<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1998 Commission File Number 0-21068
------------------ -------
SIGHT RESOURCE CORPORATION
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-3181524
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Jeffrey Avenue
Holliston, MA 01746
- --------------------------------------------------------------------------------
(Address of principal executive offices)
508-429-6916
- --------------------------------------------------------------------------------
(Issuer's telephone number)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since the last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
On November 6, 1998, 8,905,730 shares of common stock, par value $0.01 per
share, were outstanding.
TOTAL PAGES 17
EXHIBIT INDEX AT PAGE 16
1
<PAGE>
SIGHT RESOURCE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 16
Item 6 Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SIGHT RESOURCE CORPORATION
Consolidated Balance Sheets
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,570 $ 6,076
Accounts receivable, net of allowance
of $410 and $478, respectively 3,320 1,781
Inventories 4,478 4,434
Prepaid expenses and other current assets 170 377
------------- --------------
Total current assets 9,538 12,668
------------- --------------
Property and equipment 12,830 10,070
Less accumulated depreciation (6,610) (4,406)
------------- --------------
Net property and equipment 6,220 5,664
------------- --------------
Other assets:
Intangible assets, net 16,954 14,898
Other assets 1,181 1,277
------------- --------------
Total other assets 18,135 16,175
------------- --------------
$33,893 $ 34,507
============= ==============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 117 $ 1,000
Accounts payable 2,178 1,797
Accrued expenses 4,635 5,628
------------- --------------
Total current liabilities 6,930 8,425
------------- --------------
Non-current liabilities:
Long term debt, less current 175 ---
maturities
Other liabilities 94 101
------------- --------------
Total non-current liabilities 269 101
------------- --------------
Redeemable convertible preferred stock
1,452,119 shares issued 6,535 6,535
Stockholders' equity:
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 8,905,730 at September 30, 1998
and 8,756,500 at December 31, 1997. 90 88
Additional paid-in capital 36,807 36,329
Common stock issuable, 71,181 shares at
September 30,
1998 and December 31, 1997 432 432
Treasury stock at cost
(30,600 shares in 1998 and 1997) (137) (137)
Accumulated deficit (17,033) (17,266)
------------- --------------
Total stockholders' equity 20,159 19,446
------------- --------------
$33,893 $ 34,507
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SIGHT RESOURCE CORPORATION
Consolidated Statements of Operations
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
--------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
Net revenue $ 14,299 $ 12,674 $ 42,377 $ 33,141
Cost of revenue 4,877 4,463 14,700 12,058
------------- ------------- ------------- -------------
Gross profit 9,422 8,211 27,677 21,083
Selling, general and administrative expenses 9,265 8,364 27,471 22,102
------------- ------------- ------------- -------------
Income (loss) from operations 157 (153) 206 (1,019)
------------- ------------- ------------- -------------
Other income (expense)
Interest income 34 69 162 292
Interest expense (45) (89) (141) (261)
Gain on sale of assets - 251 69 474
------------- ------------- ------------- -------------
Total other income (11) 231 90 505
------------- ------------- ------------- -------------
Income (loss) before income tax expense 146 78 296 (514)
Income tax expense 3 - 63 -
------------- ------------- ------------- -------------
Net income (loss) $ 143 $ 78 $ 233 ($514)
============= ============= ============= =============
Net earnings (loss) per common share:
Basic $ 0.02 $ 0.01 $ 0.03 ($0.06)
============= ============= ============= =============
Diluted $ 0.01 $ 0.01 $ 0.02 ($0.06)
============= ============= ============= =============
Number of shares used to compute net
earnings per common share:
Basic 8,890,000 8,782,000 8,853,000 8,639,000
============= ============= ============= =============
Diluted 10,380,000 8,782,000 10,352,000 8,639,000
============= ============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SIGHT RESOURCE CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, September 30,
1998 1997
--------------------------------------------
(unaudited)
<S> <C> <C>
Operating activities:
Net income (loss) $ 233 ($514)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 1,952 1,482
Gain on sale of assets (69) (474)
Changes in operating assets and liabilities:
Accounts receivable (1,408) (590)
Inventories 270 (727)
Prepaid expenses and other current assets 176 (530)
Accounts payable and accrued expenses (1,350) (527)
------------- -------------
Net cash used in operating activities (196) (1,880)
------------- -------------
Investing activities:
Purchases of property and equipment (1,183) (1,284)
Payments for acquisitions (2,351) (2,075)
Proceeds from sale of assets 112 1,005
Other assets 48 (430)
------------- -------------
Net cash used in investing activities (3,374) (2,784)
------------- -------------
Financing activities:
Principal payments on long term debt (1,058) (1,279)
Other liabilities (7) 39
Proceeds from issuance of stock 129 ---
Purchase of common stock for treasury --- (137)
------------- -------------
Net cash used in financing activities (936) (1,377)
------------- -------------
Net decrease in cash and cash equivalents (4,506) (6,041)
Cash and cash equivalents, beginning of period 6,076 9,924
------------- -------------
Cash and cash equivalents, end of period $ 1,570 $ 3,883
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) THE COMPANY
(a) Nature of Business
Sight Resource Corporation (the "Company") manufactures, distributes and
sells eyewear and related products and services.
(b) Acquisitions
Effective July 1, 1997, the Company acquired one hundred percent of the
outstanding shares of stock of Vision Holdings, Ltd. (formerly known as Dr.
Greenberg, an Optometry Corporation d/b/a Vision Plaza) ("Vision Plaza")).
The purchase price paid in connection with this acquisition was $2,000 in
cash and the assumption and repayment of notes payable outstanding as of
July 1, 1997 of approximately $800. As of December 31, 1997, Vision Plaza
operated 17 eye care centers in southeast Louisiana and Mississippi. The
acquisition was accounted for using the purchase method of accounting.
Effective April 1, 1998, the Company acquired one hundred percent of the
outstanding shares of stock of Eye Glass Emporium, Inc. ("Eyeglass
Emporium"). The purchase price paid in connection with this acquisition was
$2,309 of cash on hand, $350 in notes payable in twelve equal quarterly
installments commencing June 30, 1998, and 87,940 shares of common stock.
As of April 1, 1998, Eyeglass Emporium operated nine eye care centers in
Indiana. The acquisition was accounted for using the purchase method of
accounting.
The results of operations of the 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. As a result of the acquisition, the Company
has also recorded adjustments to increase liabilities and establish
reserves for the closing of stores and related restructuring costs,
including lease commitments and severance costs. Total acquisition related
reserves at September 30, 1998 and December 31, 1997 were $1,350 and
$1,420, respectively.
