less current portion......................... 1,613 1,613
Stockholders' equity................................................ 15,798 25,398
</TABLE>
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(1) Represents activity for the period from inception to December 31, 1992.
(2) Effective January 1, 1995 and July 1, 1995, the Company purchased
substantially all of the assets of Cambridge Eye Associates, Inc.
("Cambridge Eye") and Douglas Vision World, Inc. ("Vision World"),
respectively. As of March 31, 1996, combined, the Company had a practice of
29 eye care centers providing comprehensive eye care products and services.
(3) Adjusted to reflect the sale by the Company of the 1,700,000 shares offered
hereby and the application of the net proceeds therefrom. See "Use of
Proceeds", "Capitalization" and "Underwriting."
Unless otherwise indicated, all information contained in this Prospectus
assumes no exercise of (i) the outstanding Warrants, (ii) the Unit Purchase
Options, (iii) the IPO Representative's Warrants, (iv) the Class A Warrants, (v)
the Representative's Warrants or (vi) the Outstanding Stock Options.
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RISK FACTORS
An investment in the securities offered hereby is speculative in nature and
involves a high degree of risk. Accordingly, in addition to the other
information in this Prospectus, prospective purchasers are urged to consider
carefully the following risk factors in determining whether to purchase the
securities offered hereby.
This Prospectus contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of the Company's plans
and objectives for future operations, assumptions underlying such plans and
objectives and other forward-looking statements included in "Prospectus
Summary," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" in this Prospectus. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties which could cause actual results to differ
materially from those described in the forward-looking statements. Factors which
could cause such results to differ materially from those described in the
forward-looking statements include those set forth in the risk factors below.
LOSSES FROM RECENT OPERATIONS; ABSENCE OF PROFITABILITY; LIMITED OPERATING
HISTORY
The Company has experienced losses in each year of operation since
inception in November 1992 and may continue to incur significant operating
losses for the foreseeable future. For the fiscal quarter ended March 31, 1996,
the Company incurred a net loss of $648,000, bringing its accumulated deficit to
$10.1 million at March 31, 1996. Although the Company's LVC business began in
the United Kingdom in 1993, the FDA only recently approved the use of excimer
lasers to perform LVC in October 1995. In addition, the Company has a limited
history of operating multi-site eye care centers, which operations commenced in
1995 with the acquisitions of Cambridge Eye and Vision World. In view of the
Company's limited experience operating multi-site eye care centers, managing the
practices of eye care professionals and marketing LVC services in the United
States, there can be no assurance that the Company will ever achieve
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations", "Business" and "Financial Statements."
GOVERNMENT REGULATION AND SUPERVISION
The health care industry is highly regulated and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment changes.
While the Company believes that its operations comply with applicable law, there
can be no assurance that it will be able to successfully address changes in the
regulatory environment.
Each state imposes licensing requirements on individual opticians,
optometrists and ophthalmologists and on facilities and services operated by
these professionals. In addition, federal and state laws regulate health
maintenance organizations ("HMOs") and other managed care organizations with
which the Company's affiliated practices may have contracts. Many states require
regulatory approval, including certificates of need, before establishing or
expanding certain types of health care facilities (including ambulatory surgery
centers such as those that may be managed by the Company), offering certain
services or making expenditures in excess of statutory thresholds for health
care equipment, facilities or programs. In connection with the expansion of
existing operations and the entry into new markets, the Company and its
affiliated practices may become subject to additional regulation.
In addition to extensive existing government health care regulation, there
have been numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services. The
Company believes that such initiatives will continue during the foreseeable
future. Aspects of certain of these reforms as proposed in the past, such as
further reductions in Medicare and Medicaid payments and additional prohibitions
on physician ownership, directly or indirectly, of facilities to which they
refer patients, if adopted, could adversely affect the Company. Concern about
the potential effects of such reform measures has contributed to the volatility
of stock prices of many companies in health care and related industries and may
similarly affect the price of the Common Stock following this Offering.
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The laws of many states prohibit the unlawful rebate or unlawful division
of professional fees and prohibit non-physician entities from practicing
medicine. These laws vary from state to state and are enforced by the courts and
by regulatory authorities with broad discretion. The Company's business
operations have not been the subject of judicial or regulatory interpretation in
this context and there can be no assurance that review of the Company's business
by courts or regulatory authorities will not result in determinations that could
adversely affect the operations of the Company. In addition, the regulatory
framework of certain jurisdictions may limit the Company's expansion into such
jurisdictions if the Company is unable to modify its operational structure to
conform with such regulatory framework.
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, the referral of a
person or the furnishing or arranging for the furnishing of items or services
reimbursable under Medicare or Medicaid. Pursuant to this anti-kickback law, the
federal government has recently announced a policy of increased scrutiny of
joint ventures and other transactions among health care providers in an effort
to reduce potential fraud and abuse relating to Medicare costs. The
applicability of these provisions to many business transactions in the health
care industry has not yet been subject to judicial and regulatory
interpretation. Noncompliance with the federal anti-kickback legislation can
result in exclusion from Medicare and Medicaid programs and civil and criminal
penalties.
The Company believes that, although it receives fees under management
services contracts for management services, it is not in a position to make or
influence referrals of patients or services reimbursed under Medicare or
Medicaid programs to its affiliated practices or to receive such referrals. Such
service fees are intended by the Company to be consistent with fair market value
in arm's length transactions for the nature and amount of management services
rendered and therefore would not constitute unlawful remuneration under
anti-kickback laws and regulations. If the Company is deemed to be in a position
to make, influence or receive referrals from or to physicians, or the Company is
deemed to be a provider under the Medicare or Medicaid programs, the operations
of the Company could be subject to scrutiny under federal and state
anti-kickback and anti-referral laws.
Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by dramatically enlarging
the field of physician-owned or physician-interested entities to which the
referral prohibitions apply. Effective December 31, 1994, Stark II prohibits a
physician from referring Medicare or Medicaid patients to an entity providing
"designated health services" in which the physician has an ownership or
investment interest, or with which the physician has entered into a compensation
arrangement. The designated health services include prosthetic devices, which
under applicable regulations and interpretations include one pair of eyeglasses
or contact lenses furnished after cataract surgery and intraocular lenses
provided at ambulatory surgery centers. The penalties for violating Stark II
include a prohibition on payment by these government programs and civil
penalties of as much as $15,000 for each violative referral and $100,000 for
participation in a "circumvention scheme." The Company believes that although it
will receive fees under the management service contracts for management
services, it is not in a position to make or influence referrals of patients. To
the extent that the Company or any affiliated practice is deemed to be subject
to the prohibitions contained in Stark II for services, the Company believes its
activities fall within the permissible activities defined in Stark II,
including, but not limited to, the provision of in-office ancillary services.
COMPETITION
The Company experiences competition regarding the acquisition of the assets
of, and the provisions of management services to, eye care centers and
practices. Several companies, both publicly and privately held, that have
established operating histories and greater resources than the Company are
pursuing the acquisition of the assets of general and specialty practices and
the management of such practices. There can be no assurance that the Company
will be able to compete effectively in this regard with such competitors, that
additional competitors will not enter the market, or that such competition will
not make it more difficult to acquire the assets of, and provide management
services to, eye care practices on terms favorable to the Company.
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Eye care practices affiliated with the Company will compete with other
local eye care practices as well as managed care organizations. The Company
believes that changes in governmental and private reimbursement policies and
other factors have resulted in increased competition for consumers of eye care
services. The Company believes that cost, accessibility and quality of services
are the principal factors that affect competition. There can be no assurance
that the affiliated practices will be able to compete effectively in the markets
that they serve, which inability to compete would adversely affect the Company.
The optical industry is highly competitive and includes chains of retail
optical stores, multi-site eye care centers, and a large number of individual
opticians, optometrists, and ophthalmologists who provide professional services
and/or dispense prescription eyewear. Since retailers of prescription eyewear
generally service local markets, competition varies substantially from one
location or geographic area to another. The Company believes that the principal
competitive factors affecting retailers of prescription eyewear are location and
convenience, quality and consistency of product and service, price, product
warranties, and a broad selection of merchandise, and that it competes favorably
in each of these respects. In its current regional markets, the Company faces
competition from national and regional retail optical chains which, in some
cases, have greater financial resources than those of the Company.
LVC competes with or supplements other surgical and non-surgical treatments
for refractive disorders, including eyeglasses, contact lenses, other types of
refractive surgery (such as radial keratotomy), corneal transplants and other
technologies currently under development. Other competitive factors which may
affect revenues include performance, pricing, convenience, ease of use, success
relative to alternative treatments and patient and general market acceptance.
The Company's laser suppliers are likely to compete with the Company in the
provision of LVC, either directly or indirectly, through marketing subsidiaries
or strategic partnerships with third parties. In addition, competition will
continue from entities similar to the Company and from hospitals,
hospital-affiliated group entities, physician group practices and private
ophthalmologists that, in order to offer LVC to existing patients, purchase
refractive lasers. Suppliers of conventional vision correction alternatives
(eyeglasses and contact lenses), such as optometric chains, may also compete
with the Company by purchasing laser systems and offering LVC to their
customers. The Company's current and prospective competitors include many large
domestic and foreign companies that have substantially greater financial,
operating, marketing and support resources than the Company. Competition to
provide LVC may lead to lower prices for LVC, as has happened in some countries
where the treatment has been available for several years.
The Company and its affiliated practices compete with other providers for
managed care contracts. The Company believes that trends toward managed care
have resulted in increased competition for such contracts. Other practices and
management service organizations may have more experience than the Company in
obtaining such contracts. There can be no assurance that the Company and its
affiliated practices will be able to successfully acquire sufficient managed
care contracts to compete effectively in the markets they serve, which inability
to compete would adversely affect the Company.
DEPENDENCE ON HEALTH CARE PROVIDERS
Certain states prohibit the Company from practicing medicine, employing
physicians to practice medicine on the Company's behalf or employing
optometrists to render optometric services on the Company's behalf. Since the
Company does not intend to practice medicine or optometry, its activities will
be limited to establishing LVC centers and other affiliations with health care
providers at which professionals may render eye care services, including LVC.
Accordingly, the success of the Company's operations as a full-service eye care
provider depends upon its ability to enter into agreements with health care
providers, including institutions, independent physicians and optometrists, to
render surgical and other professional services at facilities owned or managed
by the Company. To date, the Company has entered into agreements with eight
health care providers to establish LVC centers. There can be no assurance that
the Company will be able to enter into agreements with other health care
providers on satisfactory terms or that such agreements will be profitable to
the Company. See "-- Government Regulation and Supervision" and
"-- Competition."
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RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS
As an increasing percentage of optometric and ophthalmologic patients are
coming under the control of managed care entities, the Company believes that its
success will, in part, be dependent upon the Company's ability to negotiate, on
behalf of existing and prospective affiliated practices, contracts with HMOs,
employer groups and other private third party payors pursuant to which services
will be provided on a risk-sharing or capitated basis by some or all affiliated
practices. Under some of such agreements, the eye care provider accepts a
predetermined amount per month per patient in exchange for providing all
necessary covered services to the patients covered under the agreement. Such
contracts pass much of the risk of providing care from the payor to the
provider. The proliferation of such contracts in markets served by the Company
could result in greater predictability of revenues, but greater unpredictability
of expenses. There can, however, be no assurance that the Company will be able
to negotiate, on behalf of the affiliated practices, satisfactory arrangements
on a risk-sharing or capitated basis. In addition, to the extent that patients
or enrollees covered by such contracts require more frequent or extensive care
than anticipated, operating margins may be reduced or, in the worst case, the
revenues derived from such contracts may be insufficient to cover the costs of
the services provided. As a result, affiliated practices may incur additional
costs, which would reduce or eliminate anticipated earnings under such
contracts. Any such reduction or elimination of earnings would have a material
adverse affect on the Company's results of operations.
PLANS FOR ACQUISITIONS
Since the Company's formation, it has acquired the assets of two multi-site
eye care centers and their related optometric practices, Cambridge Eye and
Vision World. The Company's plans for growth and expansion include further
acquisitions of the assets of multi-site eye care centers and the practices of
eye care professionals (optometrists and ophthalmologists). The success of the
Company's growth strategy is dependent, in part, on its ability to integrate and
manage acquired operations and to acquire, integrate and manage additional
operations. Although the Company believes that there are opportunities to
acquire the assets of small to mid-sized regional multi-site eye care centers
and professional eye care practices, there can be no assurance that any such
opportunities do or will continue to exist, that the Company will be able to
identify suitable acquisition candidates or be able to finance any such
acquisitions or that any such acquisitions will be consummated on terms
favorable to the Company. The failure to consummate acquisitions on favorable
terms could have a material adverse effect on the Company. If the Company is
able to acquire additional operations, there can be no assurance that the
Company will be able to integrate and manage such additional operations
successfully. In addition, the Company's acquisition strategy will depend upon,
among other factors, the Company's ability to effect economies of scale and
realize other efficiencies, as to which there can be no assurance.
FUTURE CAPITAL NEEDS
The Company has incurred and anticipates that it will incur substantial
acquisition, capital and operating expenses and that it will be required to make
substantial cash disbursements, including expenses and disbursements related to
acquisitions, marketing, additional personnel and business development. The
Company expects these expenses to result in significant operating losses until
such time, if ever, that the Company is able to attain adequate revenue levels,
of which there can be no assurance. Even if the Company generates a positive
cash flow from its operations, as to which there can be no assurance, it may
require substantial capital in addition to the proceeds of the Offering and the
proceeds, if any, from the exercise of outstanding warrants or options, to
establish additional eye care centers or LVC centers or to otherwise fund the
Company's operations. Such additional capital may not be available when needed
or on terms acceptable to the Company. Although the Company intends to seek a
new line of credit from one or more commercial banks, there can be no assurance
that the Company will be able to do so. The Company may need to seek additional
capital through public or private sales of its securities, including equity
securities. Insufficient funds may require the Company to delay, scale back or
eliminate certain or all of its operations and development activities. Although
there can be no assurance, management believes that the net proceeds from the
Offering,
11
<PAGE> 12
together with the revenues from operations and interest income from cash
investments, will be adequate to fund the Company's currently proposed
activities for at least the next 18 months.
NO ASSURANCE OF MARKET ACCEPTANCE OF LVC
The Company's profitability depends, in part, upon broad market acceptance
of LVC by the professional eye care community and the general population in the
United States. As the FDA only recently approved the use of excimer lasers to
perform LVC in October 1995, LVC is commercially untested in the United States.
The operating expenses, revenues or working capital requirements of the
Company's LVC centers cannot be ascertained based upon historical operating
performance and should therefore be considered in light of the numerous risks,
expenses, problems and difficulties frequently encountered in connection with
the establishment of a new business and the competitive environment in which the
Company's LVC centers will operate. Factors that may adversely affect market
acceptance of LVC in the U.S. include: nonacceptance of LVC as an alternative to
existing methods of treating refractive vision disorders; the relatively high
cost of LVC procedures (currently ranging from $1,500 to $2,000 per eye) and
general unavailability of third party reimbursement for the procedure; general
resistance to surgery; the effectiveness of alternative, less intrusive or less
expensive methods of correcting refractive vision disorders; concerns about the
safety and efficacy of LVC, including the lack of long term follow-up data; and
the possibility of known or unknown side effects. Any future reported adverse
events or other unfavorable publicity involving patient outcomes from LVC could
also adversely affect acceptance of the procedure. In addition, LVC surgery is
currently approved only for the correction of certain degrees of myopia.
Moreover, LVC has had limited market acceptance in certain foreign countries.
The failure of LVC to achieve broad market acceptance by the professional eye
care community and the general population would have a material adverse effect
on the Company's business, financial condition and results of operations.
LACK OF THIRD PARTY REIMBURSEMENT FOR LVC
Third party reimbursement generally is unavailable for LVC. There can be no
assurance that the absence of such reimbursement will not adversely affect the
prospects for market acceptance of the Company's LVC services.
SAFETY AND EFFICACY OF LVC
While LVC has been tested clinically and the FDA has approved two excimer
laser systems, there is not a large population of patients who have experience
with LVC and its post-procedure effects. Concerns with respect to the safety and
efficacy of the performance of LVC procedures with excimer lasers include
predictability and stability of results. Potential complications or side effects
include: post-operative pain or discomfort; double vision; corneal haze during
healing (an increase in light scattering properties of the cornea); glare/halos
(undesirable visual sensations produced by bright lights); decrease in contrast
sensitivity (diminished vision in low light); temporary increases in intraocular
pressure in reaction to post-procedure medication; modest fluctuations in
refractive capabilities during healing; modest decreases in best corrected
vision (i.e. with corrective eyewear); unintended over- or under-corrections;
instability, reversion or regression of effect; corneal scars (blemishing marks
left on the cornea); corneal ulcers (inflammatory or infectious lesions
resulting in loss of corneal tissue); induced astigmatism; and disorders of
corneal healing (compromised or weakened immune system or connective tissue
disease which causes poor healing). Published reports regarding PRK have
questioned the efficacy of the procedure based on mixed anecdotal evidence in
other countries where the procedure has been in use for some period. There can
be no assurance that additional complications will not hereafter be identified
and have a material adverse effect on the safety, efficacy or market acceptance
of such procedures and/or lead to product liability or other claims against the
Company.
RELIANCE ON SUPPLIERS OF LASER EQUIPMENT
The Company is not involved in the research, development or manufacture of
ophthalmic laser systems, and is dependent on unrelated manufacturers for its
supply of ophthalmic lasers. There are two companies whose excimer laser systems
have been approved for use by the FDA, Summit Technology, Inc. ("Summit")
12
<PAGE> 13
and VISX, Inc. ("VISX"). The Company's laser suppliers may compete with the
Company in the provision of LVC, either directly or indirectly, and, as a
result, the Company may be unable to obtain and maintain agreements with
suppliers for suitable ophthalmic laser equipment on pricing, delivery and other
terms acceptable to the Company and could incur substantial delays in or be
prevented from placing lasers into operation.
The Company's ability to purchase ophthalmic laser systems from suppliers
of laser equipment depends in part on the ability of the Company's suppliers to
obtain patents, defend against patent infringement claims, maintain trade secret
protection and operate without violating the proprietary rights of third
parties. Patent filings relating to refractive laser surgery are numerous and
disputed, and patent law relating to the scope of claims in this area is still
evolving. There can be no assurance that patent infringement claims in the U.S.
or in other countries will not be asserted against any of the Company's laser
suppliers or that, if asserted, such supplier will be successful in defending
against such claims. In the event one of the products of one or more of the
Company's suppliers is adjudged to infringe patents of others with the likely
consequence of a damage claim, the supplier and its customers (including the
Company) may be enjoined from using such product or be required to obtain a
royalty-bearing license, if available on acceptable terms. The inability of any
of the Company's laser suppliers to resolve favorably the patent status of its
ophthalmic laser systems may interfere with potential sales of its ophthalmic
laser systems to the Company. Summit and VISX have entered into agreements which
require the payment of a $250 royalty fee each time one of such manufacturer's
excimer laser systems is used to perform LVC in the U.S. Such royalty fee could
provide a competitive advantage to Summit, VISX and their marketing subsidiaries
or strategic partnerships with third parties. In addition, such royalty fee is
likely to affect the pricing of LVC procedures and, therefore, may potentially
impact consumer acceptance of LVC.
RAPID TECHNOLOGICAL CHANGES
The medical device and ophthalmic laser industries are characterized by
rapid technological changes, including advances in laser and other technologies
and the potential new development of alternative surgical techniques or new
pharmaceutical products. LVC for treatment of refractive vision disorders will
compete with or supplement other surgical and non-surgical treatments for
refractive vision disorders, including existing treatments (such as eyeglasses,
contact lenses and radial keratotomy), as well as with other technologies and
surgical techniques currently under development, such as corneal implants and
refractive surgery using different types of lasers. It is conceivable that newer
technologies, techniques or products could be developed with better performance
than the excimer lasers purchased by the Company, although such new technologies
would be subject to the FDA approval process. Medical companies, academic and
research institutions and others could develop new therapies, including new
medical devices or surgical procedures, for the treatment of refractive vision
disorders that could be more medically effective and less expensive than LVC and
could potentially render LVC obsolete. The availability of new and better
ophthalmic laser technologies and surgical procedures could have a materially
adverse impact on the business of the Company's LVC centers. The Company may not
be able to utilize such new technologies or procedures or, if the Company is
able to utilize such new technologies in its business, the Company may not have
sufficient funds to make the substantial capital expenditures required to
acquire such technology. There can be no assurance that used excimer lasers can
be recovered by the Company and sold for a commercially reasonable price by the
Company.
CORPORATE LIABILITY AND INSURANCE
The provision of professional eye care services entails an inherent risk of
professional malpractice and other similar claims. The Company does not
influence or control the practice of medicine or optometry by professionals or
have responsibility for compliance with certain regulatory and other
requirements directly applicable to individual professionals and professional
groups. As a result of the relationship between the Company and its affiliated
practices, the Company may become subject to some professional malpractice
actions under various theories. There can be no assurance that claims, suits or
complaints relating to professional services provided by affiliated practices
will not be asserted against the Company in the future. The Company believes
that the providers with which the Company enters into LVC center agreements or
13
<PAGE> 14
other strategic affiliation agreements are covered by such providers' medical
malpractice or liability insurance. The Company may not be able to purchase
medical malpractice insurance, and may not be able to purchase other insurance
at reasonable rates, which would protect it against claims arising from the
medical practice conducted by providers, including ophthalmologists, at its LVC
centers. Similarly, the use of laser systems in the Company's LVC centers may
give rise to claims against the Company by persons alleging injury as a result
of the use of such laser systems. The Company believes that claims alleging
defects in the laser systems it purchases from its suppliers are covered by such
suppliers' product liability insurance and that the Company could take advantage
of such insurance by adding such suppliers to lawsuits against the Company.
There can be no assurance that the Company's laser suppliers will continue to
carry product liability insurance or that any such insurance will be adequate to
protect the Company.
There can be no assurance that the Company will be able to retain adequate
liability insurance at reasonable rates, or that the insurance will be adequate
to cover claims asserted against the Company, in which event the Company's
business may be materially adversely affected.
DEPENDENCE UPON MANAGEMENT/NEED FOR ADDITIONAL PERSONNEL
The future success of the Company is dependent in part on its ability to
retain certain key personnel, particularly its President, William G. McLendon
and its Executive Vice President and Chief Operating Officer, Stephen M. Blinn.
