<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/X/ Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended December 31, 1999
/_/ Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _____________ to ______________
Commission file number 0-27889
EYE CARE INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
Delaware
(State or other jurisdiction 59-3206480
of incorporation or organization) (IRS Employer Identification No.)
1511 North Westshore Boulevard, Suite 925
Tampa, Florida 33607
(Address of principal executive offices) (Zip Code)
(813) 289-5552
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
class A common stock, $.001 par value
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes /X/ No /_/
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. /X/
Revenues for the issuer's most recent fiscal year were $544,140.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the closing price of the common stock
on March 1, 2000 was $7,607,469.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes /_/ No /_/
APPLICABLE ONLY TO CORPORATE REGISTRANTS
As of March 1, 2000, the issuer had 8,012,604 shares of class A common
stock, $.001 par value, outstanding.
Transitional Small Business Disclosure Format: Yes /_/ No /X/
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Description of Business.
Our Business
We market memberships in a comprehensive national non-insurance based
quality discount eye care/eyewear plan. The memberships entitle plan
participants to obtain eye care service and products from our network of
providers at significantly reduced rates.
We believe that we are the only national discount vision network with
ophthalmologists who have agreed to discount all of their medical services, as
well as the nation's largest optometric discount vision network. This would make
ECI the only national discount vision network which combines ophthalmology
services provided by medical doctors with optometric products and services
provided by optometrists, opticians and optical locations. Our network has
providers at over 11,000 locations, and is comprised of over 1,600
ophthalmologic practices and nearly 10,000 optometric, optician and optical
locations. Ophthalmologists, optometrists and opticians participating in our
vision care network are located within reasonable proximity to all major
metropolitan areas within the United States. The composition of our optometric
network is both large chain companies and a wide variety of boutiques and
specialty shops. Most other discount vision networks only offer discounts on
optometric products and services.
By offering a full range of eye care/eyewear services, members of our
vision care plan are able to obtain a comprehensive eye care service package,
including elective cosmetic surgical procedures such as lasik or vision
correction surgery, CO2 laser skin resurfacing or wrinkle removal surgery, and
other laser surgical procedures performed by ophthalmologists. These procedures
are traditionally not covered by insurance or Medicare and are generally
expensive. ECI members can obtain these elective procedures from our providers
at a discount of 20% from an ophthalmologist's usual and customary rate. As
illustrated under the caption "Our Vision Plan," members not eligible for
Medicare may receive greater discounts for surgical procedures, such as cataract
surgery, that are typically covered by Medicare, since the 20% discount applies
to the Medicare allowable cost of procedures, rather than the optholmologist's
usual and customary rate, which is generally significantly higher. Although
individuals eligible for Medicare may participate in our vision care program,
they only receive discounts on surgical procedures not covered by Medicare.
Surgical procedures covered by Medicare are performed at the Medicare allowable
rate.
ECI providers offer eyewear products to our members at nationally
listed wholesale prices, plus a $30 to $50 dispensing fee paid to the provider.
This generally creates a savings in the range of 40% to 60% off retail prices.
We also offer a mail order program through which members of our vision care
network may order replacement contact lenses and designer or non-designer
sunglasses at nationally listed wholesale prices.
Our revenues are derived from membership fees paid to us by individual
subscribers and sponsoring organizations that offer our vision care program to
their employees or members. Additional information concerning membership fees is
presented under the caption "Marketing". We have experienced losses since we
commenced operations in 1994, including a net loss of approximately $1,693,000
for 1997, $2,779,000 for 1998 and $2,293,000 for 1999. The report of our
independent auditor on our financial statements contains an explanatory
paragraph indicating that there is substantial doubt as to our ability to
continue as a going concern because of recurring losses from operations. Our
ability to operate profitably depends upon market acceptance of our vision care
plan and the development of an effective sales and marketing organization.
Although we believe that marketing arrangements entered into since September
1999 will produce significant revenues commencing in the third quarter of 2000,
we are unable to predict when and if we will generate sufficient revenues to
become profitable.
Our Target Market
We market our vision care plan to corporations, large sales
organizations, religious and fraternal organizations and trade and professional
organizations. We are involved in all stages of product development from
training individual sales agents to the design and implementation of a specific
marketing program at the corporate and affinity group level. These organizations
can either purchase our vision care plan for, or offer it to, their employees or
members as a supplement to existing health care insurance plans or other benefit
programs or as a stand-alone benefit. Sponsors of healthcare programs, including
other discount vision plans, may secure for their members the right to use the
providers in our vision care network. This is a particularly significant aspect
of our marketing plan due to the national scope of our network and the
ophthalmology services offered.