6
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements 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 September 30, 1998
and the results of its operations and cash flows for the periods presented.
The accompanying consolidated financial statements and related notes should
be read in conjunction with the audited consolidated financial statements
which are contained in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries and three professional
corporations ("PC's") in which the Company's subsidiaries assume the
financial risks and rewards of such entities through a management contract
and a stock agreement. The Company has no direct equity ownership in the
PC's. 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, such as accounts receivable, inventory, impairment
of property and equipment, and intangibles. Actual results could differ
from those estimates.
(c) Revenue Recognition
Revenue and the related costs from the sale of eyewear are recognized at
the time an order is complete. Revenue from eye care services is recognized
when the service is performed. The Company has fee for service arrangements
with all of its third party payors. Revenue is reported net of contractual
allowances.
7
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Contractual allowances are estimated in the period the related services are
rendered and adjusted in future periods as final settlements are determined. The
provision and related allowance are adjusted periodically, based upon an
evaluation of historical collection experience, industry reimbursement trends
and other relevant factors. The Company has not had any material settlements
with third-party payors nor is it aware of any material claims, disputes or
unsettled matters with any third-party payor.
Under 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.
(d)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.
(e)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. The Company
assesses the recoverability of the undepreciated property and equipment on an
ongoing basis by comparing anticipated profits and future, undiscounted cash
flows to net book value. In performing this analysis, management considers such
factors as current results, trends, and future prospects, in addition to other
economic factors.
(f) Intangible Assets
Intangible assets resulting from the business acquisitions consist of patient
lists, trademarks, non-compete agreements 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 5 to 25 years. The Company assesses the
recoverability of unamortized intangible assets on an ongoing basis by comparing
anticipated operating profits and future, undiscounted cash flows to net book
value. If anticipated operating profits and future, undiscounted cash flows are
less than net book value, then an impairment charge is recorded to reduce the
carrying value of the assets to fair value. In performing this analysis,
management considers such factors as current results, trends, and future
prospects, in addition to other economic factors.
(g) Deferred Revenue
The Company offers a contact lens purchasing program in which, for a set fee,
customers may purchase contacts at discounted rates for a 12 month period. The
8
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Company recognizes revenue from the sales of its contact lens purchasing program
on a monthly basis over the life of the program.
(h) Net Earnings (Loss) Per Share
Earnings per share are computed based on Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS") by all entities that have publicly traded common stock or
potential common stock (options, warrants, convertible securities or contingent
stock arrangements). Basic EPS is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. The computation of Diluted EPS does not assume conversion,
exercise or contingent exercise of securities that would have an antidilutive
effect on earnings.
The following table provides a reconciliation of the numerators and denominators
of the basic and diluted earnings (loss) per share computations for the three
and nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
BASIC INCOME (LOSS) PER SHARE
Net income (loss) 143 78 233 (514)
------------- ---------- ----------- ---------
Net income (loss) available to common shareholders 143 78 233 (514)
============= ========== =========== =========
Weighted average common shares outstanding 8,890,000 8,782,000 8,853,000 8,639,000
Net income (loss) per share $ 0.02 $ 0.01 $ 0.03 ($0.06)
============= ========== =========== =========
DILUTED INCOME PER SHARE
Net income 143 78 233 (514)
------------- ---------- ----------- ---------
Net income available to common shareholders 143 78 233 (514)
============= ========== =========== =========
Weighted average common shares outstanding 8,890,000 8,782,000 8,853,000 8,639,000
Convertible preferred stock 1,452,000 - 1,452,000 -
Options 38,000 - 47,000 -
------------- ---------- ----------- ---------
Weighted average common shares outstanding and potential shares 10,380,000 8,782,000 10,352,000 8,639,000
============= ========== =========== =========
Net income per share $ 0.01 $ 0.01 $ 0.02 ($0.06)
============= ========== =========== =========
</TABLE>
9
<PAGE>
SIGHT RESOURCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(3) DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Unsecured note payable, 7% interest rate, payable
in equal quarterly installments of $29 principal
plus accrued interest $ 292 $ -
Unsecured notes payable, 7% interest rate, $1,000
paid on March 18, 1998; due on demand if the
Company's cash balance is less than $2,800 - 1,000
------------- ------------
292 1,000
Less current maturities 117 1,000
------------- ------------
Long term debt, less current maturities $ 175 $ -
============= ============
</TABLE>
On February 20, 1997, the Company entered into a Credit Agreement (the
"Agreement") with a bank pursuant to which the Company can borrow $5,000 on a
term loan basis and $5,000 on a revolving credit basis, subject to certain
performance criteria. The performance criteria include, among others, financial
condition covenants such as rolling EBITDA levels, indebtedness to EBITDA
ratios, current ratio of 1:1 and minimum net worth requirements. The term loan
facility bears interest at the bank's prime rate plus 1.5% or LIBOR plus 3% at
the Company's election and the revolving credit facility bears interest at the
bank's prime rate plus 1.25% or LIBOR plus 2.75% at the Company's election.
These loans are secured by all assets of the Company and its wholly owned
subsidiaries. As of September 30, 1998, there were no borrowings under the
term loan and revolving note. Amounts borrowed under the agreement will be used
to finance future acquisitions, provide ongoing working capital and for other
general corporate purposes. As part of the Agreement, the Company issued to the
bank warrants to purchase 150,000 shares of the common stock at a purchase price
of $4.625 per share. The warrants expire December 31, 2003. The warrants were
accounted for as additional paid in capital based upon the fair value of the
securities. Fair market value was determined by using the relationship of the
interest rate charged with the warrants versus the rate to be charged without
the warrants. This value approximated that obtained using the Black Scholes
Method.
10
<PAGE>
PART I:
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 Statements contained in this document which are not historical fact are
forward-looking statements based upon management's current expectations that are
subject to risks and uncertainties that could cause actual results to differ
materially from those set forth in or implied by forward-looking statements.
These risks are described in the Company's Form 10-K for the fiscal year ended
December 31, 1997 filed with the Securities and Exchange Commission.
OVERVIEW
Sight Resource Corporation (the "Company") manufactures, distributes and sells
eyewear and related products and services. The Company's operations currently
consist of 94 eye care centers, with three regional optical laboratories and
distribution centers, and is one of the seventeen largest providers in the
United States' primary eye care industry based upon sales. The Company's eye
care centers operate primarily under the brand names Cambridge Eye Doctors, E.B.