See "Management." The loss of Mr. McLendon's or Mr. Blinn's services could have
a materially adverse impact upon the business of the Company. The success of the
Company's future operations depends in large part on the Company's ability to
recruit and retain qualified personnel over time, and there can be no assurance
that the Company will be able to retain its existing personnel or attract
additional qualified employees in the future. See "Business -- Employees."
DILUTION
Purchasers of the shares of the Common Stock offered hereby will experience
immediate and substantial dilution of approximately $4.190 per share in net
tangible book value of the Company. See "Dilution."
LACK OF DIVIDENDS
The Company has never declared or paid any cash dividend and does not
anticipate paying dividends on its Common Stock for the foreseeable future. See
"Price Range of Common Equity and Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
A substantial number of outstanding shares of Common Stock and shares of
Common Stock issuable upon exercise of the Class A Warrants, the Warrants, the
Unit Purchase Options, the IPO Representative's Warrant and the Representative's
Warrants, and upon exercise of the Outstanding Stock Options, are or will become
available for future sale in the public market at prescribed times. Sales of a
significant number of shares of Common Stock in the market could have an adverse
effect on the market price of the Company's securities. See "Shares Eligible for
Future Sale."
Upon consummation of this offering and assuming the exercise of all of the
Warrants and Class A Warrants, the Company will have outstanding 10,603,815
shares of Common Stock (excluding (i) the shares of Common Stock included in,
and issuable upon exercise of the Warrants included in, the UPO Units, (ii) the
shares of Common Stock included in, and issuable upon exercise of the warrants
included in, the IPO Representative's Warrants, (iii) the shares of Common Stock
issuable upon exercise of the Representative's Warrants and (iv) the shares of
Common Stock issuable upon exercise of the Outstanding Stock Options). Of the
10,603,815 shares, 9,981,890 shares will be freely tradeable without restriction
or further registration under the Securities Act, except for shares held by
"affiliates" of the Company, as that term is defined under the Securities Act of
1933 and the regulations promulgated thereunder, which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act of 1933
("Rule 144"). The remaining 621,925 shares that are outstanding have been issued
and sold by the Company in reliance on one or more exemptions from the
registration requirements of the Securities Act of 1933 and are "restricted
securities" within the
14
<PAGE> 15
meaning of Rule 144 ("Restricted Shares") and, therefore, may be publicly sold
only (i) if subsequently registered under the Securities Act of 1933, (ii)
pursuant to Rule 144 or Rule 701 promulgated under the Securities Act of 1933
("Rule 701") or (iii) in other private transactions exempt from registration
under the Securities Act of 1933. None of such shares have been held for the
minimum two-year period required by Rule 144 and therefore will not become
eligible for public sale pursuant to Rule 144 until expiration of their
respective two-year holding periods. The earliest date at which any such
two-year holding period will expire is in February 1997. In addition, 60,000
Restricted Shares are eligible for sale in the public market in accordance with
Rule 701. Notwithstanding the foregoing, all of the Restricted Shares are
subject to lock-up agreements. See "Shares Eligible For Future Sale -- Lock-up
Agreements."
As of the date of this Prospectus, there are options to purchase an
aggregate of 901,333 shares of Common Stock of which options to purchase 340,187
shares are immediately exercisable. Upon exercise of these options, 60,000
shares will be eligible for sale in the public market in accordance with Rule
701. Of such 901,333 shares, 515,000 shares are subject to lock-up agreements.
See "Shares Eligible For Future Sale -- Lock-up Agreements."
POTENTIAL ISSUANCE OF PREFERRED STOCK
Under the Company's Restated Certificate of Incorporation, the Company may
issue up to 5,000,000 shares of Preferred Stock, $.01 par value (the "Preferred
Stock"), in the future without stockholder approval and upon such terms as the
Board of Directors may determine. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of delaying or preventing a
change in control of the Company without further action by the stockholders. The
Company has no present plans to issue any shares of Preferred Stock. See
"Description of Securities."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and By-Laws contain
certain provisions that could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company, including (i) the classification of the Board
of Directors into three classes, each class being elected for three-year terms,
(ii) the potential issuance of up to 5,000,000 shares of Preferred Stock without
stockholder approval and upon such terms as the Board of Directors may determine
and (iii) the requirement that, for nominations for the Board of Directors or
for other business to be properly brought by a stockholder before an annual
meeting of stockholders, notice thereof generally must be delivered by a
stockholder not less than 60 nor more than 90 days prior to the annual meeting.
Such provisions could limit the price that certain investors might be willing to
pay in the future for the Company's securities. Certain of such provisions allow
the Board of Directors to impose various procedural and other requirements that
could make it more difficult for stockholders to effect certain corporate
actions. See "Description of Securities -- Delaware Law and Certain Charter and
By-Law Provisions."
15
<PAGE> 16
THE COMPANY
Sight Resource Corporation was incorporated in Delaware on November 2, 1992
and commenced operations on November 30, 1992. The Company's operations are a
continuation of the business begun in April 1992 by PRK Limited Partnership, a
Massachusetts limited partnership (the "Predecessor Partnership"). On October
31, 1995 the Company changed its name to Sight Resource Corporation from
NewVision Technology, Inc. to better reflect its expanded corporate mission. The
Company has two wholly-owned consolidated British subsidiaries, NewVision
Technology Limited and NewVision Leasing Limited, which were registered under
the laws of the United Kingdom on September 7, 1993 and two wholly-owned
consolidated U.S. subsidiaries, Cambridge Eye Associates, Inc. ("Cambridge Eye")
and Douglas Vision World, Inc. ("Vision World"). As used in this Prospectus,
unless the context otherwise requires, "Sight Resource Corporation" or the
"Company" refers to Sight Resource Corporation and its consolidated subsidiaries
and, with respect to periods prior to its incorporation, to the business of the
Predecessor Partnership. See "Business."
In connection with its initial public offering in March 1993, the Company
sold to the lead underwriter (the "IPO Representative") warrants (the "IPO
Representative's Warrants") to purchase 85,000 units at an exercise price equal
to $7.98 per unit through March 1998, each unit consisting of one share of
Common Stock and one redeemable common stock purchase warrant to purchase one
share of Common Stock at an exercise price of $6.75 per share, subject to
adjustment. In March 1994, the Company issued 110,000 warrants (the "Class A
Warrants") to purchase 110,000 shares of Common Stock at an exercise price of
$6.00 per share, in connection with the Company's private placement of
$1,100,000 of bridge notes. In August 1994, the Company completed a public
offering of 2,472,500 units (the "Units"), each Unit consisting of one share of
Common Stock and one redeemable common stock purchase warrant to purchase one
share of Common Stock at an exercise price of $6.00 per share, subject to
adjustment (a "Warrant"). In connection with the public offering of the Units,
the Company issued to the lead underwriter and finder (the "Representatives")
options (the "Unit Purchase Options") to purchase an aggregate of 215,000 units
(the "UPO Units") at an exercise price per unit equal to $9.90, exercisable
through August 25, 1999. See "Description of Securities" below.
The Company's executive offices are located at 67 South Bedford Street,
Burlington, Massachusetts 01803 and its telephone number is (617) 229-1100.
16
<PAGE> 17
USE OF PROCEEDS
The net proceeds of the Offering, after deducting the estimated
underwriting discounts and commissions and expenses payable by the Company, are
estimated to be approximately $9,600,000 ($11,100,000 if the Underwriter's
over-allotment option is exercised in full).
Based upon the Company's current business plans, the Company anticipates
using the net proceeds of the Offering for working capital and other general
corporate purposes, including acquisitions. From time to time, the Company
intends to use a portion of the net proceeds to acquire the assets of individual
or multi-site eye care centers and the practices of eye care professionals
although it currently has no binding understandings, commitments or agreements
with respect to any such transaction. Pending such uses, the Company intends to
invest the net proceeds in interest-bearing deposit accounts, certificates of
deposit or similar short-term, investment grade financial instruments (financial
instruments, such as commercial paper, bankers' acceptances and repurchase
agreements, rated "investment grade" or better by one or more of the nationally
recognized securities rating agencies and maturing in 90 days or less).
Based on its currently planned programs, the Company anticipates that the
net proceeds of the Offering and the interest earned thereon, together with
funds generated from operations, should be adequate to satisfy its capital
requirements for at least the next 18 months, although there can be no
assurance. The Company anticipates that additional financing will be required
after the net proceeds of the Offering have been utilized. There can be no
assurance that such additional financing will be available when needed or on
terms acceptable to the Company. See "Risk Factors -- Future Capital Needs."
17
<PAGE> 18
DILUTION
The net tangible book value of the Company as of March 31, 1996 was
approximately $8,988,000 or approximately $1.416 per share of Common Stock. Net
tangible book value per share represents the total tangible assets of the
Company, reduced by the amount of its total liabilities, and divided by the
total number of shares of Common Stock outstanding as of March 31, 1996.
After giving effect to the sale of the 1,700,000 shares of Common Stock
offered hereby and the application of the estimated $9,600,000 net proceeds
therefrom, the pro forma net tangible book value of the Company at March 31,
1996 would have been approximately $18,588,000 or $2.310 per share. This
represents an immediate increase in net tangible book value of $0.894 per share
(or 63.13%) to existing stockholders and an immediate dilution of $4.190 per
share (or 64.5%) to investors purchasing shares of Common Stock offered hereby
at the public offering price. If the public offering price is higher or lower,
the dilution to the new investors will be, respectively, greater or less. The
following table illustrates the pro forma per share dilution in net tangible
book value to investors in the shares of Common Stock offered hereby:
<TABLE>
<S> <C> <C>
Offering price per share........................................... $ 6.50
------
Net tangible book value per share before Offering................ $1.416
Increase in net tangible book value per share attributable to new
investors..................................................... $0.894
------
Pro forma net tangible book value per share after Offering......... $2.310
------
Dilution of net tangible book value per share to new investors... $4.190
======
</TABLE>
The following table summarizes, as of March 31, 1996, the shares of Common
Stock purchased, the total consideration paid and the average price per share of
Common Stock paid by the existing stockholders and new investors in the
Offering:
<TABLE>
<CAPTION>
SECURITIES PURCHASED TOTAL CONSIDERATION
--------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 6,346,715 78.87% $25,858,000 72.93% $4.07
New investors................ 1,700,000 21.13% 9,600,000 27.07% $5.65
--------- ------ ---------- -----
Total.............. 8,046,715 100.00% $35,458,000 100.00%
========= ====== ========== =====
</TABLE>
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<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996 (i) on an actual basis, and (ii) as adjusted to reflect the receipt of
the net proceeds from the sale of the 1,700,000 shares of Common Stock offered
hereby. The data set forth below should be read in conjunction with the
Company's consolidated financial statements and the related notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
ACTUAL AS ADJUSTED
------------ --------------------
(UNAUDITED)
<S> <C> <C>
Long term obligations, less current maturities............... $ 1,613,000 $ 1,613,000
Stockholders' equity:
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; no shares issued or outstanding............. -- --
Common Stock, $.01 par value; 20,000,000 shares authorized;
6,346,715 and 8,046,715 shares issued and outstanding,
actual and as adjusted, respectively.................... 63,000 80,000
Additional paid-in capital................................. 25,795,000 35,378,000
Accumulated deficit........................................ (10,060,000) (10,060,000)
----------- ---------
Total stockholders' equity................................... $ 15,798,000 $ 25,398,000
=========== =========
</TABLE>
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<PAGE> 20
PRICE RANGE OF COMMON EQUITY AND DIVIDEND POLICY
The Company's Common Stock began trading on the Nasdaq SmallCap Market on
March 31, 1993 under the symbol "VISN". The Warrants began trading on the Nasdaq
National Market on August 25, 1994 under the symbol "VISNZ". The following table
sets forth for the periods indicated, the high and low sales prices for the
Common Stock and the Warrants as reported by Nasdaq:
<TABLE>
<CAPTION>
COMMON STOCK
WARRANTS
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL 1994:
First Quarter.................................. 9 3/8 7 7/8 -- --
Second Quarter................................. 8 1/2 5 7/8 -- --
Third Quarter.................................. 7 1/4 4 1/4 2 3/4
Fourth Quarter................................. 6 3 3/4 1 7/8 7/8
FISCAL 1995:
First Quarter.................................. 6 5/8 4 1/8 2 1
Second Quarter................................. 7 3/4 5 7/8 2 3/4 1 5/8
Third Quarter.................................. 9 7/8 7 1/4 4 3/4 2 1/2
Fourth Quarter................................. 11 1/4 6 5 5/8 3 1/4
FISCAL 1996:
First Quarter.................................. 11 7 7/8 5 1/4 2 15/16
</TABLE>
The Common Stock and the Warrants have been quoted on the Nasdaq National
Market since August 25, 1994. Prior to that time, the Common Stock was quoted on
the Nasdaq SmallCap Market.
The Company has not paid dividends to its stockholders since its inception
and does not plan to pay cash dividends in the foreseeable future. The Company
currently intends to retain earnings, if any, to finance the operations of the
Company. As of May 30, 1996, there were 336 and 20 holders of record of the
Common Stock and Warrants, respectively. The Company believes that there are
approximately 6,000 and 1,200 beneficial owners of Common Stock and Warrants,
respectively. On June 24, 1996, the last reported sales price of the Common
Stock on the Nasdaq National Market was $8.25 per share.
20
<PAGE> 21
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data presented below under the captions "Statement
of Operations Data" and "Balance Sheet Data" as of and for the period from April
29, 1992 (the date of inception of the Predecessor Partnership) through December
31, 1995 and as of and for each of the three fiscal years ended December 31,
1995, are derived from the consolidated financial statements of the Company,
which financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The foregoing consolidated financial
statements and the report thereon are included elsewhere in this Prospectus. The
selected financial data as of and for the three months ended March 31, 1995 and
1996 were derived from unaudited financial statements of the Company, that, in
the opinion of management, contain all adjustments necessary to present fairly
the results of operations for such periods and the financial position of the
Company as of March 31, 1996. The results of operations for the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the entire 1996 fiscal year or any other interim period. The
information below should be read in conjunction with the consolidated financial
statements (and notes thereto) and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------
1992(1) 1993 1994 1995(2) 1995 1996
------ ------- ------- ------- --------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues........................... $ -- $ 155 $ 529 $18,240 $ 4,200 $ 5,660
Cost of revenue........................ -- 292 928 8,147 1,872 2,262
Selling, general and administrative.... 34 1,434 2,492 15,265 3,518 4,082
------ ------- ------- ------- ------- -------
Loss from operations............... (34) (1,571) (2,891) (5,172) (1,190) (684)
------ ------- ------- ------- ------- -------
Other income (expense):
Interest income...................... -- 43 183 387 119 94
Interest expense..................... (14) (7) (48) (253) (57) (58)
Other................................ -- 5 (189) 150 -- --
------ ------- ------- ------- ------- -------
Total other income (expense)....... (14) 41 (54) 284 62 36
------ ------- ------- ------- ------- -------
Net loss............................... $ (48) $(1,530) $(2,945) $(4,888) $(1,128) $ (648)
====== ======= ======= ======= ======= =======
Net loss per common share.............. $(0.04) $ (0.74) $ (0.94) $ (0.89) $ (0.22) $ (0.10)
====== ======= ======= ======= ======= =======
Weighted average number of common
shares outstanding................... 1,307 2,057 3,122 5,488 5,194 6,347
====== ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ MARCH 31,
1992 1993 1994 1995 1996
------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
BALANCE SHEET DATA:
Total assets............................ $ 863 $ 5,210 $13,911 $23,554 $ 22,418
Working capital (deficiency)............ (478) (690) 9,787 5,327 5,135
Long term obligations, less current
portion............................... -- -- -- 1,703 1,613
Stockholders' equity.................... 169 3,419 13,364 16,445 15,798
</TABLE>
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(1) Represents activity for the period from inception to December 31, 1992.
(2) Effective January 1, 1995 and July 1, 1995, the Company purchased
substantially all of the assets of Cambridge Eye and Vision World,
respectively. As of March 31, 1996, combined, the Company had 29 eye care
centers providing comprehensive eye care products and services.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides a complete range of eye care products and services
through integrated networks of opticians, optometrists and ophthalmologists. The
Company was formed in November 1992 with an initial mission of providing LVC as
an alternative to conventional vision correction. Together with a private health
care provider in the United Kingdom, the Company established a network of LVC
centers in England and Wales which, utilizing the Company's excimer laser
systems, offered LVC to persons with nearsightedness. While the Company's
initial efforts focused on building a LVC delivery model in the United Kingdom,
the Company is now fully concentrating its efforts and resources in the United
States, where an estimated 60 to 70 million people are nearsighted and more than
90% of these people require corrections that fall within the LVC treatment
parameters approved by the FDA.
In October 1995, the FDA first approved the use of one manufacturer's
excimer laser for the treatment in the United States of nearsightedness using
LVC. In March 1996, the FDA approved a second manufacturer's excimer laser for
the same treatment. The Company had commenced consolidation of its United
Kingdom operations during the third quarter of fiscal 1995 and, following the
FDA's initial approval, had fully discontinued these operations by the fourth
quarter of fiscal 1995.
The Company's discontinuation of its United Kingdom operations permitted
the Company to concentrate its efforts and resources on growth opportunities now
available in the United States. For this purpose, excimer laser systems
previously used in the United Kingdom have been or are being retrofitted and
relocated to the United States. As of June 20, 1996, eight laser systems were in
place in the United States. The costs associated with the discontinuation of the
United Kingdom operations were immaterial and included in operating expenses in
fiscal 1995.
During fiscal 1995, the Company acquired two New England-based eye care
centers. The first, Cambridge Eye, operates 22 eye care centers while the
second, Vision World, operates eight centers. While the Company's eye care
centers continue to provide traditional eyewear and eye care services, they now
also offer patients convenient access to LVC information and pre- and
post-operative LVC services and access to affiliated ophthalmologists.
Cambridge Eye was acquired effective January 1, 1995. The transaction
consisted of the purchase of substantially all of the assets of Cambridge Eye,
including accounts receivable, inventory and property and equipment, for a
purchase price of $1,690,000 in cash, 424,000 shares of Common Stock and the
assumption of net liabilities of approximately $1.6 million. Vision World was
acquired effective July 1, 1995. The transaction consisted of the purchase of
substantially all of the assets of Vision World, including accounts receivable,
inventory and property and equipment, for a purchase price of approximately
$970,000 in cash, 131,525 shares of Common Stock, $660,000 in cash payable over
a three-year period and $250,000 in cash payable over 18 months. Both
acquisitions were accounted for using the purchase method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Net Revenue. The Company generated net revenue of approximately $5.7
million during the three months ended March 31, 1996 from the operation of its
29 eye care centers and six LVC centers in the United States as compared to net
revenue of approximately $4.2 million from its 21 eye care centers and its
network of LVC centers in the United Kingdom for the same period in 1995. Of the
$1.5 million, or 35%, increase in net revenue over the periods, approximately
$1.3 million of that increase relates to the additional eight eye care centers
acquired during the second half of fiscal 1995.
Cost of Revenue. Cost of revenue for the three months ended March 31, 1996
increased by approximately $390,000 or 21% over the same period in 1995. The
increase primarily resulted from the inclusion of costs associated with the sale
of optical products by the additional eye care centers operated by the
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<PAGE> 23
Company in the first quarter of fiscal 1996. As a percentage of net revenue,
cost of revenue decreased from 44.6% to 40.0% over the periods. Cost of revenue
for the three months ended March 31, 1996 and 1995 principally consisted of (i)
the cost of manufacturing, purchasing and distributing optical products to its
customers and (ii) the cost of delivering LVC, including depreciation and
maintenance on excimer lasers.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $4.1 million and $3.5 million for the
three months ended March 31, 1996 and 1995, respectively. The increase of
approximately $564,000 primarily relates to payroll and facility costs incurred
in operating additional eye care centers in the first quarter in fiscal 1996 as
compared to the first quarter in fiscal 1995. Selling, general and
administrative expenses, as a percentage of net revenue, declined from 84% to
72% over the periods. This decrease is a result of operating efficiencies which
the Company began to realize from the acquisition and expansion of multi-site
eye care centers.
Other Income and Expense. Interest income decreased by approximately
$25,000 to approximately $94,000 from $119,000 for the three months ended March
31, 1996 and 1995, respectively. This decrease resulted from the investment of a
lower cash balance during the first quarter in fiscal 1996 as compared to the
same period in fiscal 1995. Interest expense remained comparable at
approximately $58,000 and $57,000 for the three months ended March 31, 1996 and
1995, respectively.
Net Loss. The Company reduced its net loss by approximately 43% in the
first quarter of fiscal 1996 compared to the first quarter of fiscal 1995. For
the three months ended March 31, 1996, the Company recorded a net loss of
approximately $648,000 or $0.10 per share as compared to a net loss of
approximately $1.1 million or $0.22 per share for the same period in 1995.
FISCAL 1995 COMPARED TO FISCAL 1994
Net Revenue. Net revenue for fiscal 1995 amounted to $18.2 million
compared to approximately $529,000 for fiscal 1994. The significant increase
resulted from revenue generated by the Company's newly-acquired eye care
centers.
The Company generated revenue in December 1995 from the treatment of its
first LVC patients in the United States. Although the amount included in revenue
in fiscal 1995 is immaterial, the event represented the beginning of the
Company's LVC business in the United States.
Cost of Revenue. Cost of revenue for fiscal 1995 was approximately $8.1
million as compared to approximately $928,000 for fiscal 1994. The increase
resulted from the inclusion of costs associated with the sale of optical
products by the Company's newly acquired eye care centers. Cost of revenue in
fiscal 1995 principally consisted of (i) the cost of manufacturing, purchasing
and distributing optical products to its customers in the United States as well
as (ii) the cost of delivering LVC in the United Kingdom, including depreciation
and maintenance on the Company's excimer lasers in the aggregate amount of more
than $1.2 million. Cost of revenue in fiscal 1994, which did not include
multi-site eye care center expenses, consisted exclusively of depreciation and
maintenance on the Company's excimer lasers in the United Kingdom.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were approximately $15.3 million and $2.5 million for
fiscal 1995 and 1994, respectively. Substantially all of the increase is
attributable to the costs of operating the multi-site eye care centers during
fiscal 1995. In addition, the Company continued to incur costs to develop and
execute the Company's U.S. business plan. Included in selling, general and
administrative expenses in fiscal 1995, were costs of occupancy and personnel at
the multi-site eye care centers, advertising and marketing programs, payroll and
office expenses in the United States and United Kingdom, severance and other
costs associated with closing United Kingdom operations, legal and accounting,
and other general and administrative expenses. In fiscal 1994, selling, general
and administrative expenses primarily consisted of costs incurred in its United
Kingdom operations and did not include expenses for the operation of multi-site
eye care centers. At December 31, 1995 and 1994, the Company had approximately
250 and 10 full time employees, respectively.