Our History
We are a Delaware corporation incorporated on May 31, 1994, and a
successor by merger to Eye Care International, Inc., a Florida corporation. Our
principal executive offices are at 1511 North Westshore Boulevard, Suite 925,
Tampa, Florida 33607 and our telephone number is (813) 289-5552.
1
<PAGE>
Industry Overview
Approximately $20 billion is spent on eye care products and services each year
in the United States.
o Approximately $11 billion is spent on eyeglasses
o Approximately $2 billion is spent on contact lenses.
o Approximately $4 billion is spent on eye examinations and related
services
o Approximately $3 billion represents the costs of related surgical
procedures performed by ophthalmologists.
Ophthalmologists (eye M.D.'s) perform more than three million surgical
procedures in the United States annually.
Eye care products and services in the United States are delivered
through a fragmented system of providers composed of approximately 10,500 Board
certified ophthalmologists, 31,000 optometrists and 65,000 opticians.
o Opticians make and adjust eyewear using prescriptions supplied by
optometrists or ophthalmologists
o Optometrists specialize in examination, diagnosis and treatment
of conditions of the vision system, including fitting and
prescribing contact lenses
o Ophthalmologists are medical doctors who have at least three years
of hospital-based training in the diagnosis and medical and
surgical treatment of eye disorders
The optical dispensing industry in the United States is highly
fragmented with the top 100 optical chains accounting for less than 27% of total
retail sales in 1995. The retail optical industry is consolidating and will
continue to consolidate. Concerns about accelerating healthcare costs have
resulted in the increasing prominence of managed care in the eye care industry.
However, concerns about the quality of care received under managed care programs
and patient access have similarly created a renewed interest in fees for
services based programs. Concerns about costs of these programs and services
remain, thus giving rise to a type of fee for services programs.
Most optometric locations offer basic eye care services, including eye
examinations and contact lens fittings in order to increase sales. This has had
a significant impact on the number of individuals who have begun to use
optometrists, instead of ophthalmologists, for general eye care.
While approximately 90% of general health maintenance organizations
cover routine eye examinations, fewer than 15% cover corrective lenses and none
effectively cover cosmetic-type surgeries, including lasik or vision correction
surgery, CO2 laser skin resurfacing or wrinkle removal surgery and other laser
surgical procedures. Comprehensive eyecare/eyewear benefit programs are
generally not offered as an employee benefit.
We have designed our plan to be suitable as a stand-alone product, as a
supplement to existing insurance programs or within existing insured/indemnity
corporate programs currently being offered by insurance companies, as well as
packagers of insurance-type programs, such as health maintenance organizations
and preferred provider organizations. Our plan is particularly attractive to
sellers of health care insurance and packagers of broad-based health care
programs, since we provide substantial national coverage
2
<PAGE>
and the only discount network combining ophthalmology with optometric products
and services. Because of the availability of ophthalmology services under our
plan and the fee structure agreed to by our M.D. providers, by using the ECI
network, costs otherwise being incurred by insurance companies, health
maintenance and preferred provider organizations and self-insured entities can
be substantially reduced. Furthermore, since our discount vision plan is not
insurance based, it may be added to existing health care benefits packages.
Market
In 1995, approximately 157 million of the 263 million people in the
United States needed, but only 96 million people wore, some form of corrective
eyewear. Therefore, there are approximately 60 million people who need
corrective lenses but do not have them. We estimate that in excess of 90% of all
American families have a member who wears some form of glasses, prescription
and/or non-prescription. The market for corrective eyewear has grown steadily
and the demographic trends of an aging population are expected to generate
increased demand for corrective eyewear and optical services. As "baby boomers"
move further into the 40-64 age bracket, the market for eye wear and eyecare is
expected to expand significantly. This is the age group when most people
experience presbyopia, difficulty in reading small print. Treatment for diseases
predominantly affecting elderly patients such as cataracts and glaucoma, as well
as eyewear designed to appeal to mature customers, also is increasing. People
over the age of 40 typically require more complex lenses and more expensive
prescriptions than younger people. In addition, the increasing use of video
display terminals in the workplace has created a further need for eyecare and
eyewear. Consequently, the aging of the "baby boom" generation and technology
driven advances in the workplace are expected to further expand the size of the
optical industry.