Brown Opticians, Eyeglass Emporium, Vision Plaza, and Vision World. The Company
also provides, or where necessary to comply with applicable law administers the
business functions of optometrists, ophthalmologists and professional
corporations that provide, vision related professional services. In addition, as
of September 30, 1998 the Company operated three laser vision correction ("LVC")
centers.
The Company operates three regional optical laboratories and distribution
centers. The regional optical laboratories provide complete laboratory services
to the Company's eye care centers, including polishing, cutting and edging,
tempering, tinting and coating of ophthalmic lenses. The distribution centers
provide and maintain an inventory of all accessories and supplies necessary to
operate the primary eye care centers in their regions, 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. Management believes that the
regional optical laboratories and distribution centers have the capacity to
accommodate additional multi-site eye care centers.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET REVENUE. The Company generated net revenue of approximately $14.3 million
and $42.4 million during the three and nine months ended September 30, 1998,
respectively, from the operation of its 94 eye care centers and three LVC
centers as compared to net revenue of approximately $12.7 million and $33.1
million from its 88 eye care centers and six LVC centers for the same period in
1997. The $1.6 million, or 12.8%, increase in net revenue for the three months
ended September 30, 1998 as compared to the three months ended September 30,
1997, primarily relates to the additional nine eye care centers acquired
effective April 1, 1998. The $9.2 million, or 27.9%, increase in net
11
<PAGE>
revenue for the nine months ended September 30, 1998 as compared to the nine
months ended September 30, 1997, relates primarily to the additional seventeen
eye care centers acquired effective July 1, 1997 and the nine eye care centers
acquired effective April 1, 1998.
COST OF REVENUE. Cost of revenue increased from approximately $4.5 million for
the three months ended September 30, 1997 to approximately $4.9 million for the
three months ended September 30, 1998. Cost of revenue as a percentage of net
revenue decreased from 35.2% for the three months ended September 30, 1997 to
34.1% for the three months ended September 30, 1998. Cost of revenue increased
from approximately $12.1 million for the nine months ended September 30, 1997 to
approximately $14.7 million for the nine months ended September 30, 1998. Cost
of revenue as a percentage of net revenue decreased from 36.4% for the nine
months ended September 30, 1997 to 34.7% for the nine months ended September 30,
1998. The improvement as a percentage of net revenue is primarily due to the
improved profit margin resulting from sales from both the additional seventeen
eye care centers acquired effective July 1, 1997 and the nine eye care centers
acquired effective April 1, 1998. Cost of revenue principally consisted of (i)
the cost of manufacturing, purchasing and distributing optical products to its
customers and (ii) the cost of delivering LVC services, including depreciation
and maintenance on excimer lasers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $9.3 million and $27.5 million for
the three and nine months ended September 30, 1998 as compared to approximately
$8.4 million and $22.1 million for the three and nine months ended September 30,
1997. The increase primarily relates to payroll and facility costs incurred in
operating additional eye care centers for the three and nine months ended
September 30, 1998. Selling, general and administrative expenses, as a
percentage of net revenue, declined from 66.7% for the nine months ended
September 30, 1997 to 64.8% for the nine months ended September 30, 1998. This
decrease is primarily a result of (i) the nine eye care centers acquired
effective April 1, 1998, which operate with a level of selling, general and
administrative expenses as a percentage of net revenue that is lower than that
of the Company and its other subsidiaries, and (ii) the Company's ability to
better leverage its fixed expenses in connection with the acquisition of multi-
site eye care centers.
OTHER INCOME AND EXPENSE. Interest income totaled $34,000 and $162,000 for the
three and nine months ended September 30, 1998, respectively, as compared to
$69,000 and $292,000 for the three and nine months ended September 30, 1997,
respectively. This decrease resulted from the investment of a lower average
cash balance during the first three quarters of 1998 as compared to the same
periods in 1997. Interest expense totaled $45,000 and $141,000 for the three
and nine months ended September 30, 1998, respectively, as compared to $89,000
and $261,000 for the three and nine months ended September 30, 1997,
respectively. The decrease is associated with a higher average balance of debt
outstanding during the first three quarters of 1997 as compared to the same
periods in 1998. The sale of certain ophthalmic equipment during the nine months
ended September 30, 1998 generated a gain of approximately $69,000. The sale
of certain ophthalmic equipment during the three and nine months ended September
30, 1997 generated a gain of approximately $251,000 and $474,000, respectively.
12
<PAGE>
NET INCOME (LOSS). The Company realized net income of $143,000, or $0.02 per
share, and $233,000 or $0.03 per share, on a basic weighted average diluted
basis, for the three and nine months ended September 30, 1998, respectively, as
compared to net income of $78,000, or $0.01 per share, and a loss of ($514,000),
or ($0.06) per share for the three and nine months ended September 30, 1997,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had approximately $1.6 million in cash and
cash equivalents included in working capital of approximately $2.6 million, in
comparison to approximately $6.0 million in cash and cash equivalents included
in working capital of approximately $4.2 million as of December 31, 1997. The
decrease in working capital is primarily due to the purchase of the nine eye
care centers on April 1, 1998, the payment in March 1998 of the $1.0 million
note payable, and an increase in accounts receivable due to the acquisitions.
As of September 30, 1998, the Company had securities outstanding which provide
it with potential sources of financing as outlined below:
Securities Potential
proceeds
- ------------------------------------ ------------------
Warrants 2,472,100 $14,800,000
Class A Warrants 85,000 500,000
Class II Warrants 290,424 2,032,968
Creditanstalt Warrants 150,000 694,000
Representative Warrants 170,000 1,400,000
------------------
$19,426,968
==================
The Company also has outstanding 842,294 Class I Warrants. The Class I Warrants
entitle the holder to purchase an amount of shares of the Company's common stock
equal to an aggregate of up to 19.9% of the shares of common stock purchasable
under the Company's outstanding warrants and options on the same terms and
conditions of existing warrant and option holders. The purchaser is obligated to
exercise these warrants at the same time the options and warrants of existing
holders are exercised, subject to certain limitations. The amount of proceeds
from the exercise of these warrants cannot be estimated at this time.
There can be no assurance that the Company will obtain any such proceeds from
the exercise of the above securities.
In connection with the acquisition of Eyeglass Emporium, the Company issued an
unsecured note payable for $350,000. The note bears interest at 7% and is
payable in twelve equal quarterly installments of $29,000 principal plus accrued
interest.