Other Income and Expense. Interest income increased to approximately
$387,000 for fiscal 1995 from approximately $183,000 for fiscal 1994. This
increase is a result of interest earned on the invested proceeds
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<PAGE> 24
received from the Company's second public offering in September 1994 and the
exercise of certain warrants in October 1995. Interest expense for fiscal 1995
of approximately $253,000 represents interest on the revolving credit agreement
and the long-term debt which was assumed as part of the acquisition of Cambridge
Eye. The Company also recorded a $150,000 foreign currency translation gain on
the liquidation of the United Kingdom business at the close of fiscal 1995. In
fiscal 1994, the Company incurred $180,000 of financing costs in conjunction
with the issuance of bridge notes and the Class A Warrants.
Net Loss. For fiscal 1995, the Company recorded a net loss of
approximately $4.9 million or $0.89 per share as compared to a net loss of
approximately $2.9 million or $0.94 per share for fiscal 1994. The Company has
not yet been profitable, has experienced operating losses since its inception in
November 1992 and may incur operating losses in the future as it continues to
develop and implement its United States business plan.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Revenue. In fiscal 1994 and 1993, the Company's net revenue was
generated exclusively from its United Kingdom operations. Net revenue for fiscal
1994 increased significantly to approximately $529,000 from approximately
$155,000 for fiscal 1993. This increase was a result of the performance of LVC
procedures in fiscal 1994 at refractive surgery centers established in
collaboration with British United Provident Association ("BUPA") during the
latter half of fiscal 1993 and the first quarter of fiscal 1994. Under the joint
venture agreement signed with BUPA (the "BUPA Agreement") the Company recorded
its share of the revenue for each LVC procedure performed.
Although fiscal 1993 represents the first full year of operations for the
Company, no revenue was recorded until the Company signed the BUPA Agreement in
June 1993 to establish BUPA/Sight Resource Centers in selected BUPA health care
facilities. BUPA is the largest provider of private health care in the United
Kingdom and is a recognized deliverer of quality care. At December 31, 1993,
eight excimer lasers systems were operational compared to 12 laser systems at
the end of fiscal 1994. The Company experienced an introductory period of
approximately six months from the time the centers became operational before any
regularity in patient flow was developed. In each of the quarters of fiscal
1994, the Company experienced an increase in the number of procedures performed
and the amount of revenue recorded.
Cost of Revenue. Cost of revenue consists exclusively of depreciation
expense on the excimer lasers of approximately $928,000 and $292,000 for fiscal
1994 and 1993, respectively. The increase in fiscal 1994 was a result of
depreciation on 12 laser systems for the majority of fiscal 1994 compared to
eight laser systems for the latter half of fiscal 1993.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $1.1 million from $1.4
million in fiscal 1993 to $2.5 million in fiscal 1994. Approximately $430,000 of
the increase is attributable to increased advertising and marketing programs for
the BUPA/Sight Resource Centers throughout fiscal 1994, the hiring of additional
personnel, the development and sponsoring of optometric training programs, and
the establishment in the fourth quarter of a telemarketing division in the
United Kingdom.
The remainder of the increase of approximately $628,000 is a result of
increased general and administrative expenses in fiscal 1994 to implement the
BUPA Agreement and develop the infrastructure needed to manage the centers. The
increase also reflects costs incurred in fiscal 1994 associated with developing
and executing the United States business plan. During fiscal 1994, the Company
signed an agreement with Massachusetts Eye and Ear Infirmary, an affiliate of
the Harvard Medical School and one of the world's leading eye care providers, to
operate refractive surgery centers in New England. Included in general and
administrative expenses are personnel, legal, accounting and other costs
incurred in completing this agreement as well as advancing other relationships.
Other Income and Expense. Interest income represents interest on the
invested proceeds received from the Company's initial public offering and second
public offering. The amount earned during fiscal 1994 of approximately $183,000
as compared to fiscal 1993 of approximately $43,000, reflects the interest
earned in
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<PAGE> 25
the final four months of fiscal 1994 from the net proceeds of approximately
$12.5 million generated from the Company's second public offering.
Interest expense other expenses for fiscal 1994 represents interest and
debt financing costs on $1.1 million of bridge notes and Class A Warrants which
were issued on March 28, 1994 at an interest rate of 10%. Principal and interest
on the bridge notes were repaid upon the completion of the second public
offering in September 1994. The Company incurred $180,500 of financing costs in
conjunction with the issuance of the bridge notes and Class A Warrants.
Net Loss. For fiscal 1994, the Company recorded a net loss of
approximately $2.9 million or $0.94 per share as compared to a net loss of
approximately $1.5 million or $0.74 per share for fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had approximately $6.6 million in cash and
cash equivalents and working capital of approximately $5.1 million. At December
31, 1995, the Company had approximately $8.0 million in cash and cash
equivalents and working capital of approximately $5.3 million in comparison to
approximately $10.2 million in cash and cash equivalents and working capital of
approximately $9.8 million as of December 31, 1994. The decrease in cash and
working capital is primarily a result of the acquisition of eye care centers in
fiscal 1995, the purchase of additional excimer laser systems, and the Company
not yet obtaining profitability.
The combined purchase price of Cambridge Eye and Vision World consisted of
a payment of $2.7 million in cash, the issuance of 555,525 shares of Common
Stock, the assumption of approximately $2.3 million of debt and other cash
payments totaling $910,000 due over a three year period, of which $83,000 was
paid in fiscal 1995. Cambridge Eye is party to a credit agreement with a bank
providing a $500,000 revolving credit facility used for general working capital
purposes and a $1.8 million term loan. The revolving credit facility is based on
eligible accounts receivable and inventory balances and bears interest at the
bank's base rate plus 1.5%. The term loan bears interest at LIBOR plus 3.5% and
is payable in quarterly principal installments of $100,000 through March 1998
followed by four consecutive principal installments of $125,000. The credit
agreement is secured by all the assets of Cambridge Eye.
Using its supply of excimer lasers previously in service in the United
Kingdom and those purchased in fiscal 1995, the Company has the advantage of
utilizing the capital expenditures already incurred as it enters into the LVC
business in the United States. With regulatory approval granted by the FDA in
October 1995 for the commercial use of an excimer laser system for treating
nearsightedness, the Company had the laser systems it needed to begin treating
its first United States patients in December 1995. By early fiscal 1996, six of
the Company's center's were treating patients in Boston, New York City, Chicago,
Philadelphia, Providence and Warwick, Rhode Island. Subsequently, the Company
has opened LVC centers in McAllen, Texas and Peabody, Massachusetts.
Acquiring small-to-medium-sized multi-site eye care centers is a key
component of the Company's business strategy. By acquiring optometric chains,
the Company gains critical mass of locations ensuring that potential patients
will have convenient access to LVC information and pre- and post-operative
services. It also allows the Company to deliver these services at considerable
savings by using existing corporate and operational infrastructure, which
includes store operations, MIS, manufacturing purchasing, distribution and
training. The Company is currently evaluating potential acquisition candidates.
The Company has securities outstanding which provide it with potential
sources of financing. As part of the Company's secondary public offering of
stock in September 1994, the Company issued 2,472,500 Warrants. Each Warrant
allows the holder to purchase one share of the Company's Common Stock for $6.00.
The exercise of outstanding Warrants would provide net proceeds of approximately
$14.8 million. The exercise of all Unit Purchase Options (including the exercise
of the warrants included therein) would provide net proceeds of approximately
$3.7 million. The exercise of the IPO Representative Units (including the
exercise of warrants included in the IPO Representatives Units) would provide
net proceeds of approximately $1.3 million. In addition, the exercise of the
outstanding Class A Warrants would provide net proceeds of
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$510,000. There can be no assurance that the Company will obtain any such
proceeds from the exercise of the Warrants, the Unit Purchase Options, IPO
Representative's Warrants and the Class A Warrants.
The Company anticipates that its working capital, cash flow from
operations, revenues from operations and interest income from cash investments,
together with the net proceeds from this Offering, will be adequate to fund the
Company's currently proposed activities for at least the next 18 months. Without
the exercise of a significant number of the outstanding securities, additional
financing may be needed after this 18 month period. The Company anticipates
using financing vehicles such as bank debt, leasing, and other sources of
funding, such as additional equity offerings, to fund its operation. There can
be no assurance that the Company will be successful in obtaining funds from any
such sources. If additional funds are raised by issuing equity securities,
further dilution to the Company's stockholders may result. If additional funds
are not available, the Company may be required to delay execution of its
business plan.
The net operating loss carryforwards for federal and state tax purposes at
December 31, 1995 are approximately $9,595,000 and $9,546,000, respectively and
expire through 2010 and 2000, respectively.
EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The effect of adopting SFAS 121, "Accounting for Long Lived Assets," in
fiscal 1996 will not have a material effect (if any) on the Company's financial
results.
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BUSINESS
OVERVIEW
Sight Resource Corporation (the "Company") provides a complete range of eye
care products and services through integrated networks of opticians,
optometrists and ophthalmologists. The Company's services are provided primarily
to persons with common vision disorders, as well as to persons with
sight-threatening conditions. The Company's operations currently consist of 30
eye care centers, a centralized optical laboratory and distribution center, two
management service organizations ("MSOs") and eight laser vision correction
("LVC") centers which the Company has established in association with leading
hospitals, ambulatory surgery centers and ophthalmologists. The Company intends
to acquire additional eye care centers, expand the number of eye care
professionals (optometrists and ophthalmologists) whose businesses the Company
manages or with whom the Company has strategic affiliations, and to establish
additional LVC centers.
The Company's objective is to become the leading integrated provider of eye
care products and services in select, regional markets. To develop significant
regional integrated networks, the Company's business strategy focuses on (i)
acquiring and integrating the assets of regional multi-site eye care centers and
the practices of eye care professionals, (ii) employing or entering into
management services contracts with these professionals, (iii) establishing
additional LVC centers, (iv) expanding strategic affiliations with select
hospitals, ambulatory surgery centers and eye care professionals and (v)
continuing to market comprehensive and competitively priced eye care programs to
leading HMOs, insurance companies and other third party payors in the Company's
regional markets.
The Company believes that its integrated approach to eye care provides
significant advantages, benefits and opportunities to patients, providers and
payors. Patients benefit from the convenience of eye care products and services
delivered or accessed efficiently at a single location. Eye care professionals
benefit from the supplemental management and administrative services and
resources provided by the Company, permitting them to continue to dedicate their
time and effort to their patients and professional practices. Payors benefit
from the Company's ability to provide a complete range of eye care products and
services in select regional markets.
THE EYE CARE INDUSTRY
Eye Care Population. Eye care professionals and organizations recommend
periodic eye examinations for all Americans. More than 150 million Americans, or
approximately 60% of the nation's population, use eyeglasses or contact lenses
to correct common refractive vision disorders and, in 1995, more than 90 million
of these persons purchased corrective eyewear. The population for corrective
eyewear has grown consistently over the last five years and the demographic
trends of an aging population are expected to generate increased demand for
corrective eyewear and optical services. In addition to refractive vision
disorders, each year many Americans also require medical or surgical eye care
services, such as treatment for cataracts, glaucoma and retinal disorders.
According to industry sources, ophthalmic surgeons perform more than 3 million
surgical procedures in the United States per year.
Eye Care Market. Industry sources estimate that approximately $20 billion
is annually spent on eye care products and services, including eyeglasses,
contact lenses and professional eye care services. Of this $20 billion market, a
total of approximately $13 billion is annually spent on sales of eyeglasses
(approximately $11 billion) and contact lenses (approximately $2 billion) and
approximately $4 billion annually is spent on eye exams and related services
performed by opticians, optometrists and ophthalmologists, while the remaining
$3 billion represents the costs of related surgical procedures performed by
ophthalmologists.
Eye Care Providers. Eye care services in the United States are delivered
through a fragmented system of local providers, including individual or small
groups of opticians, optometrists and ophthalmologists. The Company estimates
that opticians, optometrists, retail optical chains and multi-site eye care
centers are the primary vision care providers to approximately 82% of the
population with common vision disorders. According to industry sources,
approximately 65,000 opticians, 31,000 optometrists and 16,500 ophthalmologists
are actively involved in patient care in the United States today.
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Eye Care Trends. Concerns over the accelerating costs of health care in
general, including eye care, have resulted in the increasing prominence of
managed care in the eye care industry and a decline in the traditional fee-based
eye care product and service market. Managed care, which typically involves a
third party (frequently the payor) assuming responsibility for ensuring that eye
care is provided in a high quality, cost-effective manner, has reduced the
competitive position of many eye care professional groups and individual
practices, particularly those that lack the capital to expand, develop
information systems and purchase new technologies, have higher operating costs
and do not have formal ties with other providers nor the ability to offer a
variety of eye care services. In order to remain competitive in the changing
health care environment, eye care professionals increasingly are affiliating
with larger organizations which offer skilled and innovative management, access
to payors and their enrollees, sophisticated information systems, greater
capital resources and more efficient cost structures. Approximately 40 million
Americans currently receive eye care benefits via third party payor programs.
The Company believes that third party payors increasingly will prefer to
contract with a single provider for complete eye care services within selected
geographic areas.
Recent Eye Care Developments. The eye care industry is characterized by
rapid technological changes, including advances in medical device and ophthalmic
laser technologies and developments of alternative surgical techniques or new
pharmaceutical products. In October 1995, the United States Food and Drug
Administration (the "FDA") approved the use of ophthalmic excimer lasers to
correct nearsightedness. Lasers for the correction of farsightedness and
astigmatism are currently undergoing FDA-required clinical testing. Industry
sources estimate that, in 1995, approximately 350,000 radial keratotomy
procedures were performed in the United States. Radial keratotomy is a surgical
procedure in which the ophthalmologist uses a diamond-edged scalpel to cut a
varying number of radial incisions in order to reshape the cornea to correct the
patient's vision.
BUSINESS STRATEGY
The Company's objective is to become the leading integrated provider of eye
care products and services in select, regional markets. The principal elements
of the Company's business strategy are to (i) acquire and integrate the assets
of regional multi-site eye care centers and the practices of eye care
professionals, (ii) employ or enter into management services contracts with
these professionals, (iii) establish LVC centers, (iv) expand strategic
affiliations with select hospitals, ambulatory surgery centers and eye care
professionals and (v) continue to market comprehensive and competitively priced
eye care programs to leading HMOs, insurance companies and other third party
payors in the Company's regional markets:
Acquire and Integrate Assets of Eye Care Centers and
Practices. Acquiring and integrating the assets of eye care centers and
professional practices provide the Company with significant and direct
access to persons with vision disorders and sight-threatening conditions,
thereby establishing a broad patient base for the Company's integrated eye
care strategy. The Company estimates that opticians, optometrists, retail
optical chains and multi-site eye care centers are the primary vision care
providers to approximately 82% of the population with common vision
disorders. The Company's eye care centers sell products or services to
approximately 125,000 customers annually and, through its eye care centers,
the Company maintains an updated customer database comprised of
approximately 350,000 individuals who have utilized the services of the
Company and its affiliated eye care professionals over the last several
years. The Company's centralized optical laboratory and distribution center
have the capacity to service additional multi-site eye care centers.
Enter into Management Services Contracts with Eye Care
Professionals. By entering into management services contracts with eye
care professionals the assets of whose practices the Company has acquired,
the Company earns revenues from the management, administrative, marketing
and other services it provides to such affiliated professionals. These
professionals, in turn, benefit from the services and resources provided by
the Company's MSOs.
Establish LVC Centers. By establishing LVC centers in association
with hospitals, ambulatory surgery centers, ophthalmologic practice groups
and ophthalmologists, the Company is able to provide LVC services to its
eye care center customers and the patients of its affiliated eye care
professionals. In
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addition, under the Company's Open Access Plan, the Company' s laser
systems are made available for use by all ophthalmologists in the local
market; thus the Company earns fees from such non-affiliated professionals'
use of the Company's laser systems to perform LVC.
Expand Strategic Affiliations. The Company intends to both expand its
existing LVC center strategic affiliations and enter into new strategic
affiliations with health care providers, including hospitals, ambulatory
surgery centers, ophthalmologic practice groups and ophthalmologists. The
Company's goals in expanding its strategic affiliations are to broaden its
service capabilities and afford the Company, for itself and on behalf of
its affiliated eye care professionals, significant opportunities for cross-
referrals and volume contracting with third party payors and their
intermediaries.
Market Eye Care Programs to Third Party Payors. The Company intends
to build on its existing managed care contracts and integrated eye care
strategy to market comprehensive and competitively priced eye care service
programs to leading HMOs, insurance companies and other third party payors
in the Company's regional markets. Approximately 40 million Americans
currently receive eye care benefits via third party payor programs. Through
its integrated approach to eye care, the Company believes that it offers a
complete range of eye care products and services at competitive cost;
consequently, payors benefit from contracting with the Company's networks
of integrated and efficient providers.
ACQUISITION STRATEGY
The Company has an acquisition strategy to acquire and integrate the assets
of multi-site eye care centers and the practices of eye care professionals and
to employ or enter into management services contracts with these professionals.
This strategy includes both expanding existing regional markets and entering new
regional markets:
Expand Existing Regional Markets. The Company plans to expand its
business in the markets where it currently operates, particularly to
broaden the delivery of services offered in such markets. Acquisitions in
existing markets (i) permit the Company to effect economies of scale and
realize other operating efficiencies, (ii) provide the Company with the
opportunity to expand its patient base and revenues without a proportionate
increase in administrative costs and (iii) permit the Company to
strategically complement existing operations.
Enter New Regional Markets. The Company intends to enter into
additional regional markets by acquiring the assets of multi-site eye care
centers and eye care practices that may be well positioned to become
leaders in their regional markets. The Company will target acquisitions in
strategic markets that will serve as platforms from which the Company can
consolidate a given service area by making and integrating additional
"in-market" acquisitions.
The Company believes that a substantial number of multi-site eye care
centers and optometric and ophthalmic practices would meet its acquisition
criteria. Acquisition candidates will be expected to demonstrate potential for
revenue growth or continued profitability. The Company will also evaluate
qualitative issues such as the medical professionals' reputations in the local
and national marketplace, medical professionals' training, licensure and
experience, Medicare and Medicaid compliance, billing practices and operating
history. Prior to entering any market, the Company will consider such factors as
the local level of eye care competition, networking and consolidation activity,
the regulatory environment, patient-provider ratios and the economic condition
of the local market. The Company also will consider the acquisition of
ambulatory surgical centers, specialty eye hospitals and other complementary
practices and services that are consistent with its objective of being a leading
integrated provider of eye care products and services in select, regional
markets.
The Company believes that it will be an attractive acquiror to owners of
independent multi-site eye care centers and ophthalmic and optometric practices
because of the Company's (i) fee structure, which allows owners and
professionals to participate in the cost efficiencies and revenue growth
realized by the affiliated centers and practices and (ii) transaction structure,
which permits owners and professionals to become
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stockholders of the Company, thus permitting ownership liquidity and alignment
of the interests of the owners and professionals with the Company's strategy.
OPERATIONS
EYE CARE CENTERS
Effective January 1, 1995, the Company acquired the assets of Cambridge
Eye, an optometric practice which now operates 22 eye care centers, principally
in Massachusetts. The Company also entered into a management services contract
with Optometric Providers, Inc. ("Optometric Providers"), a corporation
established to employ the optometrists previously employed by Cambridge Eye.
Effective July 1, 1995, the Company acquired the assets of Douglas Vision
World, Inc., ("Vision World") a company operating eight eye care centers in
Rhode Island. The Company has also entered into a management services contract
with Optometric Care, Inc. ("Optometric Care"), a professional corporation
established to employ the optometrists previously affiliated with Vision World.
The Company's 30 eye care centers are major providers of prescription and
non-prescription eye care products and services in New England, principally
Massachusetts and Rhode Island, with sales of eye care products and services to
approximately 125,000 customers each year. Each eye care center carries an
extensive array of eyeglass frames ranging in price from value models to
designer collections. Lens and frame selections include a variety of materials
and styles. In addition to prescription eyewear, each center also carries
fashion sunglasses and eyewear accessories. Point-of-sale equipment ensures that
retail prices of products are accurate and provides control over inventory and
merchandising. The point-of-sale equipment also establishes and maintains an
updated customer database comprised of approximately 350,000 individuals who
have utilized the services of the Company and its affiliated eye care
professionals over the last few years.
Each eye care center is staffed by one or more licensed optometrists, a
manager and a number of trained vision care technicians and/or licensed
opticians. Currently, 17 of the Company's 30 eye care centers maintain on-site
facilities for cutting and edging ophthalmic lenses to fit into eyeglass frames,
which enable those centers to offer same-day or next-day service for a majority
of customers ordering prescription eyeglasses.
The Company's 30 eye care centers are located in major shopping malls,
strip shopping centers, urban locations and free-standing buildings and
generally are clustered within market areas so as to maximize the benefit of
advertising strategies and to minimize the cost of supervising operations.
CENTRALIZED OPTICAL LABORATORY AND DISTRIBUTION CENTER
To meet the volume needs of the eye care centers for certain prescription
eyeglass lenses and the rapid delivery needs of each center's customers, the
Company operates a centralized optical laboratory and distribution center in
Holliston, Massachusetts. The centralized optical laboratory provides complete
laboratory services to all of the Company's eye care centers, including
polishing, cutting and edging, tempering, tinting and coating of ophthalmic
lenses. The distribution center provides and maintains a central inventory of
all accessories and supplies necessary to operate the retail eye care centers,
as well as "ready made" eye care products, including contact lenses and related
supplies. The inventory of eyeglass lenses, frames, contact lenses, accessories
and supplies is acquired through a number of sources, domestic and foreign. The
Company is not dependent on any one supplier. The centralized optical laboratory
and distribution center has the capacity to accommodate additional multi-site
eye care centers.
MANAGEMENT SERVICES CONTRACTS
In connection with its acquisition of Cambridge Eye and Vision World, the
Company entered into management services contracts with Optometric Providers and
Optometric Care, pursuant to which Cambridge Eye and Vision World operate as
MSOs. Pursuant to these management services contracts, the MSOs provide
management, administrative, marketing and related services to Optometric
Providers and Optometric Care. As a result, the Company is involved in the daily
on-site financial and administrative management of these optometric practices
and provides various other services to the practices from time to time,
including
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legal, financial reporting, treasury, human resources and insurance assistance.