U.S. Population Needing Some Form of Vision Correction
(in Millions)
<TABLE>
<CAPTION>
Percentage of
Number of People Population
1995 Wearing Wearing
Age Population Corrective Lens Corrective Lenses
----- ------------- ------------------ -------------------
<S> <C> <C> <C>
0-14 57.5 8.9 15%
15-24 35.9 15.0 42%
25-44 83.4 52.4 63%
45-64 52.2 49.6 95%
65 and over 33.6 31.2 93%
----- ----- ----
Total 262.6 157.1 60%
===== ===== ====
</TABLE>
3
<PAGE>
Our Vision Plan
Our vision plan offers members the following services and products:
o One free eye exam, annually, for prescription glasses
(contact lens exam excluded) per membership at
participating provider locations.
o Network ophthalmologists offer discounts to members
for eye examinations and medical and surgical
procedures.
Procedures typically covered by Medicare ("coded") are discounted to our
members who are not eligible for Medicare by 20% of the allowed Medicare rate.
For example, a physician's usual and customary fee for cataract surgery may be
$2,500. Medicare may allow only $1,000. An ophthalmologist participating in our
vision network would charge our member only $800 as full payment, resulting in a
$1,700 savings, or 68% less than the usual and customary rate. However, members
eligible for Medicare pay the Medicare allowable rate. Procedures not coded by
Medicare, such as lasik or vision correction surgery, CO2 laser skin resurfacing
or wrinkle removal surgery and other laser surgical procedures, are discounted
by 20% of the physician's usual and customary fee for all of our members,
including those eligible for Medicare.
o Network optical locations and other dispensers of eyewear
offer discounts of up to 60% off of the retail price of
prescription glasses. Network optical locations dispense
prescription eyeglasses and safety glasses at the
nationally listed wholesale price, plus a dispensing fee
paid by the patient to the prescribing physician of $30 to
$50, depending upon the complexity of the lenses; contact
lenses (other than disposable brands) and sunglasses at
prices 20% below retail; and sundry eyewear products at
30% below retail.
o Through our mail-order program, members can purchase
replacement contact lenses, sunglasses, including most
national and designer brands such as Revo, Ray-Ban,
Serengeti and Bolle', and safety glasses at wholesale
prices, plus a small shipping and handling fee.
o We maintain a 24-hour toll-free customer service line and
a database of a member's prescription, that allows us to
transmit a member's prescription to any network provider,
at any time, in case of an emergency.
o Members have unlimited access to all providers in the
network and their services and products.
o We do not have any exclusions for pre-existing conditions,
or restrictions on a member's purchase selections, and we
do not require members to complete forms when purchasing
services or goods.
o We guarantee members that as long as they use our plan in
good faith during the year, they will save at least the
cost of their membership. If they do not realize the
savings, we will refund the difference.
o We offer our members an unconditional, 30-day money-back
satisfaction guarantee.
4
<PAGE>
Each person in a participating member's immediate family also is
entitled to the benefits offered by the plan upon presentation of a membership
card bearing our name or logo. One membership card is provided to each family
enrolled in the plan. Additional membership cards will be furnished, upon
request, to family members for a small processing fee for each additional card.
Providers
We believe we are the only national vision care network that offers its
members access to ophthalmologists who discount all of their services. Our
network includes over 1,600 ophthalmic practices, and almost all of our
participating ophthalmologists are either Board certified or Board eligible for
certification. Approximately 20% of all Board certified ophthalmologists in the
United States are part of our network, and most of these ophthalmologists have
agreed to not join any other national discount vision plan. Ophthalmologists
participating in our network discount their usual and customary fees by 20% for
procedures not coded by Medicare. Each ophthalmologist establishes his own usual
and customary rates for elective surgical procedures. Members in our vision care
plan can compare the rates charged by ophthalmologists participating in our
vision care plan with those of other ophthalmologists in the same area by asking
those ophthalmologists for the rates they charge for performing the same
surgical procedures. We do not offer rate comparisons or provide members with
advice concerning the rates charged by ophthalmologists participating in our
vision care plan or any others. Medicare coded procedures are discounted by 20%
off of the Medicare allowable rate for members not eligible for Medicare. As
illustrated under the caption "Our Vision Plan," members not eligible for
Medicare may receive greater discounts for Medicare coded procedures such as
cataract surgery. Members eligible for Medicare pay the Medicare allowable
rates for Medicare coded procedures.