On February 20, 1997, the Company entered into a Credit Agreement (the
"Agreement") with a bank pursuant to which the Company can borrow up to $5.0
million on a term loan basis and up to $5.0 million on a revolving credit basis,
subject to certain performance criteria. Such performance criteria include,
among others, financial condition covenants such as rolling EBITDA levels,
indebtedness to EBITDA ratios, current ratio of 1:1 and minimum net worth
ratios. The term loan facility bears interest at the bank's prime rate
13
<PAGE>
plus 1.5% or LIBOR plus 3% at the Company's election, and the revolving credit
facility bears interest at the bank's prime rate plus 1.25% or LIBOR plus 2.75%
at the Company's election. These loans are secured by all assets of the Company
and its wholly owned subsidiaries. Amounts borrowed under the Agreement have
been and will continue to be used to refinance existing debt, finance future
acquisitions, provide ongoing working capital and for other general corporate
purposes. As part of the Agreement, the Company issued to the bank warrants to
purchase 150,000 shares of the common stock at a purchase price of $4.625 per
share. The warrants expire December 31, 2003.
The Company anticipates that its working capital and sources of capital, such as
the existing credit facility, will be adequate to fund the Company's currently
proposed activities for at least the next twelve months. The Company
anticipates using financing vehicles such as bank debt and other sources of
funding, such as additional equity offerings, to achieve its business plan,
including the acquisition of eye care centers.
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. The Company will also 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 is currently evaluating potential acquisition candidates. Without
additional funding, the Company's rate of acquisition and size of acquisition
could be limited.
NEW PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information," which
established standards for the way that public business enterprises report
selected information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. SFAS 131, which becomes effective for the Company in its
year ending December 31, 1998, is not expected to have a material impact on the
Company's results of operations. The Company is in the process of determining
the impact of SFAS 131 on its footnote disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as "derivatives") and for hedging
activities. This statement requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The statement also sets forth the criteria for determining
whether a derivative may be specifically designated as a hedge of a particular
exposure with the intent of measuring the effectiveness of that hedge in the
statement of operations. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. Management does not believe that the
adoption of this statement will have a material
14
<PAGE>
impact on the Company's consolidated financial position, results of operations
or cash flows as the Company does not utilize derivative instruments.
YEAR 2000 ISSUE
The "Year 2000" issue refers to the inability of certain computer systems, as
well as certain hardware and equipment containing embedded microprocessors with
date sensitive data, to recognize accurate dates commencing on or after January
1, 2000. This has the potential to affect the operation of these systems
adversely and materially. The Company has identified four phases in its Year
2000 compliance efforts: discovery, assessment, remediation and applicable
testing and verification. The Company has substantially completed the discovery
and assessment phases for its own systems and applications and believes that by
modifying and upgrading existing software it can prevent the Year 2000
transition from posing significant internal operational problems. To date the
costs related to the discovery and assessment phase have not been material to
the Company's financial position or results of operation.
The Company plans to complete the remediation phase by the second quarter of
1999 and complete the applicable testing and verification phase by the end of
the third quarter of fiscal year 1999. The Company is currently evaluating total
incremental costs related to the Year 2000 issue. The Company does not
anticipate that the costs of these modifications and conversions will be
material to its financial position or results of operations in any given year.
The Company is surveying its vendors, customers and others on whom it relies to
assure that their systems will be Year 2000 compliant and that they will be able
to continue their business with the Company without interruption. However, there
can be no assurance that the systems of other parties on which the Company's
systems rely will also be compliant or that any failure to be compliant in this
area by another party would not have an adverse effect on the Company's systems.
Furthermore, no assurance can be given that any or all of the Company's systems
are or will be Year 2000 compliant, that the ultimate costs required to address
the Year 2000 issue will not exceed the amounts indicated above, or that the
impact of any failure to achieve substantial Year 2000 compliance will not have
a material adverse effect on the Company's financial condition.
The Company has not yet developed a contingency plan in the event that it is
unable to successfully address the Year 2000 issue. The Company plans to
develop a contingency plan by the end of the third quarter of 1999.
15
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) (1) Securities sold. On September 9, 1998, the Company issued a
total of 20,000 shares (the "Option Shares") of its Common
Stock.
(2) Underwriter and other purchasers. No underwriters were
involved in the transaction. The Company issued the Option
Shares pursuant to the exercise of a stock option held by a
former employee.
(3) Consideration. The Option Shares were issued at an exercise
price of $.43 per share for an aggregate exercise price of
$8,600.
(4) Exemption from registration claimed. The Option Shares were
issued in reliance upon Section 4(2) of the Securities Act
of 1933, as amended, because the transaction did not involve
any public offering by the Company.
(5) Terms of conversion or exercise. Not applicable.
(6) Use of Proceeds. Not applicable
(d) Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No Title
------- -----
+10a Employment Agreement between the Company and James
Norton, dated as of August 17, 1998.
+10b Letter Agreement regarding employment between the
Company and William McLendon, dated as of
July 27, 1998.
+10c Letter Agreement regarding employment between the
Company and Stephen M. Blinn, dated as of
August 3, 1998.
27 Financial Data Schedule
-------------
+ - Management contract or compensatory plan, contract or
arrangement.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter covered by
this report.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sight Resource Corporation
Date: November 12, 1998
-----------------
By: /s/ WILLIAM T. SULLIVAN
---------------------------
William T. Sullivan
President and Chief Executive Officer
(principal executive officer)
Date: November 12, 1998
-----------------
By: /s/ JAMES NORTON
--------------------
James Norton
Chief Financial Officer
(principal financial officer)
17
<PAGE>
EXHIBIT 10a
-----------
SIGHT RESOURCE CORPORATION
100 JEFFREY AVENUE
HOLLISTON, MA 01746
As of August 17, 1998
James W. Norton
36 Liberty Road
Marshfield, MA 02050
Dear Mr. Norton:
This letter is to confirm our understanding with respect to (i) your
employment by Sight Resource Corporation, a Delaware corporation (the
"Company"), (ii) your agreement not to compete with the Company and (iii) your
agreement to protect and preserve information and property which is confidential
and proprietary to the Company, subject to your agreement with the terms hereof
as indicated by your execution of this letter on the final page (the terms and
conditions agreed to in this letter shall hereinafter be referred to as the
"Agreement"). In consideration of the mutual promises and covenants contained
in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, we have agreed as follows:
1. Employment. The Company will employ you, and you agree to work for the
----------
Company, as its Vice President-Finance and Chief Financial Officer, to have such
responsibilities, duties and authority as are customary to such positions. You
will also have such other responsibilities, duties and authority as may from
time to time be assigned to you by the Chief Executive Officer or the Board of
Directors (the "Board") that are consistent with your status as Vice President-
Finance and Chief Financial Officer of the Company. You agree to devote your
full business time and energies to the business and affairs of the Company and
its subsidiaries, if any, as is necessary from time to time for your fulfillment
of your obligations to the Company hereunder; however, nothing contained in this
Paragraph 1 shall be deemed to prevent or limit your right to: (a) make passive
investments in the securities of any publicly-owned corporation, (b) make any
other passive investments with respect to which you are not obligated or
required to, and which you do not in fact, devote any substantial managerial
efforts which interfere with your fulfillment of your duties hereunder or (c)
serve as member of the board of directors of other for-profit or not-for-profit
corporations or entities, so long as such service (i) does not interfere with
the performance of your obligations hereunder or (ii) does not constitute a
violation of Section 10.