The Company's goals in providing such services are to (i) improve the
performance of these optometric practices in these non-professional activities,
(ii) allow the optometrists employed by or associated with these practices to
more fully dedicate their time and efforts toward their professional practice
activities, (iii) enhance the financial return to the Company and (iv) afford
the Company expanded service capabilities, and, for itself and on behalf of the
optometric practices, significant opportunities for contracting with payors and
their intermediaries.
Pursuant to the service contracts, the MSOs, among other things, (i) act as
the exclusive business manager and administrator of all business and
administrative functions and services associated with the provision of the
professional services, (ii) order and purchase all professional and office
inventory and supplies and arrange for the availability of the same, (iii)
maintain files and records, (iv) provide or arrange for the provision of
technical and ancillary service and support personnel, (v) establish, operate
and maintain bookkeeping, accounting, billing and collection systems, (vi)
render advice concerning the marketing of services, (vii) develop and administer
benefit plans for the professionals and (viii) render such other business and
financial management, consultation and advice as may reasonably be needed from
time to time by the practice in connection with its provision of professional
services.
The service fees payable to the Company by the affiliated practices under
the management services contracts vary based on the cost, nature and amount of
services provided, and may be adjustable or subject to renegotiation from time
to time. Service fees payable under existing and future contracts are subject to
the requirements of applicable laws, rules and regulations and negotiations with
individual professional practices.
Under the management services contracts, the affiliated practices retain
the responsibility for, among other things, (i) hiring and compensating
professionals, (ii) ensuring that professionals have the required licenses,
credentials, approvals and other certifications needed to perform their duties
and (iii) complying with applicable federal and state laws, rules and
regulations. In addition, the affiliated practices exclusively control all
aspects of professional practice and the delivery of professional services.
LASER VISION CORRECTION CENTERS
Business History. Following the Company's inception in 1992, its initial
business efforts involved the delivery of LVC in the United Kingdom. In 1993,
the Company established a national network of laser vision centers in the United
Kingdom in conjunction with British United Provident Association, the largest
provider of private health care in the United Kingdom. During 1995, in
anticipation of FDA approval of LVC in the United States, the Company
de-emphasized its United Kingdom operations in order to concentrate its
attention and resources on LVC opportunities in the United States. These
operations were discontinued by the end of 1995 and laser systems which had been
in use in the United Kingdom have been or are in the process of being
retrofitted and relocated to the United States. The Company's efforts in the
United Kingdom played a key role in the development of its business strategy for
the United States market and provided it with operating experience in the
delivery of LVC services.
Potential United States Market for LVC. On October 20, 1995, the FDA
granted the first United States approval of a laser system for the treatment of
nearsightedness using LVC. LVC is now used to treat nearsightedness in
approximately 50 countries. Industry studies indicate that 60 to 70 million
Americans are nearsighted and that more than 90% of these people have a
refractive disorder that falls within the LVC treatment parameters approved by
the FDA. Industry sources conservatively estimate that an aggregate of
approximately four million LVC procedures for nearsighted patients will be
performed in the U.S. by the year 2000, resulting in a potential annual market
in excess of $1 billion in the year 2000. In addition, LVC for farsightedness
and astigmatism is currently undergoing FDA-required clinical testing. As new
technologies or procedures are approved for refractive correction, the Company
intends to incorporate these technologies and procedures into the services
provided by the Company.
Establishment of LVC Centers. The Company establishes LVC centers in
association with selected hospitals, ambulatory surgery centers and private
practice facilities ("providers"). These providers generally
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have a high level of name recognition and reputation within the ophthalmic
community and among prospective patients for LVC which, in turn, supports the
Company's efforts to market its LVC centers. By affiliating with the Company,
these providers benefit by having a convenient way of participating in LVC
without incurring the substantial capital expenditures or the risk of
technological obsolescence. The providers also benefit from the Company's
ability to acquire, counsel and refer patients for LVC services.
Following FDA approval in October 1995, the Company has to date established
eight LVC centers in affiliation with the following providers:
- Massachusetts Eye and Ear Infirmary, an affiliate of the Harvard Medical
School (Boston, MA)
- St. George Eye Center (Chicago, IL)
- The New York Center for Laser Vision Correction (New York, NY)
- Medical College of Pennsylvania/Hahnemann University (Philadelphia, PA)
- The Rhode Island Eye Institute (Providence, RI)
- Koch Eye Associates (Warwick, RI)
- Lahey Hitchcock Clinic (Peabody, MA)
- International EyeCare (McAllen, TX)
The Company plans on placing additional lasers in areas where it has
acquired or may acquire multi-site eye care centers or enter into strategic
affiliations. By utilizing its supply of laser systems previously in service in
the United Kingdom and those purchased in 1995, the Company can take advantage
of capital expenditures already incurred. The Company analyzes demographic,
competitive and other available data in determining potential LVC center sites.
LVC Center Agreements. LVC centers are established in compliance with
applicable law and, generally, pursuant to a written LVC center agreement
between the Company and the provider. Each LVC center agreement specifies the
region in which the LVC center will operate. For example, the Company's LVC
center agreement with the Massachusetts Eye and Ear Infirmary covers the
provision of LVC services in substantially all of New England; the Company's
other LVC center agreements cover the provision of LVC services in the local
market in which the provider is located.
The LVC center agreements also set forth the terms and conditions pursuant
to which the Company and the providers will operate the respective LVC centers,
including (i) a description of the types of LVC and related eye care services to
be provided, (ii) specification of the duties and responsibilities of the
Company and the providers concerning such matters as procurement and use of
equipment, delivery of services, quality standards, personnel, billing and
collections, insurance and marketing, (iii) compliance with applicable laws,
rules and regulations and (iv) provisions addressing noncompetition and
confidentiality.
The Company's obligations pursuant to such agreements typically include:
furnishing the laser system to be used for the delivery of LVC, therapeutic and
related eye care services at the LVC center; maintenance, repairs and upgrades
to the laser system; and certain training and oversight of medical, technical
and administrative personnel involved in the delivery of services at the center.
The providers' responsibilities pursuant to such agreements typically include:
providing ophthalmologists to perform the LVC, therapeutic and related eye care
services to patients at the LVC center, including performing LVC on qualified
patients originated through the Company's marketing efforts; furnishing suitable
space and certain ancillary equipment, furniture and supplies for the LVC
center's operations; and providing administrative, nursing and technical support
for the LVC center.
The LVC center agreements also generally provide for the Company to pay the
providers for certain services associated with each LVC procedure performed by
the provider on a patient generated through the Company's marketing efforts. In
addition, the provider pays the Company an access fee for use of the laser
system to perform LVC or therapeutic procedures on patients generated by such
provider. Generally, the LVC center agreements also provide that community-based
opthalmologists may access the LVC center under the Company's Open Access Plan.
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Numerous state laws and regulations, which vary significantly from state to
state, presently affect the manner in which the Company may establish and
operate LVC centers. In some instances these laws and regulations are ambiguous,
and sometimes state regulators fail to provide adequate guidelines. The Company
believes that its LVC centers are in substantial compliance with all applicable
regulatory requirements. However, federal and state regulatory attention may
continue to be directed to the practice of medicine, and any changes in state or
federal law or regulations, or in governmental agency and judicial
interpretations of such laws and regulations, could cause one of the Company's
strategies that is now in compliance with applicable laws to cease so to comply.
There can be no assurance that federal regulations will not in the future place
impediments upon the Company's LVC centers.
LVC Procedure. Myopia (nearsightedness), hyperopia (farsightedness) and
astigmatism are three of the most common refractive disorders. These refractive
disorders have traditionally been corrected with conventional methods such as
eyeglasses and contact lenses. Myopia can also be corrected with radial
keratotomy, a surgical procedure in which the ophthalmologist uses a
diamond-edged scalpel to cut a varying number of radial incisions to reshape the
cornea to correct the patient's vision. LVC, by contrast, is a surgical
procedure which, utilizing an ophthalmic excimer laser system, involves the
removal of a microscopic layer of the cornea. This procedure changes the
curvature of the cornea and allows the eye to focus light properly, resulting in
improved vision. For the majority of nearsighted patients this procedure can
eliminate the need to wear eyeglasses or contact lenses to correct their
nearsightedness.
LVC is performed by a specially trained ophthalmologist on an outpatient
basis. The procedure commences with a routine eye examination to determine the
exact correction required. The information from the examination is programmed
into the laser's computer, which calculates the data needed to make a precise
corneal correction. Following the application of anesthetic drops, the
ophthalmologist then removes the thin layer of cells covering the outer surface
of the cornea (the epithelium) and positions the patient for the laser
procedure. The pre-programmed laser's energy is then applied in discrete pulses,
each of which lasts several billionths of a second, to ablate microscopic layers
of tissue from the surface of the cornea in a predetermined pattern to
permanently reshape the anterior surface of the cornea. This procedure changes
the curvature of the cornea and, when healed, allows the eye to focus light
properly, resulting in improved vision. The entire LVC procedure, including
patient preparation and post-operative dressing, generally lasts no more than
thirty minutes.
Individuals who undergo the procedure generally experience discomfort for
24 to 48 hours and blurred vision for approximately 48 to 72 hours after the
procedure. Following LVC, the ophthalmologist may prescribe a topical
pharmaceutical to promote corneal healing and alleviate discomfort. Although
most patients experience improvement in clarity of vision within a few days
following the procedure, it generally takes from one to three months for the
correction to stabilize and for the full benefit of the procedure to be
realized. In the six months following treatment, a series of patient follow-up
visits are scheduled with an optometrist who monitors the corneal healing
process to verify that the treatment is proceeding as expected. A patient
typically has one eye treated in a session, with the second eye treated three to
six months thereafter.
The safety and efficacy of the laser system currently used by the Company
were demonstrated in FDA-required clinical trials involving the treatment and
subsequent three-year follow up of more than 1,600 eyes. Studies using the 6mm
beam laser found that six months after treatment 95.0% of treated eyes were
corrected to 20/40 or better without eyeglasses or contact lenses, and 65.4%
were 20/20 or better without eyeglasses or contact lenses. One year after
treatment, those results had improved to 98.8% at 20/40 or better and 80.5% at
20/20 or better.
LVC STRATEGY
The Company has established a model for the delivery of LVC services. The
Company's LVC strategy is based upon (i) generating and controlling patient
flow, (ii) delivering LVC through eye care centers and (iii) promoting
cooperation with local ophthalmologists and optometrists through the Company's
Open Access Plan:
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Generating and Controlling Patient Flow. Management believes that
generating and controlling patient flow is the key to building a successful
LVC services business. The Company estimates that opticians, optometrists,
retail eye care chains and multi-site eye care centers are the primary
vision care providers to approximately 82% of the population with common
vision disorders. The Company's LVC strategy is based upon the
complementary approach of delivering LVC services through its eye care
centers and developing its Open Access Plan, under which its laser systems
are made available to all qualified opthalmologists and under which
community-based optometrists and opthalmologists can refer their patients
to the LVC center, giving the Company access to the other 18% of the
population with common vision disorders.
Delivering LVC through Eye Care Centers. The Company's 30 eye care
centers provide products and services to approximately 125,000 customers
each year, and have compiled a marketing database of approximately 350,000
customers with common refractive vision disorders. Delivering LVC services
through its eye care centers (i) provides the Company significant and
direct access to a large percentage of the population eligible for LVC,
(ii) provides prospective patients with local access to information
concerning LVC services and to pre-operative assessments, (iii) offers
patient convenience to pre- and post-operative examinations that are part
of the LVC procedure and (iv) adds only an incremental expense to existing
optical and optometric marketing costs. The Company believes that contact
lens wearers (approximately 29 million Americans) and those who would like
to wear contact lenses (including the two million individuals per year who
become contact lens-intolerant) will be particularly receptive to LVC since
they have already chosen to seek an alternative to eyeglasses to correct
their vision.
Open Access Plan. The Company's LVC strategy is designed to promote
cooperation between the Company and local ophthalmologists and
optometrists. Through its Open Access Plan, the Company's laser systems are
made available for use by all ophthalmologists in the local market. Local
optometrists can also refer their patients to the Company's LVC centers for
LVC services. The Company believes that its Open Access Plan will encourage
ophthalmologists to use its LVC centers to treat their own patients. The
Open Access Plan allows ophthalmologists who have met the applicable
training requirements to use the Company's LVC centers for a per procedure
fee. The Company believes that through the efficiencies created by
integrating its LVC centers with its eye care centers and network of
affiliated optometrists, it can provide its Open Access Plan to local
ophthalmologists at very competitive rates, thus providing local
ophthalmologists an incentive to use the Company's LVC centers by treating
their LVC patients at the Company's LVC centers.
MARKETING
As an integrated provider of eye care products and services in regional
markets, the Company makes use of various media to market its products and
services, including LVC:
Advertising. The Company uses newspaper, magazine, television, radio,
direct mail and other advertising to reach prospective, as well as
existing, customers. Advertisements emphasize the Company's benefits to the
eyewear public, such as value pricing, product promotions, convenience of
location, customer service and knowledgeable salespersons. In-house
optometric examinations by licensed optometrists are also emphasized in
advertising, subject to regulatory requirements.
In-center Marketing. The Company's eye care centers and LVC centers
are designed to be attractive and customer oriented. In its eye care
centers, the Company prepares and revises point-of-purchase displays, which
convey promotional messages to customers upon arriving at the center.
Visual merchandising techniques are employed to draw attention to products
displayed in the eye care centers. In addition, to market the Company's LVC
services in its eye care centers, the Company shows customers educational
videotapes, provides take-home brochures and uses LVC-specific point-of-
purchase displays.
Personalized Consultations. Each eye care center is staffed by one or
more licensed optometrists, a manager and a number of trained vision care
technicians and/or licensed opticians, each of whom is
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trained to provide personalized consultation to customers regarding the
Company's eye care products and services, including LVC.
Quarterly Newsletters. The Company mails a quarterly newsletter to
the approximately 350,000 individuals in its Company's marketing database,
consisting of individuals who have utilized the services of the Company and
its affiliated professionals over the last several years. The newsletter
includes educational, promotional and marketing information about the
Company's products and services, including LVC.
Eye Care Professionals. To support its Open Access Plan, the Company
markets its LVC centers to eye care professionals in the local community.
The Company provides LVC-related marketing materials to these eye care
professionals.
Financing Arrangements. The Company has arranged for the availability
of third-party financing vehicles for customers to purchase the Company's
products and services, including LVC.
Managed Care. The Company markets its comprehensive and competitively
priced vision care programs to leading HMOs, insurance companies and other
third party payors in the Company's regional markets. The Company's
marketing strategy towards these organizations stresses its regional
coverage, its complete range of eye care products and services and its
commitment to quality and service.
COMPETITION
The Company experiences competition regarding the acquisition of the assets
of, and the provision of management services to, eye care centers and practices.
Several companies, both publicly and privately held, that have established
operating histories and greater resources than the Company are pursuing the
acquisition of the assets of general and specialty practices and the management
of such practices. There can be no assurance that the Company will be able to
compete effectively in this regard, that additional competitors will not enter
the market, or that such competition will not make it more difficult to acquire
the assets of, and provide management services to, eye care practices on terms
favorable to the Company.
Eye care practices affiliated with the Company will compete with other
local eye care practices as well as managed care organizations. The Company
believes that changes in governmental and private reimbursement policies and
other factors have resulted in increased competition for consumers of eye care
services. The Company believes that cost, accessibility and quality of services
are the principal factors that affect competition. There can be no assurance
that the affiliated practices will be able to compete effectively in the markets
that they serve, which inability to compete would adversely affect the Company.
The optical industry is highly competitive and includes chains of retail
optical stores, multi-site eye care centers, and a large number of individual
opticians, optometrists, and ophthalmologists who provide professional services
and/or dispense prescription eyewear. Since retailers of prescription eyewear
generally service local markets, competition varies substantially from one
location or geographic area to another. The Company believes that the principal
competitive factors affecting retailers of prescription eyewear are location and
convenience, quality and consistency of product and service, price, product
warranties, and a broad selection of merchandise, and that it competes favorably
in each of these respects. In its current regional markets, the Company faces
competition from national or regional retail optical chains which, in some
cases, have greater financial resources than those of the Company.
LVC competes with or supplements other surgical and non-surgical treatments
for refractive disorders, including eyeglasses, contact lenses, other types of
refractive surgery (such as radial keratotomy), corneal transplants and other
technologies currently under development. Other competitive factors which may
affect revenues include performance, pricing, convenience, ease of use, success
relative to alternative treatments and patient and general market acceptance.
The Company's laser suppliers are likely to compete with the Company in the
provision of LVC, either directly or indirectly, through marketing subsidiaries
or strategic partnerships with third parties. In addition, competition will come
from entities similar to the Company and from hospitals, hospital-affiliated
group
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entities, physician group practices and private ophthalmologists that, in order
to offer LVC to existing patients, purchase refractive lasers. Suppliers of
conventional vision correction alternatives (eyeglasses and contact lenses),
such as optometric chains, may also compete with the Company by purchasing laser
systems and offering LVC to their customers. The Company's current and
prospective competitors include many large domestic and foreign companies that
have substantially greater financial, operating, marketing and support resources
than the Company. Competition to provide LVC may lead to lower prices for LVC,
as has happened in some countries where the treatment has been available for
several years.
The Company and its affiliated practices compete with other providers for
managed care contracts. The Company believes that trends toward managed care
have resulted in increased competition for such contracts. Other practices and
management service organizations may have more experience than the Company in
obtaining such contracts. There can be no assurance that the Company and its
affiliated practices will be able to successfully acquire sufficient managed
care contracts to compete effectively in the markets they serve, which inability
to compete would adversely affect the Company.
GOVERNMENT REGULATION AND SUPERVISION
The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment changes.
While the Company believes it has been, and will continue to be, able to
structure all its agreements and operations in accordance with applicable law,
there can be no assurance that it will be able to successfully address changes
in the regulatory environment.
Each state imposes licensing requirements on individual opticians,
optometrists and ophthalmologists and on facilities and services operated by
these professionals. In addition, federal and state laws regulate HMOs and other
managed care organizations with which the Company's affiliated practices may
have contracts. Many states require regulatory approval, including certificates
of need, before establishing or expanding certain types of health care
facilities (including ambulatory surgery centers such as those that may be
managed by the Company), offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the entry
into new markets, the Company and its affiliated practices may become subject to
additional regulation.
In addition to extensive, existing government health care regulation, there
have been numerous initiatives on the federal and state levels for comprehensive
reforms affecting the payment for and availability of health care services. The
Company believes that such initiatives will continue during the foreseeable
future. Aspects of certain of these reforms as proposed in the past, such as
further reductions in Medicare and Medicaid payments and additional prohibitions
on physician ownership, directly or indirectly, of facilities to which they
refer patients, if adopted, could adversely affect the Company. Concern about
the potential effects of such reform measures has contributed to the volatility
of stock prices of many companies in health care and related industries and may
similarly affect the price of the Common Stock following this Offering.
The laws of many states prohibit the unlawful rebate or unlawful division
of professional fees and prohibit nonphysician entities from practicing
medicine. These laws vary from state to state and are enforced by the courts and
by regulatory authorities with broad discretion. The Company's business
operations have not been the subject of judicial or regulatory interpretation in
this context and there can be no assurance that review of the Company's business
by courts or regulatory authorities will not result in determinations that could
adversely affect the operations of the Company. In addition, the regulatory
framework of certain jurisdictions may limit the Company's expansion into such
jurisdictions if the Company is unable to modify its operational structure to
conform with such regulatory framework.
Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce, the referral of a
person or the furnishing or arranging for the furnishing of items or services
reimbursable under Medicare or Medicaid. Pursuant to this anti-kickback law, the
federal government has recently announced a policy of increased scrutiny of
joint ventures and other transactions among
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health care providers in an effort to reduce potential fraud and abuse relating
to Medicare costs. The applicability of these provisions to many business
transactions in the health care industry has not yet been subject to judicial
and regulatory interpretation. Noncompliance with the federal anti-kickback
legislation can result in exclusion from Medicare and Medicaid programs and
civil and criminal penalties.
The Company believes that, although it receives fees under management
services contracts for management services, it is not in a position to make or
influence referrals of patients or services reimbursed under Medicare or
Medicaid programs to its affiliated practices or to receive such referrals. Such
service fees are intended by the Company to be consistent with fair market value
in arm's length transactions for the nature and amount of management services
rendered and therefore would not constitute unlawful remuneration under
anti-kickback laws and regulations. If the Company is deemed to be in a position
to make, influence or receive referrals from or to physicians, or the Company is
deemed to be a provider under the Medicare or Medicaid programs, the operations
of the Company could be subject to scrutiny under federal and state
anti-kickback and anti-referral laws.
The Company believes its operations as described in this Prospectus are in
compliance with applicable law. The ability of the Company to operate profitably
will depend in part upon the Company and its affiliated practices obtaining and
maintaining all necessary licenses, certificates of need and other approvals and
operating in compliance with applicable health care regulations.
ENVIRONMENTAL REGULATION
The Company's business activities are not significantly affected by
environmental regulations and no material expenditures are anticipated in order
for the Company to comply with environmental regulations. However, the Company
is subject to certain regulations promulgated under the Federal Environmental
Protection Act with respect to grinding, tinting, edging and disposing of
ophthalmic lenses and solutions and may be subject to additional environmental
regulations.
PROPRIETARY PROPERTY
The Company has no licenses, patents or registered copyrights. The Company
(i) has a registered trademark in the United States for "Cambridge Eye
Associates", (ii) has received a Notice of Allowance for use of the trademark
"Open Access Plan" and (iii) has had federal trademarks applications accepted
for the trademarks "Sight Resource" and "Frugal Frames."
EMPLOYEES
As of June 20, 1996, the Company and its affiliated professional practices
had 305 employees, including 41 affiliated optometrists. The Company intends to
hire additional key personnel it believes will be required for advancement and
expansion of the Company's activities.
The success of the Company's future operations depends in large part on the
Company's ability to recruit and retain qualified personnel over time. There can
be no assurance, however, that the Company will be successful in retaining or
recruiting key personnel.