Our plan has nearly 10,000 optometric, optician and optical locations
composed of both large chain companies and a wide variety of boutiques and
specialty shops.
Marketing
Over the first two and one-half to three years of operation we
concentrated our efforts on the development of our vision care network, in
particularly, the establishment of the first national discount network of
ophthalmologists who would agree to discounts on all of their services. We made
little to no effort to market the "combined" network until such time as we
believed we had achieved material coverage in all 50 states. Once we believed
this to have been accomplished, we commenced the marketing of our plan to a
select number of employer organizations, including major corporations and small
to medium-sized business entities. During that period, our objective was to
demonstrate the market acceptability of our plan and to establish relationships
with large national sales and benefit consulting organizations, insurance
companies, health maintenance and preferred provider organizations and third
party administrators.
It was, and remains, our belief that once we could establish market
acceptability of our plan, it would ultimately be marketed primarily through
health care consultants and other organizations marketing health care programs
at retail and, to a much lesser extent, our own sales efforts. We believe this
strategy has proven, and will continue to prove, itself to be effective,
especially in view of our continued unique position in the vision care industry
as not only being easily "affordable" at both a wholesale and retail price
level, but also as a result of our continued position as the only national
discount vision plan combining the services of ophthalmologists with optometric
providers.
Through the marketing vehicles described above, the ECI plan is
marketed, directly and indirectly, to businesses, affinity groups, individuals
and packagers of other health care programs. It may be offered as a supplement
to already existing forms of health care coverage or may be purchased on a
free-standing basis. A corporation or individual need not have insurance
coverage to access our plan. Also, by reason of the breadth of our provider
network, our plan can usually match all of the geographic requirements of any
national insurance program and certainly meets the needs of migratory
populations, such as retirees. We believe this makes our plan particularly
attractive to large health care insurance companies, health maintenance and,
preferred provider organizations and other packagers of
5
<PAGE>
various health programs who market their health care programs over a large
geographical area. Our plan is currently being so marketed by several such
entities that have commenced marketing our plan through their own sales forces.
As part of our marketing efforts, we work closely with our customers'
internal benefits departments on the design and implementation of a specific
marketing program. Once the "sale" is made, we generally receive from our
customer a computer disk with all of the pertinent personnel information (name,
social security or identification number and address) of the employees/members
and/or retirees that will be covered by the plan. We are then able to upload all
of this information and within approximately ten business days, send out
customized "Welcome Packs" which outline the benefits of the plan, as well as a
list of providers in the new member's zip code. The "Welcome Pack" also includes
a personalized ECI membership card, listing the member's name, identification
number and plan expiration date. Depending on the requirements of the client, we
either send the "Welcome Packs" directly to the individuals, or bulk ship them
to a designated location.
When marketed as a stand-alone product, we maintain two pricing
structures: an individual/ family annual membership price of $39.95; and a
corporate/affinity group annual membership price of $28. We have a "sliding
scale" purchase price ranging from $16 to $28, in order to provide discounts to
large quantity purchasers of our plan. Additionally, we maintain a "private
label" pricing structure. When our plan is sold through an existing insurance
agency or packager, the insurance agency or packager incurs practically no
additional overhead. This enhances the attractiveness of our plan to such
selling entities, providing them with a relatively inexpensive product that
fills an otherwise overlooked need in health care. There are no record keeping
burdens on corporate/affinity group clients. We handle all clerical
administrative functions.
We intend to strengthen and broaden our overall marketing efforts by:
o establishing a dedicated regional support staff that will work
directly with our independent sales agents, corporate/affinity
accounts and marketing partners to facilitate and encourage sale
of our vision plan
o instituting targeted public relations campaigns on both national
and local levels
o enhancing promotional support programs, including image promotion
and sales incentives
o establishing and maintaining, through personnel and computer
software programs, the capability of functioning as a third party
administrator, either through the establishment of a wholly-owned
subsidiary or otherwise.
We have retained the services of a public relations firm to increase
public awareness of our network. In addition, Clark Marcus, our president, has
made a number of speaking appearances, published various articles in health care
magazines and participated as a guest speaker on several nationally broadcasted
radio talk shows, all of which serve to bring our company to the forefront of
both the ultimate consumer and corporate/affinity group health care managers.