2. Term of Employment. (a) Your retention hereunder shall commence as of
------------------
the date above and will continue until the third anniversary thereof (the
"Initial Term"); provided that the Initial Term, and any succeeding one-year
period thereafter, shall automatically be renewed for a one-year period, and for
successive one-year periods, unless, not later than 3 months prior to the
expiration of the Initial Term or any such successor one-year term (or such
shorter period as may mutually be agreed by you and the Company), either you or
the Company delivers written notice to the other stating that such term shall
not be so extended or renewed Notwithstanding the foregoing, your employment
hereunder shall be terminated by the first to occur of the following:
<PAGE>
(i) Immediately upon your death;
(ii) Upon notice from the Company following your inability, due to
illness, accident or any other physical or mental incapacity, to perform
the services provided for hereunder for an aggregate of 180 business days
within any one year period during the term hereof;
(iii) By the Company upon notice, for Cause, as defined herein, and as set
forth below;
(iv) By the Company, upon notice subject to Section 3 hereof, without
Cause; or
(v) By you, upon notice to the Company, provided, that if you do not give
--------
at least 30 days' prior written notice of your intention to terminate your
employment hereunder, you will forfeit all unused vacation, prepaid
benefits, any unused but unpaid incentive compensation, and any stock
options which have not vested as of the date such notice is given.
The right of the Company to terminate your employment hereunder to which you
hereby agree, shall be exercisable by written notice sent to you by the Company
and shall be effective as of the date of such notice.
(b) The Company may, immediately and unilaterally, terminate your
employment hereunder for Cause at any time upon ten (10) days' advance written
notice to you. Termination of your employment by the Company shall constitute a
termination for Cause if such termination is for one or more of the following
reasons: (i) your willful misconduct or gross negligence; (ii) you are convicted
of a felony, either in connection with the performance of your obligations to
the Company or which conviction materially adversely affects your ability to
perform such obligations, or materially adversely affects the business
activities, reputation, good will or image of the Company; (iii) willful
disloyalty, deliberate dishonesty, breach of fiduciary duty or breach of the
terms of this Agreement; (iv) the commission by you of an act of fraud,
embezzlement or deliberate disregard of the rules or policies of the Company
which results in significant loss, damage or injury to the Company; (v) your
willful unauthorized disclosure of any trade secret or confidential information
of the Company; or (vi) your willful commission of an act which constitutes
unfair competition with the Company or which induces any employee or customer of
the Company to break a contract with the Company.
In making any determination under this Section, the Chief Executive Officer
and the Board of Directors shall act fairly and in utmost good faith and shall
give you an opportunity to appear and be heard at a meeting of the Board of
Directors or any committee thereof and present evidence on your behalf. For
purposes of this Section, no act, or failure to act, on your part shall be
considered "willful" unless done, or admitted to be done, by you in bad faith
and without reasonable belief that such action of omission was in the best
interest of the Company.
-2-
<PAGE>
In the event you are terminated for Cause, you shall be entitled to no
severance or other termination benefits, or any other benefits (except for any
health insurance benefits required by applicable law).
3. Compensation. (a) In consideration for your services under this
------------
Agreement, you shall be paid at the annual rate of One Hundred Sixty Thousand
Dollars ($160,000), subject to increase from time to time by action of the Chief
Executive Officer and the Board in accordance with your performance and the
Company's performance ("Base Salary"), and payable at such intervals as may be
agreed upon by the Company and you, less any amounts required to be withheld
under applicable law. Such compensation will be reduced by any disability
payments which you receive, after taking into account the tax benefits (if any)
of such payments. In addition, upon commencement of your employment you will be
granted options to purchase an aggregate of 99,999 shares of the Company's
Common Stock, at fair market value on the date of grant, vesting 1/3 after one
year and the remaining 2/3 in two equal annual installments thereafter, pursuant
to the Company's standard form of stock option agreement.
(b) In the event that (i) your employment shall be terminated by the
Company without Cause at any time, (ii) you terminate your employment
hereunder by reason of a material change in your duties imposed by the
Chief Executive Officer or Board of Directors of the Company or by reason
of any material breach by the Company of its obligations to you or (iii)
the Company elects not to renew the term of your employment hereunder at
the end of the Initial Term or any succeeding one-year period, then, in any
such case, the Company shall continue to pay you your Base Salary then in
effect and the cost of your health insurance for a period (the "Severance
Period") of one year.
(c) In the event your employment shall be terminated by the Company for
Cause, no further compensation or benefits of any kind shall be payable to
you hereunder (except for any health insurance benefits required by
applicable law); provided, however, that you shall continue to be bound by
the provisions of this Agreement, other than Section 1.
(d) In consideration for your services under this Agreement, you shall be
paid a "signing bonus" of Twelve Thousand Five Hundred Dollars ($12,500)
upon the commencement of your employment hereunder.
(e) In the event that, during the term of your employment hereunder and on
or prior to the second anniversary of the date hereof, you relocate your
primary residence from Marshfield, Massachusetts to a location more
convenient to the Company's home office in Holliston, Massachusetts, then
the Company shall pay to you Twelve Thousand Five Hundred Dollars
($12,500).
4. Bonuses. Following the commencement of your employment hereunder, for
-------
fiscal year 1998 you will be entitled to a bonus based principally on the
profitability of the Company, but not to exceed in any event an amount equal to
35% of your base salary base hereunder, determined on a pro rata basis.
Thereafter, you will be entitled to such bonuses as are determined pursuant to
bonus policies, procedures and formulae in effect from time to time as
determined by the Compensation Committee of the Board or by the Board of
directors, but such
-3-
<PAGE>
policies, procedures and formulae will not be any less favorable to you than the
35% of annual base salary maximum bonus plan that will be in effect for the
balance of 1998.