CORPORATE LIABILITY AND INSURANCE
The provision of professional eye care services entails an inherent risk of
professional malpractice and other similar claims. The Company does not
influence or control the practice of medicine or optometry by professionals or
have responsibility for compliance with certain regulatory and other
requirements directly applicable to individual professionals and professional
groups. As a result of the relationship between the Company and its affiliated
practices, the Company may become subject to some professional malpractice
actions under various theories. There can be no assurance that claims, suits or
complaints relating to professional services provided by affiliated practices
will not be asserted against the Company in the future. The Company believes
that the providers with which the Company enters into LVC center agreements or
other strategic affiliation agreements are covered by such providers'
professional malpractice or liability
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insurance. The Company may not be able to purchase professional malpractice
insurance, and may not be able to purchase other insurance at reasonable rates,
which would protect it against claims arising from the professional practice
conducted by providers. Similarly, the use of laser systems in the Company's LVC
centers may give rise to claims against the Company by persons alleging injury
as a result of the use of such laser systems. The Company believes that claims
alleging defects in the laser systems it purchases from its suppliers are
covered by such suppliers' product liability insurance and that the Company
could take advantage of such insurance by adding such suppliers to lawsuits
against the Company. There can be no assurance that the Company's laser
suppliers will continue to carry product liability insurance or that any such
insurance will be adequate to protect the Company.
The Company maintains insurance coverage that it believes will be adequate
both as to risks and amounts. The Company believes that such insurance will
extend to professional liability claims that may be asserted against employees
of the Company that work on site at affiliated practice locations. In addition,
pursuant to the management services contracts, the affiliated practices are
required to maintain professional liability and comprehensive general liability
insurance. The availability and cost of such insurance has been affected by
various factors, many of which are beyond the control of the Company and its
affiliated practices.
There can be no assurance that the Company will be able to retain adequate
liability insurance at reasonable rates, or that the insurance will be adequate
to cover claims asserted against the Company, in which event the Company's
business may be materially adversely affected.
PROPERTIES
Cambridge Eye and Vision World lease the space for 22 and eight,
respectively, of the Company's eye care centers (which range in size from
approximately 1,100 to 6,300 square feet), under leases which expire as follows,
exclusive of renewal options:
<TABLE>
<CAPTION>
YEAR NUMBER OF LEASES EXPIRING
--------------------------------------- -------------------------
<S> <C>
1996................................... 3
1997................................... 3
1998................................... 5
1999................................... 3
2000................................... 5
2001 and thereafter.................... 11
</TABLE>
The centralized optical laboratory and distribution center is located at
the approximately 22,000 square feet of space leased by Cambridge Eye in an
industrial complex in Holliston, Massachusetts pursuant to a lease which expires
in 1998. In addition to the eye care centers and the centralized optical
laboratory and distribution center, the Company currently leases its executive
offices of approximately 5,400 square feet of space located at 67 South Bedford
Street, Burlington, Massachusetts 01803 pursuant to a lease which expires in
1998. The Company believes that its facilities are adequate for its present
needs and that suitable space will be available to accommodate its future needs.
LITIGATION
The Company's subsidiaries are defendants in certain lawsuits alleging
various claims incurred in the ordinary course of business. These claims are
generally covered by various insurance policies, subject to certain deductible
amounts and maximum policy limits. In the opinion of management, the resolution
of existing claims should not have a material adverse effect, individually or in
the aggregate, upon the Company's business or financial condition.
Sight Resource Corporation is not currently a party to any claims, suits or
complaints, although there can be no assurance that such claims will not be
asserted against Sight Resource Corporation in the future. From time to time
Sight Resource Corporation has been party to claims, litigation or other
proceedings in the ordinary course of its business, none of which has been
material to the Company or its business.
There can be no assurance that future claims against the Company or any of
its subsidiaries will not have a material adverse effect on the Company, its
operations or financial condition.
SEASONALITY
The Company's business is not subject to material seasonal fluctuations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
William G. McLendon(1)............. 44 President, Chief Executive Officer and Director
Stephen M. Blinn................... 48 Executive Vice President, Chief Operating Officer
and Director
Elliot S. Weinstock, O.D. ......... 48 Executive Vice President, President of Cambridge
Eye and Director
James H. Spevock................... 58 Vice President of Operations
Alan MacDonald..................... 43 Vice President, Finance and Administration and
Secretary
Jon W. Kerbs....................... 40 Vice President of Marketing
Russell E. Taskey(1)(2)............ 62 Director
Gary Jacobson, M.D. ............... 58 Director
Allen R. Kirkpatrick(1)(2)......... 54 Director
<FN>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
</TABLE>
William G. McLendon has been President and a Director of the Company since
its inception in 1992 and Chief Executive Officer since April 1994. Mr. McLendon
served as Vice President and Chief Financial Officer of IBIS Technology
Corporation, a manufacturer of silicon-based materials for semiconductors, from
1990 to 1993. Prior thereto, Mr. McLendon was the Vice President, Chief
Financial Officer and Treasurer of Summit Technology, Inc. from 1986 to 1990,
and was Vice President and Chief Financial Officer of Zymet, Inc. from 1983 to
1985.
Stephen M. Blinn has been Executive Vice President, Chief Operating Officer
and a Director since joining the Company in May 1993. Mr. Blinn served as
Executive Vice President, Strategic Marketing Development of Summit Technology,
Inc. from 1991 to May 1993. Mr. Blinn first joined Summit in 1987 and served as
Vice President, Sales and Marketing. Prior thereto he was the co-founder and
President of Source Research, Inc., a distribution company for medical lasers
and cardiac pacemakers from 1985 to 1987.
Elliot S. Weinstock, O.D. was elected as a Director of the Company
following the acquisition by the Company of Cambridge Eye in February 1995. Dr.
Weinstock continues to serve as President of Cambridge Eye, which he founded in
1975. Dr. Weinstock has served on the advisory boards of several contact lens
manufacturers.
James H. Spevock, has been Vice President of Operations of the Company
since August 1995. Mr. Spevock has thirty-five years experience in acquiring,
consolidating and operating health-care related retail chains throughout the
country. From 1984 to 1995, Mr. Spevock served as Vice President of Operations
for Tri-State Leasing, Inc., a company whose holdings had included Vision World
and Douglas Drug, a chain of drug stores with annual sales of more than $65
million. Mr. Spevock's experience also includes serving as President and Chief
Executive Officer of Mall Drug, a New England based drug store chain with 165
locations. Prior to that, Mr. Spevock was responsible for the integration of the
initial 1,000 stores operated by the national drug store chain, Rite Aid.
Alan MacDonald, has been Vice President, Finance and Administration since
January 1996 and Secretary since March 1996. Mr. MacDonald has over twenty years
of financial and operational expertise in retail, consumer products and direct
marketing industries. Mr. MacDonald served as President of Home Infocus, a
direct marketer of consumer information services from May 1994 to January 1996.
Prior to that, Mr. MacDonald served as Vice President, Finance and Chief
Financial Officer of Saga International Holidays,
39
<PAGE> 40
Ltd. and National Leisure Group, Inc. respectively, from 1989 to 1994. Mr.
MacDonald held various financial management positions at PepsiCo. Inc. and
Harcourt General Corporation from 1979 to 1989.
Jon W. Kerbs, has been Vice President of Marketing since January 1996. Mr.
Kerbs has extensive experience in optical retail marketing and brand
development. Mr. Kerbs held various positions at LensCrafters from 1990 to
January 1996, where he most recently served as Marketing Director for
LensCrafters western region, and was responsible for the marketing programs for
155 optical retail stores. Prior to that, Mr. Kerbs served as an Assistant Brand
Manager at the Procter & Gamble Company from 1987 to 1990 for the Ivory Soap and
Crest Toothpaste product lines.
Russell E. Taskey has been a Director of the Company since November 1992.
Mr. Taskey is currently President of R. E. Taskey, Associates, a human resource
consulting firm. Mr. Taskey served as Vice President of Human Resources at The
Analytic Sciences Corporation ("TASC") from 1973 to 1994 where he was
responsible for a staff of 31 professionals servicing the human resources needs
of over 2,000 high technology professional employees at 16 locations throughout
the United States. Mr. Taskey was the founding President and is presently a
Director of the North East Human Resource Association, a 1,700 person human
resource professional association. He also serves on the Board of Directors of
Active Control Experts of Cambridge, Massachusetts, a materials engineering
company.
Gary Jacobson, M.D. has been a Director of the Company since November 1992.
Dr. Jacobson is a founder of two Massachusetts hospitals, Westwood Lodge and
Pembroke Hospital, and has served as President of each since 1990. He is a
physician, board-certified in psychiatry, and is a past President of the
Massachusetts Psychiatric Society. He has held an appointment at Massachusetts
General Hospital since 1969 and has served as Assistant Clinical Professor at
Harvard Medical School since 1977.
Allen R. Kirkpatrick has been a Director of the Company since December
1992. Mr. Kirkpatrick has been President of Epion Corporation, a contract
research organization dedicated to development of new technologies for advanced
materials, since 1984. Prior thereto he was General Manager of the Ion Materials
Systems Division of Eaton Corporation from 1981 through 1984 and Manager of the
Solid State Division of Spire Corporation from 1973 through 1980.
SCIENTIFIC ADVISORY BOARD
Myron Yanoff, M.D., has been an advisor to the Company since July 1994 and
is the Medical Director for the Delaware Valley Region. Dr. Yanoff is the
Professor and Chairman of the Department of Ophthalmology at the Medical College
of Pennsylvania and Hahnemann University and is currently Chief of Service at
Hahnemann University Hospital, specializing in cataract and refractive surgery.
Dr. Yanoff was the first surgeon in the Delaware Valley Region to perform
phototherapeutic keratectomy with an excimer laser and is currently performing
Summit Phase III clinical trials, under the auspices of the FDA, for
farsightedness and astigmatism. In 1988, in recognition of his scientific
achievements in research and teaching, Dr. Yanoff received the "Senior
Distinguished U.S. Scientist Award" (Humbolt-Award). Dr. Yanoff is a graduate of
the College and Medical School of the University of Pennsylvania and is the
author of 18 textbooks and over 130 papers published in peer-reviewed journals.
John D. Hunkeler, M.D., has been an advisor to the Company since October
1993. Dr. Hunkeler is the Chairman of the Department of Ophthalmology at Kansas
University Medical Center and was previously a Clinical Associate Professor of
Ophthalmology at the University. Mr. Hunkeler is a past President of the
American Society of Cataract and Refractive Surgery, an organization of 5,000
refractive care specialists and is the current President of the Kansas
University Ophthalmic Foundation. He is also the founder of the Hunkeler Eye
Clinic in Kansas City, Missouri, which specializes in cataract and refractive
surgery and also serves as a national training center for ophthalmologists
interested in learning about excimer laser for refractive correction in the
human eye. Dr. Hunkeler was the founding director of the Kansas City Eye Bank
and served as its medical director for ten years. Dr. Hunkeler is also a past
member of the board of the Eye Bank Association of America.
40
<PAGE> 41
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Audit Committee that oversees the engagement
of the Company's independent accountants, reviews annual financial statements
and the scope of annual audits and considers matters relating to accounting
policy and internal controls. The Board also has a Compensation Committee that
reviews, approves and makes recommendations on the Company's compensation
policies, practices and procedures to ensure that legal and fiduciary
responsibilities of the Board of Directors are carried out and that such
policies, practices and procedures contribute to the success of the Company. The
Compensation Committee also administers the Company's 1992 Employee, Director
and Consultant Stock Option Plan (the "Stock Option Plan").
ELECTION AND COMPENSATION OF DIRECTORS
The Company's Restated Certificate of Incorporation provides for a
classified Board of Directors consisting of three classes of directors, with
each class to be as nearly equal in number as is reasonably possible. The
Company has designated two Class A directors (Mr. Kirkpatrick and Mr. Blinn),
two Class B directors (Dr. Jacobson and Mr. Taskey) and two Class C directors
(Mr. McLendon and Dr. Weinstock). Class A, Class B and Class C directors will
serve until the annual meetings of stockholders to be held in 1997, 1998 and
1999, respectively, and until their respective successors are duly elected and
qualified. At each annual meeting of stockholders, nominees for director are
elected for a full term of three years to succeed those directors whose terms
are expiring.
The Company has implemented a stock option program under the Stock Option
Plan for non-employee directors. The Stock Option Plan provides for a grant to
each non-employee director immediately following each annual meeting of
stockholders of a non-qualified option to purchase 5,000 of shares of Common
Stock, provided that on such date such director has been in the continued and
uninterrupted services of the Company as a director for a period of at least one
year. Each such option has an exercise price equal to the fair market value of
the Common Stock on the date of grant and vests in equal annual installments
over two years. The Company currently has no other compensation arrangements for
members of the Board of Directors but may elect in the future to compensate
Board members for attendance at regular meetings of the Board of Directors and
for meetings of the committees of the Board.
41
<PAGE> 42
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth summary information as
to compensation received in fiscal 1995 by the Company's Chief Executive Officer
and each of the two other most highly compensated executive officers of the
Company who were serving as such at the end of fiscal 1995 (the "Named Executive
Officers") for services rendered to the Company in all capacities during fiscal
1995. No other executive officer of the Company received compensation exceeding
$100,000 for fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL COMPENSATION ------------
-------------------- SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(#) COMPENSATION($)(2)
- ------------------------------------------ ------ --------- ------------ ------------------
<S> <C> <C> <C> <C>
William G. McLendon....................... 1995 $ 161,500 30,000 $ 895
President and Chief 1994 $ 140,000 -- $1,281
Executive Officer 1993 $ 85,000(1) -- $ 231
Stephen M. Blinn.......................... 1995 $ 158,975 30,000 $1,090
Executive Vice President and 1994 $ 136,800 125,000(4) $ 995
Chief Operating Officer 1993 $ 85,000(1) 150,000 $ --
Elliot S. Weinstock, O.D. ................ 1995 $ 183,656(3) -- $4,014
Executive Vice President and President
of Cambridge Eye
</TABLE>
- ---------------
(1) The Company commenced the payment of salaries to Messrs. McLendon and Blinn
in April 1993. The Company does not intend to pay in the future any cash
compensation to such Named Executive Officers for services rendered from
inception through April 1, 1993.
(2) Represents the cost to the Company of matching contributions under the
Company's 401(k) plan to Dr. Weinstock and the dollar value of premiums paid
by the Company with respect to term life insurance for all Named Executive
Officers.
(3) Dr. Weinstock became an executive officer effective January 1995 upon the
acquisition by the Company of Cambridge Eye.
(4) Includes 125,000 stock options that were repriced during fiscal 1994.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding each stock option
granted during fiscal 1995 to each of the Named Executive Officers. The
potential realizable values that would exist for the respective options are
based on assumed rates of annual compound stock price appreciation of 5% and 10%
from the date of grant over the full term of the option. Actual gains, if any,
on stock options, exercises and Common Stock holdings are dependent on the
future performance of the Common Stock.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZED
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#)(1) FISCAL YEAR(2) ($/SHARES) DATE 5%($) 10%($)
- ------------------------- --------------- -------------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William G. McLendon...... 30,000(3) 8.14% $ 4.31 2/10/05 $210,616 $335,371
Stephen M. Blinn......... 30,000(3) 8.14% $ 4.31 2/10/05 $210,616 $335,371
</TABLE>
- ---------------
(1) The options were granted pursuant to the Company's Stock Option Plan at an
exercise price equal to or greater than the fair market value on the date of
grant.
(2) The Company granted options representing 368,400 shares of Common Stock in
fiscal 1995.
42
<PAGE> 43
(3) These options were granted pursuant to the Company's Stock Option Plan and
are incentive stock options. Options vest annually in three equal
installments commencing one year from the date of grant. Options vest
immediately upon certain changes of control described with respect to their
employment agreements. See "--Employment Agreements, Termination of
Employment and Change of Control Arrangements."
FISCAL YEAR-END OPTION VALUES
The following table provides the following information regarding options
held by each of the Named Executive Officers: the number of shares covered by
both exercisable and unexercisable stock options as of December 31, 1995 and the
values of "in-the-money" options, which values represent the positive spread
between the exercise price of any such option and the fiscal year-end value of
the Company's Common Stock. No options were exercised by any Named Executive
Officer during fiscal 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END($)
-------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
William G. McLendon................. -- 30,000 $ -- $193,200
Stephen M. Blinn.................... 66,667 113,333 458,335 722,365
Elliot S. Weinstock, O.D. .......... 18,000 -- 114,300 --
<FN>
- ---------------
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $10.75, the closing sale
price per share of the Company's Common Stock as reported on the Nasdaq
National Market on December 29, 1995.
</TABLE>
INDEMNIFICATION
The Company's Restated Certificate of Incorporation contains provisions
eliminating or limiting the personal financial liability of the Company's
directors to the fullest extent permitted by Delaware General Corporation Law.
Delaware law provides that directors will not be personally liable to a
corporation or its stockholders for monetary damages for breach of their
fiduciary duties as directors, except for liability where there has been a
breach of the duty of loyalty, a failure to act in good faith, an act of
intentional misconduct, a knowing violation of law, certain unlawful payments of
dividends, stock repurchases or redemptions, or any transaction from which the
director derives an improper personal benefit. In addition, the Company's
Restated Certificate of Incorporation and By-Laws include provisions to
indemnify its officers and directors and persons serving at the request of the
Company to the fullest extent permitted by Delaware General Corporation Law
against expenses, judgments, fines and amounts paid in connection with
threatened, pending or completed suits and proceedings against such persons by
reason of having served as officers, directors or in other capacities. The
Company maintains a director's and officer's liability insurance policy in the
aggregate amount of $1,000,000 on behalf of its directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable. See "-- Employment Agreements, Termination of
Employment and Change of Control Arrangements."
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
The Company has entered into employment agreements with Messrs. McLendon
and Blinn which provide for Mr. McLendon to serve as President of the Company
until March 1999 and Mr. Blinn to serve as Executive Vice President and Chief
Operating Officer until April 1999. Under their respective agreements, each of
them is entitled to receive an annual salary of $178,000, subject to increase
from time to time by the
43
<PAGE> 44
Board of Directors. Each is eligible to receive a discretionary annual bonus not
to exceed 30% of his annual base salary, payable annually or semiannually at the
discretion of the Board. The agreements also provide for a payment of one year's
salary to each of them in the event his employment is terminated upon certain
changes of control of the Company. Changes in control which may trigger a
payment of one year's salary are (i) a person's becoming the beneficial owner of
25% or more of the outstanding Common Stock of the Company, (ii) if, ten days
following a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person of 25% or more of the outstanding
Common Stock of the Company, such person has not discontinued or rescinded the
tender offer or exchange offer, or (iii) a merger, consolidation, liquidation or
sale of substantially all of the Company's assets. In the event that Mr.
McLendon's or Mr. Blinn's employment is terminated by the Board of Directors
without cause or in certain other circumstances, each of them is entitled to one
year's base salary and the cost of one year's health benefits as severance.
The Company has entered into an employment agreement with Dr. Weinstock
which provides for Dr. Weinstock to serve as President of Cambridge Eye and
Director of the Company until February 24, 1998. Under this agreement, Dr.
Weinstock is entitled to receive an annual salary of $175,000, subject to
increase from time to time by the Board of Directors. Dr. Weinstock is also
entitled to an annual bonus not to exceed 30% of his yearly base salary, 75% of
which is to be based on the attainment of objective criteria and 25% of which is
to be determined by the Board of Directors at its discretion. The bonus is
payable annually or semiannually at the discretion of the Board of Directors.
The agreement also provides for a lump sum payment of one year's salary to Dr.
Weinstock in the event his employment is terminated upon certain changes of
control of the Company. Changes in control which may trigger a payment of one
year's salary are (i) a person's becoming the beneficial owner of 25% or more of
the outstanding Common Stock of the Company or Cambridge Eye, (ii) if, ten days
following a tender offer or exchange offer, the consummation of which would
result in the beneficial ownership by a person of 25% or more of the outstanding
Common Stock of the Company or Cambridge Eye, such person has not discontinued
or rescinded the tender offer or exchange offer, or (iii) a merger,
consolidation, liquidation or sale of substantially all of the Company's or
Cambridge Eye's assets. In the event that Dr. Weinstock's employment is
terminated by the Board of Directors without cause or in certain other
circumstances, he is entitled to his base salary and certain benefits under the
agreement, including health benefits, life insurance, and access to a car, for a
period of one year.
KEY MAN LIFE INSURANCE
The Company has obtained a $1,000,000 term life insurance policy covering
each of Mr. McLendon, Mr. Blinn and Dr. Weinstock. The Company is the sole
beneficiary on the policy.
STOCK OPTION PLAN
General. The Company's Stock Option Plan was approved by the Company's
Board of Directors on November 30, 1992 and by the Company's stockholders on
February 4, 1993. A total of 170,000 shares of Common Stock were initially
reserved for issuance under the Stock Option Plan. According to its terms, the
Stock Option Plan may be amended by the Board of Directors or the Compensation
Committee, provided that any amendment approved by the Board of Directors or the
Compensation Committee which is of a scope that requires stockholder approval in
order to ensure favorable federal income tax treatment for any incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") or requires stockholder approval in order to ensure the qualification of
the Stock Option Plan under Rule 16b-3 under the Securities Exchange Act of
1934, is subject to obtaining such stockholder approval. On May 18, 1993,
October 1, 1993, March 4, 1994 and March 5, 1996 the Compensation Committee
voted to approve amendments to the Stock Option Plan to increase by 155,000,
175,000, 500,000 and 500,000 shares, respectively, the aggregate number of
shares of Common Stock for which stock options may be granted under the Stock
Option Plan. The stockholders of the Company voted to approve such increases at
the annual meetings of stockholders held April 26, 1994 and May 29, 1996.
Consequently, the Company has reserved 1,500,000 shares of Common Stock for
which options may be granted under the Stock Option Plan.
To preserve the deductibility of compensation expense with respect to stock
options granted pursuant to the Stock Option Plan under new Section 162(m) of
the Code, which was added to the Code by the Omnibus
44
<PAGE> 45
Budget Reconciliation Act of 1993, the Stock Option Plan also provides a per
person limit of 300,000 shares of the aggregate number of shares of Common Stock
for which options may be granted to any person during any three year period.
All employees and consultants of the Company and the members of the Board
of Directors are eligible to participate in the Stock Option Plan.