Competition
We are not aware of any other national entity that offers a
non-insurance based, discount eye care/eyewear program which has, as an integral
part of the program, ophthalmologists who have agreed to discount all of their
services to members. There are currently a number of national non-insurance
based discount eyewear programs, but to our knowledge, no program offers the
national eye care feature of our discount vision plan. On a general level, we
compete in the highly competitive field of health care service
6
<PAGE>
against established organizations, including health maintenance and preferred
provider organizations that provide group health care on a discount basis to
their members. These organizations are insurance related, and individuals must
therefore be members of the insured group to participate in discounts. Although
these types of organizations may represent competition, they also represent a
viable market for the sale of our vision care plan, since our vision care plan
can be sold as a supplement to an insurance program, or may be used to decrease
these entities' costs through utilization of our lower price structure with our
ophthalmological providers and our serving as a third party administrator. To a
lesser extent, we compete against individual ophthalmologists who do not offer
discounts to their patients but who may have a loyal patient base. Our success
in the marketplace will depend, in part, upon our ability to attract and retain
a large number of ophthalmologists in our network.
Although other entities offer discount vision programs, we are not
aware of any that maintain a national medical network of ophthalmologists who
discount all of their services. The following entities offer vision programs
that compete with the ECI plan:
o Vision Service Plan, Inc. offers an optometric insurance-based
program.
o Cole National Corp. owns or operates optical locations located at
JC Penney, Sears, Montgomery Ward and Pearle, Inc.
o MemberWorks, a packager of various affinity programs having in the
aggregate over 4 million members, offers a discount vision plan
(optometric only) which, until recently, was serviced by Cole
National Corp. and Outlook Vision. We are the vision eye
care/eyewear provider for various MemberWorks private label
programs.
o Spectera, Inc., a health care insurer, offers a discount vision
benefit as part of its benefit programs.
Although ECI competes with these and other entities, as part of our
marketing strategy we seek to attract our competitors as customers since our
program includes ophthalmologists who discount all of their services
substantially below Medicare allowable rates which are usually substantially
below the rates that our competitors are able to negotiate. As an indication of
the effectiveness of ECI's marketing strategy, although we continue to compete
with those entities described above, we have recently entered into relationships
with both MemberWorks and Spectera which gives those entities the right to use
our provider network and entitles their members to receive the discounts offered
by our providers, thus making those entities ECI's customers. We expect this
trend to continue and, indeed, accelerate since these entities continue to
compete not only against ECI but themselves as well, and now, at least some of
them can promote the fact that they too, are in a position to offer discounts on
ophthalmology services.
Notwithstanding the fact that ECI now services, in whole or in part,
some of its vision care competitors, ECI believes it has a number of competitive
advantages over all other vision care plans.
o We offer the only national discount eye care/eyewear network that
combines ophthalmologic and optometric services on a discount
fee-for-service basis. No other national discount program offers a
full range of ophthalmologic services, all of which are
discounted. All of our participating ophthalmologists contract
exclusively with us and agree not to provide their services to any
other national, non-insurance based, discount fee-for-service
network.
o All ECI programs carry with it one eye exam at no additional cost,
per family membership.
7
<PAGE>
o Our network is the largest national discount vision network in
the U.S.
o We maintain a nationally recognized fee schedule for both
ophthalmologic and optometric services and products.
o We offer a discount on traditionally non-covered surgical
procedures such as vision correction surgerys, CO2 laser skin
resurfacing or wrinkle removal surgery and other laser surgical
procedures.
o We market to major insurance companies, health maintenance and
preferred provider organizations, which may offer our vision plan
as part of, or as a supplement to, their existing programs.
o Our network is not dependent on any one or several retail chains.
The nationwide breadth and density of our network provides members
with the convenience of having a provider nearby, and protects
both our members and us from loss of service because of retail
closures.
o We do not require that our corporate customers attain minimum
employee participation to implement the plan.
o We have a mail-order program for replacement contact lenses and
sunglasses at wholesale prices.
o We have exclusive contracts directly with 100% of our
ophthalmologists and approximately 65% of the optometric locations
in our network. This direct contact has a positive impact on our
ability to handle customer grievances.
Medical Advisory Board
We have organized a panel of prominent physicians to serve as our
Medical Advisory Board. Members of this panel periodically report on new
developments in ophthalmologic treatment. All members of the Medical Advisory
Board have served since inception.