5. Expenses. The Company will reimburse you for travel, entertainment and
--------
other business expenses reasonably incurred by you in connection with the
business of the Company to the extent and in a manner consistent with then
Company policy and appropriate to someone in a position of your stature.
6. Benefits. In connection with your employment hereunder, you will be
--------
entitled during your employment to the following additional benefits:
(a) You shall be entitled to no less than the number of vacation days in
each calendar year determined in accordance with the Company's vacation policy
as in effect from time to time, but not less than three (3) weeks in any
calendar year (prorated in any calendar year during which you are employed
hereunder for less than the entire such year in accordance with the number of
days in such calendar year in which you are so employed). You shall also be
entitled to all paid holidays and personal days given by the Company to its
executives.
(b) The Company shall furnish you with office space, stenographic
assistance and such other facilities and services as shall be suitable to and
appropriate for your position and for the performance of your duties as set
forth herein.
(c) In addition to the foregoing, you shall also be entitled to
participate in any employee benefit plans which the Company provides or may
establish for the benefit of its executive employees generally.
7. Termination upon Death or Disability. Your employment by the Company
------------------------------------
shall terminate upon your death, or if, by virtue of total and permanent
disability, you are unable to perform your duties hereunder.
The determination that, by virtue of total and permanent disability, you
are unable to perform your duties hereunder shall be made by a physician chosen
by the Company and reasonably satisfactory to you (or your legal
representative). The cost of such examination shall be borne by the Company.
Without limiting the generality of the foregoing, unless otherwise agreed, you
shall be conclusively presumed to be totally and permanently disabled hereunder
if for reasons involving mental or physical illness or physical injury you fail
to perform your duties hereunder for a period aggregating one hundred eighty
(180) days or more in any twelve (12) consecutive month period.
For purposes of this Paragraph 7, the termination date in the event of
death shall be the date of death and in the event of such total and permanent
disability shall be the earlier of the date of such physician's examination
pursuant to which such determination is made or the first business day after
which such 180 days has expired.
In the event of such a termination of employment as a result of your death
or total and permanent disability, the Company shall have no further obligations
hereunder except as provided in Paragraphs 3 and 9 hereof and except as provided
below in this Paragraph 7:
-4-
<PAGE>
(a) In the event of death, the Company shall pay to your estate amounts,
at the Base Salary rate in effect on the termination date, in monthly
payments, for a period of twelve (12) months following the termination
date; and
(b) In the event of total and permanent disability, the Company shall pay
to you (or your estate) amounts, at the Base Salary rate in effect on the
termination date, payable in monthly payments, for a period of twelve (12)
months following the termination date. Amounts to which you would otherwise
be entitled under this subparagraph (b) shall be reduced by the amount of
any disability insurance proceeds actually paid to you or paid for your
benefit (or to your estate or legal representatives) with respect to such
twelve (12) months following the termination date under any disability
policy provided by the Company.
8. Change of Control. (a) In the event you, the Company, or a successor to
-----------------
the Company elect to terminate your employment upon a Change of Control (as
defined in Section 8(b) below), provided that such notice of termination is
given within twelve (12) months of a Change of Control (a "Change of Control
Notice"), then upon such termination pursuant to this paragraph, you (or your
estate, if you die prior to receiving the payments hereinafter set forth in this
sentence) shall be entitled to receive within thirty (30) days of such
termination a lump sum payment equal to your Base Salary in effect on the date
of such termination. For the purposes of this Section 8(a), the time when a
termination occurs shall be the effective date of your termination. In
addition, in the event of such a termination pursuant to a Change of Control
Notice, the Company or a successor to the Company shall provide, and you shall
continue to be entitled to receive, such benefits you have been receiving
pursuant to Section 6(a) as of the date of your Change of Control Notice until
the earlier of (i) your full-time employment by a third-party who offers you at
least comparable benefits in the particular benefit category or (ii) two (2)
years following such date of termination. Any compensation payable under this
Section 8(a) shall be paid notwithstanding your total and permanent disability
or death occurring after termination of your employment hereunder. In addition,
the stock option agreements described in Section 3(a) above shall provide for
the automatic vesting of any unvested stock options upon the occurrence of a
Change of Control.
(b) As used herein a "Change of Control" shall be deemed to have occurred
if (i) any "person" (as such term is used in sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934, as amended), is or becomes the beneficial
owner, directly or indirectly, of securities of the Company representing twenty-
five percent (25%) or more of the outstanding Common Stock of the Company, or
(ii) ten (10) days following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by any "person" of twenty-five percent
(25%) or more of the outstanding Common Stock of the Company, provided, however,
that at the conclusion of such ten (10) day period such person has not
discontinued or rescinded his intention to make a tender or exchange offer or
(iii) if during any consecutive twelve (12) month period beginning on or after
the date on which this Agreement is executed individuals who at the beginning of
such period were directors of the Company cease, for any reason, to constitute
at least a majority of the Board of Directors of the Company; or (iv) if a
merger of, or consolidation involving, the Company in which the Company's stock
is converted into securities of another corporation or into cash shall be
consummated, or a plan of complete liquidation of the Company (whether or not in
connection with a sale of all or substantially all of the Company's assets)
shall be adopted
-5-
<PAGE>
and consummated, or substantially all of the Company's operating assets are sold
(whether or not a plan of liquidation shall be adopted or a liquidation occurs),
excluding in each case a transaction solely for the purpose of reincorporating
the Company in a different jurisdiction or recapitalizing the Company's stock.
9. Accrued Compensation. In the event of any termination of your
--------------------
employment for any reason, you (or your estate) shall be paid such portion of
your Base Salary and bonuses as has accrued by virtue of your employment during
the period prior to termination and has not yet been paid, together with any
amounts for expense reimbursement and similar items which have been properly
incurred in accordance with the provisions hereof prior to termination and have
not yet been paid. Such amounts shall be paid within ten (10) days of the
termination date. The amount due to you (or your estate) under this Paragraph 9
in payment of any bonus shall be a proportionate amount of the bonus that would
otherwise have been due to you as if such termination had not occurred.