Material Features of the Stock Option Plan. Options granted under the
Stock Option Plan may be either (i) options intended to qualify as "incentive
stock options" under Section 422 of the Code, or (ii) options that are not
incentive stock options ("non-qualified stock options"). Incentive stock options
may be granted under the Stock Option Plan to officers and other employees of
the Company and its affiliates (approximately 264 persons). Non-qualified stock
options may be granted to directors, employees, officers or consultants of the
Company and its affiliates (approximately 315 persons). The Stock Option Plan
provides for a grant to each non-employee director immediately following each
annual meeting of stockholders, provided that on such dates such director has
been in the continued and uninterrupted service of the Company as a director
since election or appointment for a period of at least one year and is a
director and not an employee at such times, of a non-qualified stock option to
purchase 5,000 shares of Common Stock. Each such option shall have an exercise
price equal to the fair market value of the Common Stock on the date of grant
and shall vest in equal annual installments over two years. See "-- Election and
Compensation of Directors."
The Stock Option Plan is administered by the Compensation Committee.
Subject to the provisions of the Stock Option Plan, the Compensation Committee
has the authority to administer the provisions of the Stock Option Plan, to
determine the persons to whom options will be granted, the number of shares to
be covered by each option and the terms and conditions upon which an option may
be granted.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable in any
calendar year under any incentive stock option plan of the Company by an
employee or officer may not exceed $100,000. Incentive stock options granted
under the Stock Option Plan may not be granted at a price less than 100% of the
fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of employees or officers holding 10% or more of the
voting stock of the Company). Non-qualified stock options granted under the
Stock Option Plan may not be granted at an exercise price less than the par
value per share of Common Stock on the date of grant. Incentive stock options
granted under the Stock Option Plan expire not more than ten years from the date
of grant, or not more than five years from the date of grant in the case of
incentive stock options granted to an employee or officer holding 10% or more of
the voting stock of the Company.
An option granted under the Stock Option Plan is exercisable, during the
optionholder's lifetime, only by the optionholder and is not transferable by him
except by will or by the laws of descent and distribution. An option granted to
an individual who is subject to Section 16 of the Securities Exchange Act of
1934 is not exercisable within six months after the date of grant. An incentive
stock option granted under the Stock Option Plan may, at the Board of Director's
discretion, be exercisable after the termination of the optionholder's
employment with the Company (other than by reason of death, disability or
termination for cause as defined in the Stock Option Plan) to the extent
exercisable on the date of such termination, for up to 90 days following such
termination, provided that such incentive stock option has not expired on the
date of such exercise. In granting any non-qualified stock option, the Board of
Directors may specify that such non-qualified stock option shall be subject to
termination or cancellation provisions to be determined by the Board of
Directors. In the event of the optionholder's death, both incentive stock
options and non-qualified stock options may be exercised, to the extent
exercisable on the date of death, by the optionholder's survivors at any time
prior to the earlier of the option's specified expiration date or one year from
the date of the optionholder's death.
45
<PAGE> 46
Certain options granted pursuant to the Stock Option Plan to Mr. McLendon
and Mr. Blinn may be subject to immediate vesting upon the event of a change in
control of the Company, as defined in each of their respective option agreements
with the Company. Currently, 307,500 options granted under the Stock Option Plan
are subject to a change of control provision. See "--Employment Agreements,
Termination of Employment and Change of Control Arrangements."
46
<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of the Company's Common Stock as of June 20, 1996, by (i)
persons known by the Company to be beneficial owners of more than 5% of the
outstanding Common Stock, (ii) each director of the Company, (iii) each Named
Executive Officer of the Company, and (iv) all directors and executive officers
of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
SHARES ------------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME AND ADDRESS** OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------ ------------ ---------- ---------
<S> <C> <C> <C>
Elliot S. Weinstock, O.D.(2)................................ 349,000 5.5% 4.3%
67 South Bedford Street
Burlington, MA 01803
William G. McLendon (3)..................................... 305,895 4.8% 3.8%
Stephen M. Blinn (4)........................................ 229,667 3.6% 2.8%
Russell E. Taskey (5)....................................... 31,400 * *
Gary Jacobson, M.D. (5)..................................... 24,500 * *
Allen R. Kirkpatrick (5).................................... 14,500 * *
All Directors and executive officers as a group (9 persons)
(6)....................................................... 956,962 14.7% 11.7%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the Company's outstanding
Common Stock.
** Addresses are given for beneficial owners of more than 5% of the outstanding
Common Stock only.
(1) The number of shares of Common Stock issued and outstanding on June 20, 1996
was 6,346,715. The calculation of percentage ownership for each listed
beneficial owner is based upon the number of shares of Common Stock issued
and outstanding at June 20, 1996, plus shares of Common Stock subject to
options held by such person at June 20, 1996 and exercisable within 60 days
thereafter and shares underlying the Warrants held by such person. The
persons and entities named in the table have sole voting and investment
power with respect to all shares shown as beneficially owned by them, except
as noted below.
(2) Includes 18,000 shares issuable upon exercise of stock options.
(3) Includes 10,000 shares issuable upon exercise of stock options.
(4) Includes 76,667 shares issuable upon exercise of stock options, and 45,908
shares gifted to Mr. Blinn's immediate family, of which Mr. Blinn disclaims
beneficial ownership.
(5) Includes 12,500 shares issuable upon exercise of stock options, and shares
issuable upon exercise of Warrants.
(6) Includes 144,167 shares issuable upon exercise of stock options and shares
issuable upon exercise of Warrants.
47
<PAGE> 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FORMATION AND FINANCING OF THE PREDECESSOR PARTNERSHIP AND THE COMPANY
The Predecessor Partnership was formed in April 1992 with an initial
capital contribution of $40,000 (plus a loan of $360,000 from the partners to
the partnership). The partners at that time included Mr. McLendon, President and
a Director of the Company, and Mr. Blinn, Executive Vice President, Chief
Operating Officer and a Director of the Company. L. James Miller, a former
Executive Vice President and a Director of the Company who resigned from both
such positions in September 1993, became a partner of the Predecessor
Partnership in November 1992. The Company was formed in November 1992 with an
initial capitalization of approximately $200,000, or $.43 per share. On November
30, 1992, the Company acquired substantially all of the business of the
Predecessor Partnership for 861,900 shares of Common Stock pursuant to an
Assignment, Bill of Sale and Assumption Agreement between the Predecessor
Partnership and the Company. The business assets transferred included two laser
systems, cash of approximately $30,000, a revenue-sharing agreement with a
hospital in the United Kingdom, and all intangible assets of the Predecessor
Partnership's business. The transferred assets were subject to notes payable to
partners and other liabilities incurred in the operation of the business. The
assets acquired, amounting to $677,073, and the liabilities assumed, amounting
to $649,673, were recorded on the Company's books as the Predecessor
Partnership's historical costs since the stockholders of the Company had the
ability to exercise significant control over the Predecessor Partnership. The
861,900 shares of Common Stock transferred by the Company to the Predecessor
Partnership were valued at approximately $.05 per share. This valuation was
based upon the initial $40,000 capital contribution paid by the partners of the
Predecessor Partnership in establishing the partnership in April 1992, and was
determined in negotiations between the Predecessor Partnership and the
stockholders of the Company.
Mr. McLendon and Mr. Miller are the founders of the Company. In November
1992, Mr. McLendon and Mr. Miller each purchased 58,650 shares of Common Stock
for $25,220 ($.43 per share). In addition, Mr. McLendon was the President and
sole stockholder of the general partner and a limited partner of the Predecessor
Partnership and Mr. Blinn and Mr. Miller were limited partners of the
Predecessor Partnership. The Predecessor Partnership liquidated its assets in
March 1994 on a pro rata basis to its partners, whereupon Mr. McLendon received
295,895 shares of Common Stock, Mr. Miller received 302,275 shares of Common
Stock and Mr. Blinn received 35,700 shares of Common Stock.
In connection with the transfer of substantially all of the Predecessor
Partnership's business to the Company, the Company assumed the obligation to
repay notes with a face value of $360,000 to the partners of the Predecessor
Partnership, including a note with a face value of $108,000 to Mr. McLendon and
a note with a face value of $36,000 to Mr. Blinn. Such notes were repaid with
the proceeds from the initial public offering.
Pursuant to Mr. Miller's termination agreement, the Company agreed to pay
Mr. Miller a fee of $10,000 per month from September 1993 through June 1994. The
Company also agreed to continue Mr. Miller's health insurance benefits through
August 1994.
OPTOMETRIC PROVIDERS RELATIONSHIP
Dr. Weinstock, a Director of the Company, serves as a Director and
President of Optometric Providers. Pursuant to a management services contract
with Optometric Providers, the Company provides management, administrative,
marketing and related services in exchange for certain management fees. See
"Business -- Operations -- Management Services Contracts."
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DESCRIPTION OF SECURITIES
The authorized capital stock of the Company currently consists of
25,000,000 shares, consisting of 20,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock") and 5,000,000 shares of undesignated
preferred stock, par value $.01 per share (the "Preferred Stock").
COMMON STOCK
As of June 20, 1996, there were 6,346,715 shares of Common Stock issued and
outstanding and held of record by approximately 340 stockholders (and
beneficially owned by approximately 6,000 stockholders). After giving effect to
the Offering, there will be a total of 8,046,715 shares of Common Stock
outstanding. Such total excludes shares issuable upon the exercise of (i) the
Outstanding Stock Options, (ii) the Warrants, (iii) the UPO Units (including the
Warrants included in the UPO Units), (iv) the Class A Warrants, (v) the IPO
Representative's Warrants (including the warrants included in the units issuable
to the IPO Representative upon exercise thereof) and (vi) the Representative's
Warrants.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders and are not entitled
to cumulative voting rights. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of Preferred Stock that may be issued at such
future time or times. See "Price Range of Common Equity and Dividend Policy." In
the event of a dissolution, liquidation or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of all debts and other liabilities and subject to the prior rights of Preferred
Stock that may be issued at such time. Holders of Common Stock have no
preemptive or other subscription rights and no right to convert their Common
Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the shares offered hereby upon issuance and sale will be, fully
paid and non-assessable. The rights, preferences and privileges of holders of
Common Stock are subject to the rights of the holders of shares of any series of
Preferred Stock which the Company may designate and issue in the future.
PREFERRED STOCK
Under the Company's Restated Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
further stockholder approval, to issue from time to time up to an aggregate of
5,000,000 shares of the Company's authorized class of undesignated Preferred
Stock, in one or more series. Each such series of Preferred Stock shall have
such number of shares, designations, preferences, powers, qualifications and
special or relative rights or privileges as shall be determined by the Board of
Directors, which may include, among others, dividend rights, voting rights,
redemption and sinking fund provisions, liquidation preferences, conversion
rights and preemptive rights.
The rights of the holders of Common Stock will be subject to the rights of
holders of any Preferred Stock issued in the future. The issuance of Preferred
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring a majority of the outstanding voting stock of the Company. The
Company has no present plans to issue any shares of Preferred Stock.
Pursuant to the terms of the Underwriting Agreement entered into at the
time of the initial public offering, the Company may not issue preferred stock
for a period of five years from March 31, 1993 without the consent of the IPO
Representative.
WARRANTS
In connection with the Company's secondary public offering in August 1994
(the "Secondary Public Offering"), the Company issued 2,472,500 units (the
"Units"), each Unit consisting of one share of Common Stock and one Warrant. The
Warrants were issued pursuant to the terms of a Warrant Agreement between the
Company and American Stock Transfer & Trust Company, as Warrant Agent. Each
Warrant currently entitles the registered holder to purchase one share of Common
Stock at an exercise price of $6.00, subject to
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adjustment, at any time prior to August 25, 1999. As of the date of this
Prospectus, 400 of the Warrants have been exercised.
The Company has the right to redeem the Warrants at a price of $.05 per
Warrant at any time, provided that (i) the average closing bid price for the
Company's Common Stock as reported by the Nasdaq National Market, (ii) the
average closing sale price on the primary exchange on which the Common Stock is
traded, if the Common Stock is traded on a national securities exchange, or
(iii) if the Common Stock is neither quoted on Nasdaq nor listed on an exchange,
the average high bid price as set forth in the National Quotation Bureau sheet
listing, shall have in each case exceeded $9.50 for a period of 20 consecutive
business days ending within 15 days prior to the date of notice of redemption,
and provided that the Company has complied with certain other conditions. The
Company is required to give Warrant holders at least 30 days' advance written
notice of its intention to redeem the Warrants, and, prior to the expiration of
this 30-day period, the Warrant holders may exercise the Warrants. The right to
exercise the Warrants will cease on the business day immediately preceding the
date fixed for redemption.
The exercise price and the number of shares of Common Stock (or any other
securities) to be obtained upon exercise of the Warrants are subject to
adjustment in the event of a stock dividend on or a split or combination of
Common Stock, or of a reclassification, reorganization, recapitalization, merger
or consolidation of the Company, or a sale of all or substantially all of its
assets.
Fractional shares will not be issued upon the exercise of Warrants, and, in
lieu thereof, there will be paid to the holder of the Warrants at the time of
such exercise an amount in cash equal to the same fraction of the current market
price (as determined pursuant to the Warrant Agreement) of a share of Common
Stock. The Warrants do not confer upon the holder any voting or preemptive
rights, or any other rights of a stockholder of the Company. In the event of the
liquidation, dissolution or winding up of the Company, holders of the Warrants
are not entitled to participate in the distribution of the Company's assets. The
Company will reserve from its authorized but unissued shares of Common Stock a
sufficient number of shares for issuance upon exercise of the Warrants. Exercise
of each Warrant may be effected by delivery of the Warrant Certificate, duly
endorsed for exercise and accompanied by payment of the exercise price, to the
Warrant Agent. The shares of Common Stock issuable upon exercise of the Warrants
will be, when issued and sold, fully paid and non-assessable.
Purchasers of the Warrants will have the right to exercise the Warrants to
purchase shares of Common Stock only if a current prospectus relating to such
shares is then in effect and only if the shares are qualified for sale under the
securities laws of the state or states in which the various holders of the
Warrants reside. The Company has undertaken to maintain the effectiveness of the
Registration Statement of which this Prospectus is a part so as to permit the
purchase and sale of the Common Stock underlying the Warrants, but there can be
no assurance that the Company will be able to do so. Although the Company is not
aware of any Units sold to purchasers in jurisdictions in which the Units were
not registered or otherwise qualified for sale, purchasers may have bought Units
or may buy Warrants in the aftermarket or may move to jurisdictions in which the
shares of Common Stock issuable upon exercise of the Warrants are not so
registered or qualified. In this event, the Company would be unable to issue the
shares of Common Stock to those persons desiring to exercise their Warrants
unless and until the shares of Common Stock could be qualified for sale in
jurisdictions in which such purchasers reside, or an exemption from such
qualification exists in such jurisdiction. No assurances can be given that the
Company will be able to effect any required registration or qualification. The
Warrants may be deprived of any value if a current prospectus covering the
shares issuable upon the exercise thereof is not kept effective or if such
Common Stock is not qualified or exempt from qualification in the jurisdiction
in which the holders of the Warrants reside.
CLASS A WARRANTS
In connection with the Company's private placement of $1,100,000 of Bridge
Notes in March 1994, the Company issued Class A Warrants to purchase 110,000
shares of Common Stock. Each Class A Warrant entitles the registered holder to
purchase from the Company one share of Common Stock at $6.00 per share, subject
to adjustment in certain circumstances, for a five year period terminating on
the close of business on
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March 25, 1999. The Class A Warrants are not redeemable. Other than the term,
exercise price, and redemption, the Class A Warrants are identical to the
Warrants. As of the date of this Prospectus, 25,000 Class A Warrants have been
exercised.
UNIT PURCHASE OPTIONS AND UPO UNITS
In connection with the Secondary Public Offering, the Company sold to D.
Blech & Company, Incorporated (or its designees) and to Alan R. Ackerman (as a
finder's fee) 182,750 and 32,250 options (the "Unit Purchase Options"),
respectively, to purchase an aggregate of 215,000 units (the "UPO Units") at a
price of $.001 per option. The Unit Purchase Options are exercisable for the UPO
Units for a period of four years, which commenced on August 25, 1994 and
terminates on August 25, 1998, at an initial exercise price equal to $9.90 per
UPO Unit. The Warrants included in the UPO Units are exercisable at an exercise
price of $7.20 per Warrant, subject to adjustment in certain events. The Unit
Purchase Options contain antidilution provisions providing for appropriate
adjustment of the exercise price and the number of UPO Units which may be
purchased upon exercise upon the occurrence of certain events.
The Company has agreed that it will, at its expense on any one occasion
during the four-year period which commenced on August 25, 1995 and on any one
additional occasion at the expense of the holders thereof during such period,
register the Unit Purchase Options and the securities underlying, or issuable
upon the exercise of the securities underlying, the Unit Purchase Options at the
request of holders of a majority of the UPO Units issued upon exercise of the
Unit Purchase Options (including shares of Common Stock issuable upon exercise
of the Warrants included in the UPO Units). The Company has also agreed, during
the seven-year period commencing on the date of this Prospectus, to register on
a "piggyback" basis, on an unlimited number of occasions, such securities
whenever the Company files a registration statement.
IPO REPRESENTATIVE'S WARRANTS
In connection with the Company's initial public offering in March 1993, the
Company sold to Noble Investment Co. of Palm Beach (the "IPO Representative")
warrants (at an aggregate price of $85) to purchase 85,000 units, each
consisting of one share of Common Stock and one warrant, at an exercise price of
$7.98 per unit (the "IPO Representative's Warrants"). The warrants included in
the IPO Representative's Warrants are exercisable at an exercise price of $6.75
per warrant, subject to adjustment in certain events, and expire in October
1996. The IPO Representative's Warrants, which expire in March 1998, were non-
transferable until March 31, 1994, and became exercisable commencing on March
31, 1994. The exercise price of the IPO Representative's Warrants is subject to
adjustment pursuant to antidilution provisions contained in the warrant
agreement. The Company has agreed to set aside and at all times have available a
sufficient number of shares of Common Stock to be issued upon the exercise of
the IPO Representative's Warrants and the warrants included in the units to be
issued to the IPO Representative. The Company agreed to register the IPO
Representative's Warrants and the securities underlying the IPO Representative's
Warrants in the Registration Statement filed in connection with the IPO. The IPO
Representative's Warrants grant to the holders thereof certain rights with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the IPO Representative's Warrants. See
"Shares Eligible for Future Sale -- Registration Rights."
The exercise price and the number of shares of Common Stock (or any other
securities) to be obtained upon exercise of the IPO Representative's Warrants
are subject to adjustment in the event of a stock dividend on or a split or
combination of Common Stock, or of a reclassification, reorganization,
recapitalization, merger or consolidation of the Company, or a sale of all or
substantially all of its assets.
REPRESENTATIVE'S WARRANTS
In connection with the Offering, the Company has agreed to sell to
Commonwealth Associates and its designees warrants (at an aggregate price of
$170) to purchase an aggregate of 170,000 shares of Common Stock at an exercise
price per share equal to 130% of the public offering price (the
"Representative's Warrants"). The Company has agreed to set aside and at all
times have available a sufficient number of shares
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of Common Stock to be issued upon the exercise of the Representative's Warrants.
The Representative's Warrants are not redeemable and may not be sold,
transferred, assigned, pledged or hypothecated for a period of one year from the
date of this Prospectus, except that they may be assigned, in whole or in part,
to any successor, officer, employee or partner of the Representative, or to
officers, employees or partners of any such successor or partner, and are
exercisable during the four-year period commencing one year from the date of
this Prospectus (the "Warrant Exercise Term").
The exercise price and the number of shares of Common Stock (or any other
securities) to be obtained upon exercise of the Representative's Warrants are
subject to adjustment in the event of a stock dividend on or a split or
combination of Common Stock, or of a reclassification, reorganization,
recapitalization, merger or consolidation of the Company, or a sale of all or
substantially all of its assets.
The Company has agreed that it will, at its expense on any one occasion
during the five-year period commencing on the date of this Prospectus, register
the shares of Common Stock underlying the Representative's Warrants at the
request of the holders of the Representative's Warrants. The Company has also
agreed, during the seven-year period commencing on the date of this Prospectus,
to register on a "piggyback" basis, on an unlimited number of occasions, the
shares of Common Stock underlying the Representative's Warrants whenever the
Company files a registration statement.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, Section 203 prohibits certain publicly-held
Delaware corporations from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person or entity became an interested stockholder,
unless the business combination is or the transaction in which the person became
an interested stockholder was approved in a prescribed manner or certain other
exceptions apply. For purposes of Section 203 a "business combination" is
defined broadly to include mergers, asset sales and other transactions resulting
in a financial benefit to the interested stockholder. Subject to certain
exceptions, an "interested stockholder" is a person or entity who, together with
affiliates and associates, owns, or within the three immediately preceding years
of a business combination did own, 15% or more of the corporation's outstanding
voting stock.
The Company's Restated Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by the Delaware General Corporation
Law. Delaware law provides that the directors of the corporation will not be
personally liable to such corporation or its stockholders for monetary damages
for breach of their fiduciary duties as directors, except for liability (i) for
any breach of their duty of loyalty to the corporation or its stockholders; (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law; (iii) for unlawful payments of dividends or
unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law; or (iv) for any transaction from which the
director derives an improper personal benefit. The Company's By-Laws provide
that the Company shall indemnify its directors and officers to the fullest
extent permitted by Delaware law and permit the Company to advance expenses to
such directors and officers to defend any action for which rights of
indemnification are provided. The By-Laws also permit the Company to grant such
rights to its employees and agents. The Company believes that these provisions
will assist the Company in attracting and retaining qualified individuals to
serve as directors, officers and employees.
Commencing with the Company's annual meeting of stockholders in 1993, the
Company's Board of Directors was classified into three classes, with the initial
terms of each class expiring at the 1994, 1995 and 1996 annual stockholders'
meetings, respectively. After the expiration of each initial term, the directors
in each class were elected for three-year terms. See "Management -- Election and
Compensation of Directors." The Board of Directors is authorized to create new
directorships in any class and to fill such positions so created. The person
chosen to fill such position will serve for the term applicable to that class.
The Board of Directors (or its remaining members, even though less than a
quorum) is also empowered to fill vacancies on the Board of Directors occurring
for any reason for the remainder of the term of the class of directors in which
the vacancy occurred. The Company's Restated Certificate of Incorporation
provides that subject to the rights
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of holders of any series of Preferred Stock then outstanding, directors may be
removed with cause by the vote of the holders of at least a majority of the
voting power of the outstanding voting stock of the Company and may be removed
without cause by the holders of at least 66% of the voting power of the
outstanding voting stock of the Company. The likely effect of these provisions
is that they will increase the time required for stockholders to change the
composition of the Board of Directors. For example, in general, at least two
annual meetings will be necessary for stockholders to effect a change in a
majority of the members of the Board of Directors.