Ira A. Abrahamson, M.D. is an Associate Professor of Ophthalmology and Assistant
Clinical Professor of Family Medicine at the University of Cincinnati College of
Medicine, Cincinnati, Ohio. He received his medical degree from the University
of Cincinnati School of Medicine and performed his Ophthalmology residency in
Chicago at the Illinois Eye and Ear Infirmary and at Cook County Hospital. Dr.
Abrahamson has been on several Ophthalmic Editorial boards and has been a member
of the editorial advisory board of the American Family Physician Journal since
1974. He has authored more than 95 scientific publications and four textbooks.
Dr. Abrahamson specializes in cataract and anterior segment surgery. Dr.
Abrahamson also serves as special consultant to the Company.
Leo D. Bores, M.D. received his medical degree from Wayne State University,
College of Medicine and completed his ophthalmologic residency at Detroit
Medical Center. He is a Fellow of the American Academy of Ophthalmology,
founding member and past-President of the Keratorefractive Society, and has
served as Chairman of several educational and scientific committees, as well as
being a member of the International Society for Refractive Keratoplasty, and
American Society for Cataract and Refractive Surgery. Dr. Bores has lectured,
written and taught extensively both in this country and abroad. He has authored
in excess of thirty papers and books. Dr. Bores is the founder of and practices
at the Bores Eye Institute in Scottsdale, Arizona.
8
<PAGE>
Warren D. Cross, M.D. graduated from the University of Southern California,
attended Baylor College of Medicine and did his residency in eye surgery at the
University of Texas Medical Branch, Houston. He has been Chief of Staff at the
institute of Eye Surgery, Houston, Texas, since 1984. Dr. Cross has been
performing refractive surgery since 1979 and has done over 14,000 cases. He also
speaks and teaches at numerous professional meetings and courses on both
cataract and refractive surgery. He authored the "Complications of Radial
Keratotomy" chapters in two surgical test books.
David B. Davis, M.D. received his medical degree from the University of Texas,
Medical Branch, Galveston, Texas, and performed his ophthalmology residency at
the United States Naval Hospital. Dr. Davis has served on numerous elected and
appointed boards, including the International Committee for standards of
Ophthalmic Devices and Instruments, American Society of Cataract and Refractive
Surgery; Board of Directors, American College of Eye Surgeons; International
Scientific Advisory Board, American Society of Cataract and Refractive Surgery.
He is a member of numerous professional organizations and also participates in
extensive speaking engagements. Dr. Davis practices medical surgery at the
Davis/Mandel Eye Center in Hayward, California.
Robert H. Marmer, M.D. received his medical degree from the University Autonoma
de Guadalajara and completed his ophthalmic residency program at the Mayo Clinic
in Rochester, Minnesota. Prior to beginning his private practice in Atlanta,
Georgia, he served as a Professor of Ophthalmology at Ahmadubello University in
Kaduna and Zaria, Nigeria, West Africa. Dr. Marmer was the first surgeon to
introduce and perform Radial Keratotomy surgery in Georgia. Dr. Marmer is a
member of numerous professional associations, including the American Academy of
Ophthalmology, the American College of Eye Surgeons and the International
Association for Ocular Surgeons. He has been the official team ophthalmologist
for the NBA Atlanta Hawks for over 15 years, and is the official team
ophthalmologist of the International Hockey League Atlanta Knights.
Lee T. Nordan, M.D. received his medical degree from the University of New
Mexico School of Medicine, Albuquerque, New Mexico, and did his ophthalmic
residency at West Virginia University Hospital, Morgantown, West Virginia. Dr.
Nordan serves on numerous professional boards including the Scientific Advisory
Board, American Society of Cataract and Refractive surgery, and the Board of
Directors of the International Society of Refractive Keratoplasty. He has
authored numerous scientific publications and is in private practice in La
Jolla, California.
Spencer P. Thornton, M.D. earned his medical degree from the Bowman Gray School
of Medicine of Wake Forest University, Winston-Salem, North Carolina, and
completed his residency in Ophthalmology at Vanderbilt University School of
Medicine, Nashville, Tennessee. Dr. Thornton is certified by the American Board
of Ophthalmology, Fellow of the American Academy of Ophthalmology, Fellow of the
American College of Surgeons, and is President of the Board of Directors of the
American Society of Cataract and Refractive Surgery and serves as Chairman of
the International Committee of Standards and Quality Control for Ophthalmic
Instruments and Devices. Dr. Thornton has served on several publication
editorial boards, has co-authored and been a contributor to twelve textbooks on
ophthalmic surgery and is the author of more than 100 published papers on
cataract and refractive surgery. He has lectured in 27 countries and been
adjunct or guest professor in universities in ten countries. Dr. Thornton is a
member of the Board of Visitors of Baylor University and Director of the
Thornton Eye Surgery Center in Nashville, Tennessee. Dr. Thornton also serves as
special consultant to us.