10. Prohibited Competition. You agree and covenant that, with respect to
----------------------
the business of the Company, until your termination of employment, whether or
not such termination is voluntary or involuntary, and, subject to the last
sentence of this paragraph 10, for a period of one (1) year following such
termination, you shall not, without the prior written consent of the Company,
for yourself or on behalf of any other, directly or indirectly, either as
principal, agent, stockholder, employee, consultant, representative or in any
other capacity, own, manage, operate or control, or be concerned, connected or
employed by, or otherwise associate in any manner with, engage in or have a
financial interest in any business which is directly or indirectly competitive
with the retailing of optical goods and services business of the Company;
provided, however, that nothing contained herein shall preclude you from
- -------- -------
purchasing or owning stock in any such business if such stock is publicly
traded, and provided that your holdings do not exceed three percent (3%) of the
issued and outstanding capital stock of such business. Notwithstanding anything
in this Agreement to the contrary, the provisions of this Section 10 shall not
apply to the one (1) year period following termination of your employment in the
event that such termination is caused by or related in any manner to (i) a
change (without your consent) by the Board of Directors in your title of Vice
President-Finance and Chief Financial Officer to any lesser office or (ii) a
relocation (without your consent) of the position of Vice President-Finance or
Chief Financial Officer to a location outside of the Commonwealth of
Massachusetts and the States of Rhode Island and New Hampshire.
11. Protected Information. You shall not, without the prior written
---------------------
consent of the Company, use, except in the course of performance of your duties
for the Company, disclose or give to others any fact or information which was
disclosed to or developed by you during the course of performing services for or
receiving training from, the Company, and is not generally available to the
public, including but not limited to information and facts concerning business
plans, customers, prospects, client lists, or any other scientific, technical,
trade or business secret or confidential or proprietary information of the
Company.
12. Ownership of Ideas, Copyrights and Patents. You agree that all ideas,
------------------------------------------
discoveries, creations, manuscripts and properties, innovations, improvements,
know-how, inventions, developments, apparatus, techniques, methods, and formulae
(all of the foregoing being hereinafter referred to as "the inventions") which
may be used in the business of the Company, whether patentable, copyrightable or
not, which you may conceive or develop during
-6-
<PAGE>
your term of employment with the Company, alone or in conjunction with another,
or others, whether during or out of regular business hours, and whether at the
request, or upon the suggestion of the Company, or otherwise, shall be the sole
and exclusive property of the Company, and that you shall not publish any of the
inventions without the prior consent of the Company. You hereby assign to the
Company all of your right, title and interest in and to all of the foregoing.
You further represent and agree that to the best of your knowledge and belief
none of the inventions will violate or infringe upon any right, patent,
copyright, trademark or right of privacy, or constitute libel or slander against
or violate any other rights of any person, firm or corporation, and that you
will use your best efforts to prevent any such violation.
At any time during or after your term of employment with the Company, you
agree that you will fully cooperate with the Company, its attorneys and agents,
in the preparation and filing of all papers and other documents as may be
required to perfect the Company's rights in and to any of such inventions,
including, but not limited to, joining in any proceeding to obtain letters
patent, copyrights, trademarks or other legal rights of the United States and of
any and all other countries on such inventions, provided that the Company will
bear the expense of such proceedings, and that any patent or other legal right
so issued to you, personally, shall be assigned by you to the Company without
charge by you.
13. Parties. This Agreement is personal and shall in no way be subject to
-------
assignment by you except as contemplated hereby. This Agreement shall be
binding upon and shall inure to the benefit of the Company and its successors
and assigns either by merger, operation of law, consolidation, assignment,
purchase or otherwise of a controlling interest in the business of the Company
and shall be binding upon and shall inure to the benefit of you, your heirs,
executors, administrators, personal and legal representatives, distributees,
devisees, legatees, successors and permitted assigns. If you should die while
any amounts would still be payable to you hereunder if you had continued to live
(other than amounts to which you would be entitled by reason of continued
employment), all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisees, legatees or
other designees or, if there be no such designee, to your estate. The Company
agrees that a successor in interest by merger, operation of law, consolidation,
assignment, purchase or otherwise of a controlling interest in the business of
the Company will be informed prior to such event of the existence of this
Agreement. The Company will require any successor (whether direct or indirect,
by purchase, merger, operation of law, consolidation, assignment or otherwise of
a controlling interest in the business, stock or other assets of the Company) to
assume expressly and agree to perform this Agreement. As used in this
Agreement, "the Company" shall mean the Company as hereinbefore defined and any
successor as aforesaid.
14. Invalidity. We intend this Agreement to be enforced as written.
----------
However, if any term or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a duly authorized court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
term or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, each term and
provision of this Agreement shall be valid and be enforceable to the fullest
extent permitted by law and the illegal or unenforceable term or provision shall
be deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
-7-
<PAGE>
15. Notices. All notices and communications required or permitted to be
-------
given hereunder shall be duly given by delivering the same in hand or by
depositing such notice or communication in the mail, sent by certified or
registered mail, return receipt requested, postage prepaid, or by delivery by
overnight courier, with a receipt obtained therefor, as follows:
If sent to the Company: Sight Resource Corporation
100 Jeffrey Avenue
Holliston, MA 01747
If sent to you: James W. Norton
36 Liberty Road
Marshfield, MA 02050
or such other address as either party furnishes to the other by like notice,
provided, however, that any notice of a change of address shall be effective
only upon receipt.
16. Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between us in relation to the subject matter hereof and there are
no promises, representations, conditions, provisions or terms related thereto
other than those set forth or referred to in this Agreement and the exhibits
hereto. This Agreement supersedes all previous understandings, agreements and
representations between the Company and you regarding your employment by the
Company, whether written or oral.
17. Headings. All captions in this Agreement are intended solely for the
--------
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
18. Waiver. No failure of the Company or you to exercise any power
------
reserved to it or you, respectively, by this Agreement, or to insist upon strict
compliance by you or the Company, respectively, with any obligation or condition
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of the Company's or your right, as the case
may be, to demand exact compliance with any of the terms hereof. Waiver by
either party of any particular default by the other party hereto shall not
affect or impair the waiving party's rights with respect to any subsequent
default of the same, similar or different nature, nor shall any delay,
forbearance or omission of either party to exercise any power or right arising
out of any breach or default by the other party of any of the terms, provisions
or covenants hereof, affect or impair our or your right to exercise the same,
nor shall such constitute a waiver by the Company or you, as the case may be, of
any right hereunder, or the right to declare any subsequent breach or default
and to terminate this Agreement prior to the expiration of its term.
19. Subsidiaries. As used herein, the term "Subsidiaries" shall mean all
------------
corporations a majority of the capital stock of which entitling the holder
thereof to vote is owned by the Company or a Subsidiary.
20. Governing Law. This Agreement shall be construed under and be
-------------
governed in all respects by the law of the Commonwealth of Massachusetts.