The Company's By-Laws provide that, for nominations to the Board of
Directors or for other business to be properly brought by a stockholder before a
meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a
stockholder's notice generally must be delivered not less than sixty days nor
more than ninety days prior to the annual meeting. If the meeting is not an
annual meeting, the notice must generally be delivered not more than ninety days
prior to the special meeting and not later than the later of sixty days prior to
the special meeting or ten days following the day on which public announcement
of the meeting is first made by the Company. The notice must contain, among
other things, certain information about the stockholder delivering the notice
and, as applicable, background about the nominee or a description of the
proposed business to be brought before the meeting.
The Company's Restated Certificate of Incorporation provides that any
action required or permitted to be taken by the stockholders of the Company
shall be taken only at a duly called annual or special meeting of the
stockholders, and may not be effected by written consent. Special meetings may
be called by a majority of the whole Board of Directors or the President of the
Company.
The Delaware General Corporation Law provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless the corporation's certificate of incorporation or by-laws, as the case
may be, requires a greater percentage. The Company's Restated Certificate of
Incorporation requires the affirmative vote of the holders of at least 66% of
the outstanding voting stock of the Company to amend or repeal any of the
provisions discussed in this section or to reduce the number of authorized
shares of Common Stock. Such 66% vote is also required for any amendment to or
repeal of the Company's By-Laws by the stockholders. The By-Laws may also be
amended or repealed by a majority vote of the whole Board of Directors.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the transfer agent and registrar
for the Company's Common Stock and the Warrant Agent for the Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering and assuming the exercise of all of the
Warrants and Class A Warrants, the Company will have outstanding 10,603,815
shares of Common Stock (excluding (i) the shares of Common Stock included in,
and issuable upon exercise of the Warrants included in, the UPO Units, (ii) the
shares of Common Stock included, and issuable upon the exercise of the warrants
included in, the IPO Representative's Warrants, (iii) the shares of Common Stock
issuable upon the exercise of the Representative's Warrants and (iv) the shares
of Common Stock issuable upon exercise of the Outstanding Stock Options). Of the
10,603,815 shares, 9,981,890 shares will be freely tradeable without restriction
or further registration under the Securities Act of 1933, except for shares held
by "affiliates" of the Company, as that term is defined under the Securities Act
of 1933 and the regulations promulgated thereunder, which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act of 1933
("Rule 144"). The remaining 621,925 shares that are outstanding have been issued
and sold by the Company in reliance on one or more exemptions from the
registration requirements of the Securities Act of 1933 and are "restricted
securities" within the meaning of Rule 144 ("Restricted Shares") and, therefore,
may be publicly sold only (i) if subsequently registered under the Securities
Act, (ii) pursuant to Rule 144 or Rule 701 promulgated under the Securities Act
of 1933 ("Rule 701") or (iii) in other private transactions exempt from
registration under the Securities Act of 1933. None of such shares have
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been held for the minimum two-year period required by Rule 144 and therefore
will not become eligible for public sale pursuant to Rule 144 until expiration
of their respective two-year holding periods. The earliest date at which any
such two-year holding period will expire is in February 1997. In addition,
60,000 Restricted Shares are eligible for sale in the public market in
accordance with Rule 701. Notwithstanding the foregoing, all of the Restricted
Shares are subject to the lock-up agreements described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated with those of others), including any person who may
be deemed an "affiliate" of the Company, as that term is defined in Rule 144,
would be entitled to sell in brokers' transactions or directly to market makers
within any three-month period a number of Restricted Shares that does not exceed
the greater of (i) 1% of the class of such shares then outstanding (8,046,715
shares of Common Stock based on the number of shares to be outstanding after
consummation of the Offering) or (ii) the average weekly trading volume of the
class of such shares in the over-the-counter market during the four calendar
weeks preceding the date on which notice of such sale is filed with the
Securities and Exchange Commission, provided that certain current public
information concerning the Company is then available, the seller complies with
certain manner of sale provisions and notice requirements, and that at least two
years have elapsed since the Restricted Shares were fully paid for and acquired
by any person from the Company or an affiliate of the Company. A person (or
persons whose shares are aggregated with those of others) who is not an
affiliate of the Company at any time during the three months preceding any sale
by such person, would be entitled to sell such shares, under Rule 144(k),
without regard to the limitations described above, provided that at least three
years have lapsed since the Restricted Shares were fully paid for and acquired
by any person from the Company or an affiliate of the Company. The above is a
summary of Rule 144 and is not intended to be a complete description thereof or
of the rights of the parties to sell shares of Common Stock thereunder.
As of the date of this Prospectus, there are options to purchase an
aggregate of 901,333 shares of Common Stock, of which options to purchase
340,187 shares are immediately exercisable. Upon exercise of these options,
60,000 shares will be eligible for sale in public market in accordance with Rule
701. Of such 901,333 shares, 515,000 shares are subject to the lock-up
agreements described below.
In general, under Rule 701 as currently in effect, absent contractual
restrictions on transfer, any employee, officer, director, consultant or advisor
of the Company who was offered or sold shares by the Company prior to the
initial public offering pursuant to a written compensatory stock option or other
benefit plan or written contract relating to compensation prior to the initial
public offering is eligible to resell such shares 90 days after the effective
date of the initial public offering in reliance upon Rule 144, but without
compliance with certain restrictions contained in Rule 144. Shares acquired
pursuant to Rule 701 may be sold by non-affiliates without regard to the holding
period, volume limitations, information or notice requirements of Rule 144, and
by affiliates without regard to the holding period requirement.
As of the date of this Prospectus, the Company has reserved an aggregate of
1,500,000 shares of Common Stock for issuance pursuant to the Stock Option Plan
which the Company may elect to register (subject, during the 180 day period
following the date of this Prospectus, to obtaining the prior written consent of
the Representative) on a Form S-8 Registration Statement under the Securities
Act of 1933. Shares covered by such registration statement will be eligible for
sale in the public market after the effective date thereof, subject to Rule 144
limitations applicable to affiliates and subject to the lock-up agreements
described below. See "Management -- Stock Option Plan."
Except as indicated above, the Company is unable to estimate the amount,
timing or nature of future sales of outstanding Common Stock. Prior to the
initial public offering, there was no market for the Common Stock and no
predictions can be made of the effect, if any, that market sales of shares or
the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of substantial amounts of the Common
Stock in the public market may have an adverse effect on the market price
thereof, and could impair the Company's ability to raise capital through the
sale of its equity securities.
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REGISTRATION RIGHTS
The Company has agreed that it will, at its expense on any one occasion
during the four-year period which commenced on August 25, 1995 and terminates on
August 25, 1999 and on any one additional occasion at the expense of the holders
thereof during such period, register the Unit Purchase Options and the
securities underlying, or issuable upon the exercise of the securities
underlying, the Unit Purchase Options at the request of holders of a majority of
the UPO Units issued upon exercise of the Unit Purchase Options (including
shares of Common Stock issuable upon exercise of the Warrants included in the
UPO Units). The Company has also agreed, during the seven-year period commencing
one year from the date hereof, to register on a "piggyback" basis, on an
unlimited number of occasions, such securities whenever the Company files a
registration statement.
The holders of the IPO Representative's Warrants may under certain
circumstances be entitled to certain rights with respect to the registration
under the Securities Act of 1933 of the IPO Representative's Warrants and the
securities underlying, or issuable upon the exercise of the securities
underlying, the IPO Representative's Warrants. If, prior to the expiration date
of the IPO Representative's Warrants on March 1998, the Registration Statement
filed in connection with the IPO ceases to be effective or the Prospectus
contained therein ceases to be current and is no longer amended or an exemption
under Rule 144 is not available, the holders of a majority of the IPO
Representative's Warrants or shares of Common Stock acquired upon exercise of
the IPO Representative's Warrants may, with the consent of the IPO
Representative, require the Company to use its best efforts to file one
post-effective amendment to such Registration Statement or one new registration
statement relating to the IPO Representative's Warrants and the securities
underlying, or issuable upon the exercise of the securities underlying, the IPO
Representative's Warrants. The Company will be required to use its best efforts
to register such securities for disposition by the holders thereof, to the
extent required to permit the public sale or other public disposition of such
securities for a period of at least six months. The Company is not obligated to
file more than one such post-effective amendment or new registration statement
at the request of a majority of the holders thereof. The Company is required to
bear substantially all the expenses of such post-effective amendment or new
registration statement and has agreed to indemnify the selling stockholders
against certain liabilities, including liabilities under the Securities Act of
1933.
The holder of an option for 10,000 shares may under certain circumstances
be entitled to certain rights with respect to the registration under the
Securities Act of 1933 of the Common Stock issuable upon exercise of the option.
In addition, the holders of a total of 550,525 shares of Common Stock have
the right to have such shares registered on a "piggyback" basis, on an unlimited
number of occasions.
The Representative's Warrants will provide, for a period of five years from
the date of this Prospectus, one "demand" registration right and for a period of
seven years from the date of this Prospectus, will provide unlimited "piggyback"
registration rights.
LOCK-UP AGREEMENTS
Pursuant to the Underwriting Agreement, all of the Company's directors and
executive officers (representing an aggregate of approximately 1,327,795 shares
of Common Stock, including vested and unvested stock options), are subject to
lock-up arrangements for a period of 180 days from the date of this Prospectus.
In addition, the Company, with certain exceptions, has agreed not to issue,
sell, grant any option for sale, or otherwise dispose of, directly or
indirectly, any shares of the Common Stock or other securities of the Company,
except shares of Common Stock issuable upon the exercise of currently
outstanding options, warrants and other rights, for a period of 180 days from
the date of this Prospectus without the prior consent of the Representative. See
"Underwriting."
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UNDERWRITING
The Underwriters named below, for which Commonwealth Associates is acting
as representative (the "Representative"), have agreed, severally but not
jointly, subject to the terms and conditions contained in the underwriting
agreement between the Company and the Underwriters (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell to
the several Underwriters, an aggregate of 1,700,000 shares of Common Stock. The
number of shares of Common Stock that each Underwriter has agreed to purchase is
set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------ ---------
<S> <C>
Commonwealth Associates........................................... 1,240,000
Advest, Inc. ..................................................... 30,000
Cruttenden Roth Incorporated...................................... 30,000
Fahnestock & Co. Inc. ............................................ 30,000
First of Michigan Corporation..................................... 30,000
Hanifen, Imhoff Inc. ............................................. 30,000
Josephthal Lyon & Ross Incorporated............................... 30,000
Rodman & Renshaw, Inc. ........................................... 30,000
Tucker Anthony Incorporated....................................... 30,000
Van Kasper & Company.............................................. 30,000
Wedbush Morgan Securities......................................... 30,000
George K. Baum & Company.......................................... 20,000
The Boston Group, L.P. ........................................... 20,000
Hampshire Securities Corporation.................................. 20,000
Madison Securities................................................ 20,000
Mesirow Financial, Inc. .......................................... 20,000
H.J. Meyers & Co., Inc. .......................................... 20,000
Noble Investment Co. of Palm Beach................................ 20,000
Nutmeg Securities, Ltd. .......................................... 20,000
---------
Total................................................... 1,700,000
=========
</TABLE>
The Underwriters are committed on a "firm commitment" basis to purchase and
pay for all of the shares of Common Stock offered hereby (other than shares
offered pursuant to the Underwriters' over-allotment option) if any shares are
purchased. The shares are being offered by the Underwriters, subject to prior
sale, when, as, and if delivered to and accepted by the Underwriters and subject
to approval of certain legal matters by counsel and to certain other conditions.
Through the Representative, the Underwriters have advised the Company that
the Underwriters propose to offer the shares of Common Stock to the public at
the public offering price set forth on the cover page of this Prospectus and the
Underwriters may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. (the "NASD") concessions not in excess
of $0.26 per share, of which not in excess of $0.10 per share may be reallowed
to other dealers who are members of the NASD. After the commencement of the
Offering, the public offering price, the concessions, and reallowance may be
changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable for 45
days from the date of this Prospectus to purchase up to an additional 255,000
shares of Common Stock (the "Overallotment Shares") at the public offering price
set forth on the cover page of this Prospectus, less the underwriting discounts
and commissions. The Underwriters may exercise this option in whole or, from
time to time, in part, solely for the purpose of covering overallotments, if
any, made in connection with the sale of the shares of Common Stock offered
hereby.
56
<PAGE> 57
The Company has agreed to pay the Representative, in its individual rather
than representative capacity, a non-accountable expense allowance equal to
1 1/2% of the gross proceeds of the Offering in connection with certain expenses
incurred by the Representative and to reimburse the Representative for certain
other expenses incurred by the Representative.
The Company has agreed to sell to the Representative and its designees
warrants (the "Representative's Warrants") to purchase up to 170,000 shares of
Common Stock at an exercise price per share equal to 130% of the public offering
price. The Representative's Warrants are not redeemable and may not be sold,
transferred, assigned, pledged or hypothecated for a period of one year from the
date of this Prospectus, except that they may be assigned, in whole or in part,
to any successor, officer, employee or partner of the Representative, or to
officers, employees or partners of any such successor or partner, and are
exercisable during the four-year period commencing one year from the date of
this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term,
the holders of the Representative's Warrants are given, at nominal cost, the
opportunity to profit from a rise in the market price of the Common Stock. To
the extent that the Representative's Warrants are exercised or exchanged,
dilution to the interests of the Company's stockholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the Representative's Warrants can
be expected to exercise or exchange them at a time when the Company would, in
all likelihood, be able to obtain any needed capital on terms more favorable to
the Company than those provided in the Representative's Warrants. Any profit
realized by the Representative on the sale of the Representative's Warrants or
the underlying shares of Common Stock may be deemed additional underwriting
compensation. The Representative's Warrants will provide, for a period of five
years from the date of this Prospectus, one "demand" registration right and will
provide, for a period of seven years from the date of this Prospectus, unlimited
"piggyback" registration rights.
The Company has agreed to indemnify the Underwriters, their officers,
directors, employees, affiliates, agents, legal counsel and controlling persons
or contribute to losses arising out of certain liabilities, including
liabilities under the Securities Act.
The Company and the Company's officers, directors and beneficial owners of
5% or more of the Company's outstanding Common Stock have agreed not to offer,
issue, sell, contract to sell, grant any option for the sale of, or otherwise
dispose of, directly or indirectly, any securities of the Company or other
rights to purchase any securities of the Company, other than the Overallotment
Shares, if any, for a period of 180 days from the date of this Prospectus,
without the prior written consent of the Representative.
The Company has entered into an arrangement with the Representative whereby
the Representative has agreed to assist the Company in identifying sources for a
credit facility for the Company during an 18-month period commencing April 3,
1996. Upon the closing of a definitive agreement relating to a credit facility,
the source of which was introduced to the Company by the Representative, the
Representative shall receive payment of a fee of up to 1 1/4% of such credit
facility.
In connection with this Offering, certain Underwriters and selling group
members or their affiliates may engage in passive market making transactions in
the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Exchange Act. Passive market making consists of, among other things,
displaying bids on the Nasdaq National Market limited by the bid prices of
independent market makers and purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day are
limited to a specified percentage of the passive market maker's average daily
trading volume in the Common Stock during a specified prior period, and all
possible market making activity must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-1, including amendments thereto, under the Securities Act of
1933 (the "Securities Act") with respect to the Common Stock. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and
57
<PAGE> 58
schedules filed therewith, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any contract or other document referred to are not necessarily complete, and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being deemed to be qualified in its entirety by such reference. The Registration
Statement, including all exhibits and schedules thereto, may be inspected
without charge at the principal office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048, and
at Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511, and copies of all or any part thereof may be obtained from
such offices, upon the payment of prescribed fees. Electronic registration
statements made through the Electronic Data Gathering, Analysis, and Retrieval
system are publicly available through the Commission's Web site
(http://www.sec.gov).
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Commission. Such reports and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following Regional Offices of the Commission: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically. The Company's Common Stock is currently quoted on the Nasdaq
National Market and such reports and other information can also be inspected at
the offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
LEGAL MATTERS
Certain legal matters in connection with the legality of the Common Stock
offered hereby will be passed upon for the Company by Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. Mr. Irwin M. Heller, a
member of such firm, owns 15,000 shares of Common Stock. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Parker Chapin Flattau & Klimpl, LLP, New York, New York.
EXPERTS
The financial statements and schedules of the Company as of December 31,
1995 and 1994, and for the three years ended December 31, 1995 included herein
and elsewhere in the Registration Statement have been included herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
58
<PAGE> 59
SIGHT RESOURCE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report........................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996........ F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1994 and 1995 and the Three Months Ended March 31, 1995 and
1996................................................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995 and the Three Months Ended March 31, 1996........... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995 and the Three Months Ended March 31, 1995 and
1996................................................................................. F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 60
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Sight Resource Corporation:
We have audited the consolidated balance sheets of Sight Resource
Corporation (formerly NewVision Technology, Inc.) and its subsidiaries as of
December 31, 1994 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sight
Resource Corporation and its subsidiaries at December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boston, Massachusetts
February 23, 1996
F-2
<PAGE> 61
SIGHT RESOURCE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------- -----------
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,194 $ 8,035 $ 6,579
Accounts receivable, net of allowance of $0, $277 and
$310................................................... 75 662 1,040
Inventories............................................... -- 1,865 1,978
Prepaid expenses and other current assets................. 65 171 545
------- ------- -------
Total current assets.............................. 10,334 10,733 10,142
------- ------- -------
Property and equipment, net (note 3)........................ 3,550 5,778 5,293
------- ------- -------
Other assets:
Intangible assets (note 4)................................ -- 6,908 6,810
Other assets.............................................. 27 135 173
------- ------- -------
Total other assets................................ 27 7,043 6,983
------- ------- -------
$13,911 $23,554 $22,418
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving note payable (note 6)........................... $ -- $ 475 $ 475
Current portion of long term debt (note 6)................ -- 400 400
Accounts payable.......................................... 199 1,727 2,047
Accrued expenses (note 5)................................. 348 2,804 2,085
------- ------- -------
Total current liabilities......................... 547 5,406 5,007
------- ------- -------
Non-current liabilities:
Long term debt, less current maturities (note 6).......... -- 1,000 900
Other liabilities......................................... -- 703 713
------- ------- -------
Total non-current liabilities..................... -- 1,703 1,613
------- ------- -------
Commitments (note 7)
Stockholders' equity (note 8):
Preferred Stock, $.01 par value. Authorized 5,000,000
shares; no shares issued and outstanding............... -- -- --
Common stock, $.01 par value. Authorized 20,000,000
shares; issued and outstanding 4,770,250, 6,346,615 and
6,346,715 shares in 1994, 1995 and 1996 respectively... 48 63 63
Additional paid-in capital................................ 17,636 25,794 25,795
Accumulated deficit....................................... (4,524) (9,412) (10,060)
Cumulative translation adjustment......................... 204 -- --
------- ------- -------
Total stockholders' equity........................ 13,364 16,445 15,798
------- ------- -------
$13,911 $23,554 $22,418
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 62
SIGHT RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue............................... $ 155 $ 529 $18,240 $ 4,200 $5,660
Cost of revenue........................... 292 928 8,147 1,872 2,262
------- ------- ------- ------- ------
Gross margin............................ (137) (399) 10,093 2,328 3,398
Selling, general and administrative
expenses................................ 1,434 2,492 15,265 3,518 4,082
------- ------- ------- ------- ------
Loss from operations...................... (1,571) (2,891) (5,172) (1,190) (684)
------- ------- ------- ------- ------
Other income (expense):
Interest income......................... 43 183 387 119 94
Interest expense........................ (7) (48) (253) (57) (58)
Other................................... 5 (189) 150 -- --
------- ------- ------- ------- ------
Total other income (expense).... 41 (54) 284 62 36
------- ------- ------- ------- ------
Net loss........................ $(1,530) $(2,945) $(4,888) $(1,128) $ (648)
======= ======= ======= ======= ======
Net loss per share........................ $ (.74) $ (.94) $ (.89) $ (.22) $ (.10)
======= ======= ======= ======= ======
Weighted average number of common shares
outstanding............................. 2,057 3,122 5,488 5,194 6,347
======= ======= ======= ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
SIGHT RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995,
AND THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
------------------ PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
------ --------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992............... 1,275 $13 $ 205 $ (49) $ -- $ 169
Proceeds from initial public offering,
net of offering cost................... 978 10 4,565 -- -- 4,575
Proceeds from exercise of IPO warrants... 34 -- 232 -- -- 232
Net loss................................. -- -- -- (1,530) -- (1,530)
Cumulative translation adjustment........ -- -- -- -- (27) (27)
----- --- ------- ------- ----- -------
Balance, December 31, 1993............... 2,287 23 5,002 (1,579) (27) 3,419
Proceeds from second public offering, net
offering cost.......................... 2,472 25 12,496 -- -- 12,521
Proceeds from exercise of IPO warrants... 11 -- 73 -- -- 73
Issuance of Class A warrants............. -- -- 65 -- -- 65
Net loss................................. -- -- -- (2,945) -- (2,945)
Cumulative translation adjustment........ -- -- -- -- 231 231
----- --- ------- ------- ----- -------
Balance, December 31, 1994............... 4,770 48 17,636 (4,524) 204 13,364
Issuance of common stock for
acquisitions........................... 556 6 1,721 -- -- 1,727
Issuance of common stock for equipment
and other.............................. 64 -- 206 -- -- 206
Proceeds from exercise of warrants (note
8)..................................... 955 9 6,221 -- -- 6,230
Proceeds from exercise of stock
options................................ 2 -- 10 -- -- 10
Net loss................................. -- -- -- (4,888) -- (4,888)
Cumulative translation adjustment........ -- -- -- -- (204) (204)
----- --- ------- ------- ----- -------
Balance, December 31, 1995............... 6,347 $63 $ 25,794 $ (9,412) $ -- $ 16,445
Proceeds from exercise of warrants....... -- -- 1 -- -- 1
Net loss................................. -- -- -- (648) -- (648)
----- --- ------- ------- ----- -------
Balance, March 31, 1996 (unaudited)...... 6,347 $63 $ 25,795 $ (10,060) $ -- $ 15,798
===== === ======= ======= ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
SIGHT RESOURCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............................... $(1,530) $(2,945) $(4,888) (1,128) (648)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization....... 292 928 1,688 387 435
Realization of foreign currency
gain.............................. -- -- (150) -- --
Amortization of debt financing
cost.............................. -- 65 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable................. (39) (33) (1) (52) (378)
Inventories......................... -- -- 424 192 (114)
Prepaid expenses and other current
assets............................ (19) (4) 75 (107) (373)
Accounts payable and accrued
expenses.......................... 1,475 (1,294) (844) (619) (399)
------- ------- ------- ------- -------
Net cash provided by (used in)
operating activities........... 179 (3,283) (3,696) (1,327) (1,477)
------- ------- ------- ------- -------
Investing activities:
Purchases of property and equipment.... (3,737) (175) (1,948) (36) (229)
Sale of assets......................... -- -- -- -- 376
Acquisition of subsidiaries............ -- -- (2,363) (1,421) --
Other assets........................... (6) (19) (4) 30 (37)
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities........... (3,743) (194) (4,315) (1,427) 110
------- ------- ------- ------- -------
Financing activities:
Principal payments on Bridge Notes and
long term debt...................... -- (1,100) (400) (100) (100)
Proceeds for sale of Bridge Notes and
Class A warrants.................... -- 1,100 -- -- --
Proceeds from exercise of warrants and
stock options....................... 233 73 6,240 -- 1
Net proceeds from public offerings..... 4,575 12,520 -- -- --
Payments of notes payable to
stockholders........................ (378) -- -- -- --
Other liabilities...................... -- -- -- -- 10
------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities........... 4,430 12,593 5,840 (100) (89)
------- ------- ------- ------- -------
Effect of exchange rate changes on
cash................................... (39) 75 12 (6) --
------- ------- ------- ------- -------
Net increase (decrease) in cash and cash
equivalents............................ 827 9,191 (2,159) (2,860) (1,456)
Cash and cash equivalents, beginning of
period................................. 176 1,003 10,194 10,194 8,035
------- ------- ------- ------- -------
Cash and cash equivalents, end of
period................................. $ 1,003 $10,194 $ 8,035 $ 7,334 $ 6,579
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 65
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
MARCH 31, 1995 AND 1996 (UNAUDITED)
(1) THE COMPANY
(a) Nature of Business
The business of Sight Resource Corporation is to participate in the
delivery of a complete range of eye care products and services through
integrated networks of opticians, optometrists and ophthalmologists. Effective
October 31, 1995, the Company changed its name to Sight Resource Corporation
from NewVision Technology, Inc. to better reflect its expanded corporate
mission.
(b) U.S. Acquisitions
Effective January 1, 1995, the Company purchased substantially all the
assets of Cambridge Eye Associates, Inc. ("Cambridge Eye") for $1,690,00 in
cash, 424,000 shares of common stock and the assumption of approximately
$1,600,000 of net liabilities. Cambridge Eye owns eye care centers located
throughout New England which provide comprehensive vision care products and
services to residents of this region. The transaction was accounted for using
the purchase method of accounting.
Effective July 1, 1995, the Company purchased certain assets and
liabilities of Douglas Vision World, Inc. ("Vision World") for approximately
$970,000 in cash, 131,525 shares of common stock, $660,000 payable over a 3 year
period and $250,000 payable over 18 months contingent upon the occurrence of
certain future events. Vision World owns eye care centers located throughout
Rhode Island which provide comprehensive vision care products and services to
residents of this state. The transaction was accounted for using the purchase
method of accounting.
The results of operations of the two acquisitions have been included in the
consolidated financial statements from their respective dates of acquisition.
The excess of the purchase price and expenses associated with each acquisition
over the estimated fair value of the net assets acquired has been recorded as
goodwill.
Had the acquisitions occurred at the beginning of 1994, pro forma results
of operations for fiscal year 1994 would have been: net revenue of $21.0
million, net loss of $2.9 million and net loss per share of $0.79 on a weighted
average number of common shares outstanding of 3.7 million. Pro forma results of
operations for fiscal year 1995, giving effect to the acquisitions as if the
transactions occurred at the beginning of 1995, would have been: net revenue of
$20.8 million, net loss of $4.8 million and net loss per share of $0.87 on a
weighted average number of common shares outstanding of 5.6 million. Such pro
forma financial information reflects certain adjustments, including amortization
of goodwill, and an increase in the weighted average shares outstanding. This
pro forma information does not necessarily reflect the results of operations
that would have occurred had the acquisitions taken place at the beginning of
1994 and 1995 and is not necessarily indicative of results that may be obtained
in the future.
(c) UK Operations
While the Company's initial efforts focused on building a LVC delivery
model in the UK, the Company is now fully concentrating its attention and
resources on the growth opportunities in the United States. As a result, the
Company fully discontinued its UK operations in the fourth quarter 1995. Excimer
lasers systems used in the UK are in the process of being retrofitted and
relocated to the US. In early 1996, six systems were in place in the U.S. The
costs associated with the discontinuance of UK operations is immaterial and is
included in operating expenses in 1995. The Company realized a foreign currency
gain of approximately $150,000 on the liquidation of the UK subsidiaries which
is included in other income at December 31, 1995.
F-7
<PAGE> 66
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company, its wholly-owned subsidiaries and entities in which the Company's
subsidiaries assume the financial risks and rewards of such entities through a
management contract. The Company has no direct equity ownership in these
entities. All significant intercompany balances and transactions have been
eliminated.
In preparation of these consolidated financial statements in conformity
with generally accepted accounting principles, management of the Company has
made estimates and assumptions that affect the reported amounts of assets and
liabilities, particularly for accounts receivable and its effect on revenue.
Actual results could differ from those estimates.
The consolidated financial statements for the three months ended March 31,
1995 and 1996 have been prepared by the Company without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of the Company, these consolidated financial statements contain all adjustments
(consisting of only normal, recurring adjustments) necessary to present fairly
the financial position of Sight Resource Corporation as of March 31, 1996 and
the results of its operations and cash flows for the three months ended March
31, 1995 and 1996.
(b) Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at the exchange rate on the balance sheet date. Income and
expense items are translated at average rates of exchange prevailing during each
period. Translation adjustments are accumulated in a separate component of
stockholders' equity. Transaction gains and losses are included in the results
of operations and have not been material in any year. As described above, the UK
operations were discontinued as of December 31, 1995 and the assets and
liabilities were transferred to the U.S.
(c) Statement of Cash Flows
Cash and cash equivalents consist of cash in banks and short-term
investments with original maturities of three months or less.
(d) Financial Instruments
The carrying amount of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximate fair value because of the
short maturity of these items. The carrying amount of other long-term maturities
approximates fair value. The carrying amount of the Company's revolving line of
credit approximates fair value because the borrowing rate changes with market
interest rates.
(e) Revenue Recognition
Under existing revenue sharing arrangements for refractive surgery where
the Company is not responsible for patient billing, the Company receives a
specified payment from the hospital or center for each refractive surgical
procedure performed. Accordingly, the Company recognizes revenue on a per
procedure basis at the time procedures are performed. Under existing
revenue-sharing arrangements for refractive surgery where the Company is
responsible for the collection from the patient and payment to the
ophthalmologist and other operating costs, the total patient charge is recorded
as revenue with the corresponding expenses recorded in cost of revenue.
F-8
<PAGE> 67
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue and the related costs from the sale of eyewear are recognized at
the time an order is placed. Revenue is reported net of the contractual
allowances.
(f) Inventories
Inventories primarily consist of the costs of eyeglass frames, contact
lenses, ophthalmic lenses, sunglasses and other optical products and are valued
at the lower of cost (using the first-in, first-out method) or market.
(g) Property and Equipment
Property and equipment is stated at cost. The Company provides for
depreciation at the time the property and equipment is placed in service. The
straight-line method is used over the estimated useful life of the assets.
(h) Intangible Assets
Intangible assets resulting from the business acquisitions consist of
customer lists, trademarks, and the excess cost of the acquisition over the fair
value of the net assets acquired (goodwill). Certain values assigned are based
upon independent appraisals and are amortized on a straight line basis over a
period of 11 to 25 years. The Company assesses the recoverability of unamortized
intangible assets on an ongoing basis by comparing anticipated operating profits
and future cash flows to net book value.
(i) Income Taxes
The Company follows the asset and liability method of accounting for income
taxes and records deferred tax assets and liabilities based on temporary
differences between the tax bases of assets and liabilities and their carrying
amounts for financial statement purposes.
(j) Net Loss Per Share
Net loss per share of common stock is based on the weighted average number
of common shares outstanding. Common stock equivalents are not included in the
calculation because they are antidilutive.
(k) Reclassification
Certain reclassifications were made to the 1995 Consolidated Financial
Statements to conform to the 1996 presentation.
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- ----------
1994 1995 1996 USEFUL LIFE
------ ------ ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Laser equipment.......................... $4,550 $5,973 $5,328 5 years
Ophthalmic and other equipment........... 125 1,452 1,492 3 - 5 years
Computer equipment....................... 79 89 89 3 years
Furniture and fixtures................... 37 379 397 3 years
Leasehold improvements................... -- 261 444 Life of lease
Construction-in-progress................. -- 104 89
------ ------ ------
4,791 8,258 7,839
Less accumulated depreciation............ 1,241 2,480 2,546
------ ------ ------
Property and equipment, net.............. $3,550 $5,778 $5,293
====== ====== ======
</TABLE>
F-9
<PAGE> 68
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) INTANGIBLE ASSETS
Intangible assets consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- -----------
1994 1995 1996
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill................................................. $-- $4,201 $ 4,201
Patient lists............................................ -- 2,659 2,659
Trademarks............................................... -- 413 413
--- ------ ------
-- 7,273 7,273
Accumulated amortization................................. -- 365 463
--- ------ ------
Total.......................................... $-- $6,908 $ 6,810
=== ====== ======
</TABLE>
(5) ACCRUED EXPENSES
Accrued expenses consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- -----------
1994 1995 1996
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Professional fees....................................... $213 $ 344 $ 193
Payroll and related cost................................ 68 676 655
Acquisition payments.................................... -- 387 387
Other................................................... 67 1,397 850
---- ------ -------
$348 $2,804 $ 2,085
==== ====== =======
</TABLE>
(6) DEBT
Long term debt is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------- -----------
1994 1995 1996
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Bank term loan, 9.44% interest rate at December 31, 1995
(8.81% interest rate at March 31, 1996), repayable in
quarterly installments of $100,000 through March 1998
followed by 4 quarterly installments of $125,000;
secured by all assets of one of the Company's
subsidiaries........................................... $-- $1,400 $ 1,300
Less current maturities.................................. -- 400 400
--- ------ -------
Long term debt, less current maturities.................. $-- $1,000 $ 900
=== ====== =======
</TABLE>
The Company also has available a revolving credit facility in the amount of
$500,000 based on eligible accounts receivable and inventory balances which
bears interest at the bank's base rate plus 1.5% (10% at December 31, 1995 and
9.75% at March 31, 1996). As of December 31, 1995 and March 31, 1996, $25,000
was unused.
(7) COMMITMENTS
The Company has operating leases primarily for its retail optical offices,
distribution center, corporate offices and certain equipment. The leases are
generally for periods of up to 10 years with renewal options at fixed rentals.
Certain of the leases provide for additional rentals based on sales exceeding
specified amounts.
F-10
<PAGE> 69
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The future minimum lease rental commitments for facilities and equipment
for the periods following December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996........................................................... $1,746
1997........................................................... 1,421
1998........................................................... 1,174
1999........................................................... 610
2000........................................................... 462
Thereafter..................................................... 612
------
$6,025
======
</TABLE>
Rental expenses charged to operations, including real estate taxes, common
area maintenance and other expenses related to the leased facilities and
equipment, were approximately $23,000, $58,000, $1,750,000, $374,000 and
$498,000 for fiscal years 1993, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996, respectively.
(8) STOCKHOLDERS' EQUITY
Preferred Stock
As of December 31, 1995 and March 31, 1996, the Company has authorized
5,000,000 shares of preferred stock of $.01 par value of which none have been
issued and outstanding. The terms and conditions of the preferred stock,
including any preferences and dividends, will not be established until such
time, if ever, as such shares are in fact issued by the Company.
Common Stock
As of December 31, 1995 and March 31, 1996, the Company has authorized
20,000,000 shares of common stock at $.01 par value. Common stock is entitled to
dividends if declared by the Board of Directors, and each share carries one
vote.
Warrants
During the second half of 1995, the Company received net proceeds of
approximately $6,078,000 from the exercise of 929,140 IPO Warrants. Each IPO
Warrant entitled the holder to purchase one share of common stock at $6.75. On
October 31, 1995, the expiration date of the IPO Warrants, 3,110 IPO Warrants
expired unexercised.
At December 31, 1995, the Company had outstanding 85,000 Class A Warrants.
Each Class A Warrant entitles the holder to purchase one share of common stock
at a price of $6.00 and is exercisable at any time through March 25, 1999.
During 1995, 25,000 Class A Warrants were exercised providing the Company with
net proceeds of $150,000.
As part of the Company's second public offering completed in September
1994, the Company issued 2,472,500 redeemable common stock purchase warrants ("Z
Warrant"). Each Z Warrant entitles the holder to purchase one share of common
stock at a price of $6.00 and terminates on August 25, 1999, unless previously
redeemed. The Z Warrants are redeemable at the option of the Company at a price
of $.05 per warrant, upon 30 days written notice, provided that the closing
price of the common stock exceeds $9.50 for a period of 20 consecutive business
days. During fiscal 1995, 300 Z Warrants were exercised providing the Company
with $1,800 in proceeds. During the three months ended March 31, 1996, 100 Z
Warrants were exercised providing the Company with $600 in proceeds.
In connection with its second public offering, the Company sold to its
underwriter and a finder, 215,000 Unit Purchase Options (UPOs) at a price of
$.001 per UPO. The UPOs are exercisable for a period of four years commencing
August 25, 1995, at a price of $9.90. Each UPO consists of one share of common
stock and
F-11
<PAGE> 70
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
one redeemable common stock purchase warrant, which entitles the holder to
purchase one share of common stock at a price of $7.20. At December 31, 1995 and
March 31, 1996, no UPOs have been exercised.
In connection with its initial public offering, the Company sold to the IPO
Representative (at an aggregate price of $85), warrants to purchase up to 85,000
IPO Units at an exercise price of $7.98 per IPO Unit at any time during the
four-year period commencing March 31, 1994. Each IPO Unit consists of one share
of common stock and one redeemable common stock purchase warrant, which entitles
the holder to purchase one share of common stock at a price of $6.75. At
December 31, 1995 and March 31, 1996, no IPO Units have been exercised.
Stock Option Plan
On November 30, 1992, the Company's Board of Directors and the stockholders
approved the Company's 1992 Employee, Director and Consultant Stock Option Plan
(the "Plan"). On April 26, 1994, the Board of Directors and the stockholders
approved the increase shares of common stock reserved for issuance under the
Plan to an aggregate of 1,000,000 shares. In March 1996 the Board has
recommended, subject to shareholder approval, that an additional 500,000 shares
of common stock be reserved for issuance under the Plan. Under the Plan,
incentive stock options may be granted to employees of the Company.
Non-qualified stock options may be granted to consultants, directors, employees
or officers of the Company.
In December, 1994 the Compensation Committee of the Board of Directors
approved a Stock Option Exchange Program (the "Program"). All employees and
consultants with stock options with exercise prices in excess of $4.40 per share
were given the election to cancel the existing option for new options at a per
share price of $4.40. Upon election all prior vesting was forfeited and the
replacement options began vesting on the exchange date on a schedule equal to
the original option being canceled. The $4.40 exercise price was in excess of
the then current fair market value of the share on the date of exchange. Options
for a total of 270,800 were canceled and exchanged under the program.
A summary of the stock option transactions follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES SHARES UNDER PRICE PER
AVAILABLE OPTION SHARE
--------- ------------- -------------
<S> <C> <C> <C>
Balance, December 31, 1992.................. 135,000 35,000 $ 0.43
Shares reserved............................. 330,000 -- --
Granted..................................... (369,200) 369,200 3.00 -- 9.50
-------- -------- ------------
Balance, December 31, 1993.................. 95,800 404,200 $0.43 -- 9.50
Shares reserved............................. 500,000 -- --
Canceled.................................... 301,400 (301,400) 5.75 -- 9.50
Granted..................................... (373,200) 373,200 4.18 -- 6.87
-------- -------- ------------
Balance, December 31, 1994.................. 524,000 476,000 $0.43 -- 8.50
Canceled.................................... 173,667 (173,667) 4.125 -- 8.50
Granted..................................... (368,400) 368,400 4.125 -- 7.25
Exercised................................... -- (2,100) 4.40
-------- -------- ------------
Balance, December 31, 1995.................. 329,267 668,633 $0.43 -- 8.50
Canceled.................................... 2,700 (2,700) 5.00
Granted..................................... (52,500) 52,500 6.125 -- 7.50
-------- -------- ------------
Balance, March 31, 1996 (unaudited)......... 279,467 718,433 $0.43 -- 8.50
======== ======== ============
</TABLE>
There were 72,000, 253,012 and 320,917 shares exercisable at prices ranging
from $.43 to $8.50 under the Plan at December 31, 1994 and 1995 and March 31,
1996, respectively.
In October 1995, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" which permits either the recording of the estimated value of stock
based compensation over the applicable vesting period or disclosing the
unrecorded cost and the related effect on earnings per share in the Notes to the
Consolidated Financial Statements. At
F-12
<PAGE> 71
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this time, the Company does not intend to adopt the new standard, however,
compliance with the new disclosure requirements will be made for the year ended
December 31, 1996.
(9) INCOME TAXES
Income tax benefit attributable to loss from continuing operations differed
from the amounts computed by applying the U.S. federal income tax rate of 34
percent as a result of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ---------------
1993 1994 1995 1995 1996
----- ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Computed "expected" tax benefit................. $ 520 $1,001 $1,662 $ 384 $ 220
Increase in tax benefit resulting from:
State net operating loss...................... -- 126 466 29 40
Loss in foreign subsidiary.................... -- -- 868 -- --
Decrease in tax benefit resulting from:
Foreign net loss.............................. (198) (628) -- (222) --
Other......................................... 10 3 (6) (1) (1)
Increase in valuation allowance for deferred
tax assets allocated to income tax
expense.................................... (332) (502) (2,990) (190) (259)
----- ------- ------- ------ ------
$ -- $ -- $ -- $ -- $ --
===== ======= ======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax asset are presented below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------- ----------
1994 1995 1996
----- ------ ----------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax assets:
Net operating loss carryforwards......................... $ 836 $3,861 $4,077
Vacation accrual......................................... 10 55 57
Bad debt reserve......................................... -- 92 165
Other reserves........................................... -- 586 552
----- ------ ------
Gross deferred tax assets........................ 846 4,594 4,851
Valuation allowance under SFAS 109....................... (843) (4,591) (4,851)
----- ------ ------
Net deferred tax assets.......................... 3 3 --
Less deferred tax liabilities:
Plant and equipment................................... 3 3 --
----- ------ ------
Net deferred tax................................. $ -- $ -- $ --
===== ====== ======
</TABLE>
A valuation allowance in the amount of $843,000, $4,591,000 and $4,851,000
has been established at December 31, 1994 and 1995 and March 31, 1996,
respectively. This allowance has been established due to the uncertainty in the
ability of the Company to benefit from the federal and state operating loss
carryforwards.
F-13
<PAGE> 72
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Subsequently recognized tax benefit relating to the valuation allowance for
deferred tax assets will be allocated as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
<S> <C> <C>
(UNAUDITED)
Income tax benefit that would be reported in the
statement of earnings................................ $3,823 $ 4,083
Charge to goodwill for recognition of acquired tax
assets............................................... 768 768
---------- ----------
$4,591 $ 4,851
========== ==========
</TABLE>
The net operating loss carryforwards ("NOLs") for federal and state tax
purposes at December 31, 1995 are approximately $9,595,000 and $9,546,000,
respectively and expire through 2010 and 2000, respectively.
The NOLs for federal and state tax purposes at March 31, 1996 are
approximately $10,131,000 and $10,082,000, respectively and expire through 2011
and 2001, respectively.
(10) FOREIGN OPERATIONS
Revenue generated by the Company's UK operations was approximately
$155,000, $529,000 and $448,000 for fiscal years 1993, 1994 and 1995,
respectively, and $150,000 for the three months ended March 31, 1995. No revenue
was recorded in the first quarter of 1996, since the Company's operations had
been discontinued at the end of 1995. The Company incurred a loss from its UK
operations of approximately $540,000, $1.8 million and $2.1 million in fiscal
1993, 1994 and 1995, respectively and $654,000 for the three months ended March
31, 1995. As discussed in note 1, in order to better utilize its resources on
the growth opportunities in the U.S., the Company discontinued its UK operations
in the fourth quarter 1995 and its assets, consisting primarily of laser
equipment, have been transferred to the U.S. At December 31, 1993 and 1994, the
Company had total assets of $4.2 million and $3.9 million, respectively in the
UK.
(11) SUPPLEMENTARY CASH FLOW INFORMATION
The following represents supplementary cash flow information (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -----------------
1993 1994 1995 1995 1996
----- ----- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest paid.................................... $22 $48 $ 210 $ 51 $ 44
===== ===== ====== ====== ======
Non-cash financing activities:
Issuance of Class A Warrants in conjunction
with Bridge Notes........................... $-- $65 $ -- $ -- $ --
===== ===== ====== ====== ======
Issuance of stock for equipment and other........ $-- $-- $ 206 $ -- $ --
===== ===== ====== ====== ======
Acquisitions:
Assets acquired.................................. $-- $-- $7,696 $4,435 $ --
Net liabilities assumed.......................... -- -- (3,310) (1,600) --
Common stock issued.............................. -- -- (1,727) (1,145) --
----- ----- ------ ------ ------
Cash paid........................................ -- -- 2,659 1,690 --
Less cash acquired............................... -- -- (296) (269) --
----- ----- ------ ------ ------
Net cash paid for acquisition.................... $-- $-- $2,363 $1,421 $ --
===== ===== ====== ====== ======
</TABLE>
F-14
<PAGE> 73
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
The Company........................... 16
Use of Proceeds....................... 17
Dilution.............................. 18
Capitalization........................ 19
Price Range of Common Equity and
Dividend Policy..................... 20
Selected Financial Data............... 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 27
Management............................ 39
Principal Stockholders................ 47
Certain Relationships and Related
Transactions........................ 48
Description of Securities............. 49
Shares Eligible for Future Sale....... 53
Underwriting.......................... 56
Available Information................. 57
Legal Matters......................... 58
Experts............................... 58
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,700,000 SHARES
LOGO
SIGHT RESOURCE
CORPORATION
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COMMONWEALTH ASSOCIATES
JUNE 25, 1996
- ------------------------------------------------------
- ------------------------------------------------------