-8-
<PAGE>
21. Excise Tax. In the event you are subject to any excise tax ("Excise
----------
Tax") on your compensation by the Company or any of its Affiliates (including
but not limited to excise taxes imposed under Section 4999 of the Internal
Revenue Code), the Company agrees that it will then "gross-up" your compensation
by making an additional payment to you in an amount which, after reduction for
any income or excise taxes payable as a result of receiving such additional
payment, is equal to the Excise Tax.
22. Mitigation. You shall not be required to mitigate the amount of any
----------
payment provided for in this Agreement by seeking other employment or otherwise,
nor, other than as provided in Section 7(a) hereof, shall the amount of any
payment or benefit provided for herein be reduced by any compensation or
benefits earned by you as the result of employment by another employer after the
date of your termination by the Company.
23. Amendment. No amendment or modification to this Agreement shall be
---------
effective unless in writing and signed by both parties hereto.
24. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each executed counterpart constituting an original and such
counterparts together constituting one agreement.
-9-
<PAGE>
If you agree with the terms of your employment as set forth in this
Agreement, please execute the duplicate copy hereof in the space provided below.
SIGHT RESOURCE CORPORATION
By: /s/ William T. Sullivan
-------------------------------------
Name: William T. Sullivan
Title: President & CEO
ACCEPTED AND AGREED
as of the date above:
/s/ James W. Norton
- ----------------------------------
James W. Norton
-10-
<PAGE>
[LOGO APPEARS HERE]
Sight Resource Corp. INTER-OFFICE MEMORANDUM
Date: July 27, 1998
To: Bill McLendon
From: Bill Sullivan
- --------------------------------------------------------------------------------
Outlined below are the terms that we have agreed upon with regard to your
ongoing employment role with Sight Resource Corporation.
Base Salary
- -----------
Effective August 1, 1998, base salary will be $3,500 per pay period, ending
February 25, 2000.
Bonus
- -----
1998 - Determined by CEO and Compensation Committee
1999 - 0
Automobile
- ----------
Effective August 1, 1998, the company will pay $850 toward the lease of
automobile ending 12/99. The company will pay phone, gas, and maintenance
through 2/99 and taxes and insurance through 12/99. At 3/1/99, you will assume
the phone, gas, and maintenance expenses through 12/99.
Health Benefits
- ---------------
Effective August 1, 1998, the company will pay $131 monthly toward health
benefits until February 25, 2000. After that time and at your expense, you may
continue to remain on the health plans under COBRA by paying the total cost.
You will receive eyewear in accordance with our current (or future) policy.
Other
- -----
I want your active involvement in the indoctrination of our new CFO. Effective
August 1, 1998, you will also remain available, as requested, to work on
projects, assignments, or other activities.
<PAGE>
Bill McLendon
Page 2
2. You will be excluded from the company's 40l (k) plan effective August 1,
1998. Current year-to-date contributions will remain in the plan, and the
1998 match, if any, will be in accordance with the policy.
3. The key man life insurance policy will be canceled effective 8/1/98. If you
desire to convert this policy, the company will assist you.
4. Office space will be provided for you at the Washington Street store until
April, 2000.
5. Reinforce the non-compete to expire February, 2001, which is one (1) year
from February, 2000.
6. Continue current indemnification and D & O insurance as appropriate.
7. Stock options to remain in place until June, 2000, ninety days after
employment ceases or, if you remain a Director, ninety days after
Directorship ends.
8. Effective August 1, 1998, any expenses being direct billed to the company
(cell phone, credit card, gas card) will cease except for the auto phone
(508-325-2807) which will be converted 3/1/99. Convert these to individual
name.
9. Business expenses will be reimbursed with advance approval.
William G. McLendon_______________________
<PAGE>
[LOGO APPEARS HERE]
Sight Resource Corp. INTER-OFFICE MEMORANDUM
Date: 8/3/98
To: Steve Blinn
From: Bill Sullivan
- --------------------------------------------------------------------------------
Outlined below are the terms that we have agreed upon with regard to your
employment role with Sight Resource Corporation.
Base Salary
- -----------
Effective August 1, 1998, base salary will be $3,750 per pay period ending April
28, 2000.
Bonus
- -----
1998 - Determined by CEO and Compensation Committee.
1999 - 0
Automobile
- ----------
Your current auto and associated expenses will remain as is until April 24,
1999, at which time the auto will return to the company.
Health Benefits
- ---------------
Your current benefit plans and participating payments will remain in place until
April 24, 1999. After that time, and at your expense, you may continue to
remain on the health plans under COBRA by paying the total costs.
Other
- -----
1. I want your active involvement with Bill Mancini until we are comfortable
with his indoctrination period. Effective August 1, 1998, you will also remain
available, as requested, to work on projects, assignments, or other activities.
2. You will be excluded from 40l (k) plan effective August 1, 1998.
Steve Blinn
<PAGE>
Page 2
3. The key man life insurance policy will be cancelled effective
August 1, 1998. If you desire to convert this policy, the Company
will assist you.
4. Office space will be provided for you at the Washington Street store until
April, 2000.
5. Reinforce the non-compete to expire April, 2001, which is one (1) year from
April, 2000.
6. Continue current indemnification and D & O insurance as appropriate.
7. Stock options remain in place until July, 2000, ninety days after
employment ceases.
8. Effective August 1, 1998, any expenses being direct billed to the Company
will cease (cell phone, credit card, gas card). Convert these to individual
name.
9. Business expenses will be reimbursed with advance approval.
Stephen M. Blinn______________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM * AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 1,570 1,570
<SECURITIES> 0 0
<RECEIVABLES> 3,730 3,730
<ALLOWANCES> 410 410
<INVENTORY> 4,478 4,478
<CURRENT-ASSETS> 9,538 9,538
<PP&E> 12,830 12,830
<DEPRECIATION> 6,610 6,610
<TOTAL-ASSETS> 33,893 33,893
<CURRENT-LIABILITIES> 6,930 6,930
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 20,159 20,159
<TOTAL-LIABILITY-AND-EQUITY> 33,893 33,893
<SALES> 14,299 42,377
<TOTAL-REVENUES> 14,299 42,377
<CGS> 4,877 14,700
<TOTAL-COSTS> 4,877 14,700
<OTHER-EXPENSES> 9,265 27,471
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 45 141
<INCOME-PRETAX> 146 296
<INCOME-TAX> 3 63
<INCOME-CONTINUING> 143 233
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 143 233
<EPS-PRIMARY> 0.02 0.03
<EPS-DILUTED> 0.01 0.02
</TABLE>