Special Consultants
Herbert Gould, M.D., In addition to advising us on new developments in the field
of ophthalmology, Dr. Gould writes a regular column in a number of publications
throughout the United States directed toward the senior market. This is through
arrangements made by ECI as part of our marketing efforts. Dr. Gould is
9
<PAGE>
widely recognized throughout the United States as a pioneer in the delivery of
refractive surgery and aesthetic laser treatment and training. He currently is
President of the New York Keratorefractive Society and is past-President of the
New York Intraocular Lenses Society. Dr. Gould was also awarded the Bronze Medal
of the Cannes Film Festival for his film on intraocular transplantation. He has
performed over 6,000 refractive procedures, trained hundreds of physicians in
the refinement of the procedures and is considered a leader in his field. Dr.
Gould serves as Special Consultant to the Company and is active in a number of
the Company's promotional marketing activities.
Philip J. Shelton, M.D., J.D.,F.A.C.S., F.C.L.M., practices both ophthalmology
and law in West Hartford, CT. He received his medical degree from New York
University and completed his ophthalmology training at the Mount Sinai Hospital
in New York City. He earned his J.D. degree from the University of Connecticut
School of Law. Dr. Shelton has authored numerous publications and lectures
internationally on managed care and other medical legal topics. He is presently
Assistant Clinical Professor at the University of Connecticut Medical School, a
guest professor at Yale University, and a lecturer in ophthalmology at Tufts
University. Dr. Shelton is certified by the American Board of Ophthalmology and
specializes in the treatment of cataracts and glaucoma. One of the first
ophthalmologists in the Hartford area to implant intraocular lenses, Dr. Shelton
has always been at the forefront of his field. Dr. Shelton is President of the
New York Intraocular Lens Implant Society and has served as an officer of
several professional organizations. He is on the Board of Governors of the
American College of Legal Medicine and was a founding director, as well as past
Chairman and past President, of ConnectiCare, one of the State's largest HMO's.
Employees
As of March 1, 2000, we had twelve full-time employees, including
three in sales and marketing, and nine in customer service and administration.
Item 2. Description of Property.
Our executive offices, which consist of approximately 4,400 square
feet, are located in Tampa, Florida. Our lease expires on July 31, 2003 and
provides for a current annual rental rate of $87,576.
Item 3. Legal Proceedings
We are not a party any litigation, that if adversely determined, would
have a material adverse effect on our business.
Item 4. Submission of Matters to a Vote of Security Holders
We did not submit any matter to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1999.
10
<PAGE>
PART II
Item 5. Market Price of And Dividends on The Registrant's Common Equity And
Other Shareholder Matters.
Market Information
Our class A common stock is traded on the OTC Bulletin Board under the
symbol "EYCR". Set forth below are the high and low bid and asked prices for our
class A common stock on the OTC Bulletin Board for each quarter since the
beginning of 1998. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual transactions.
Bid Price Asked Price
------------------ ---------------------
Quarter Ended High Low High Low
------------- ----- ------ ------ ------
March 31, 1998.............. 5.375 2.25 6.25 3.00
June 30, 1998 .............. 5.00 2.00 5.00 2.00
September 30, 1998.......... 3.375 1.6875 4.1875 1.75
December 31, 1998........... 3.25 1.25 3.25 1.3750
March 31, 1999.............. 2.125 0.75 2.375 0.8125
June 30, 1999 .............. 1.0625 0.50 1.125 0.50
September 30, 1999.......... 0.73 0.25 0.8125 0.40
December 31, 1999........... 1.0625 0.25 1.1875 0.34
On March 1, 2000 the closing bid price of one share of our class A
common stock on the OTC Bulletin Board was $0.937.
As of December 31, 1999 there were 229 holders of record of our class
A common stock.
Dividends
The payment of dividends is within the discretion of our Board of
Directors and depends in part upon our earnings, capital requirements and
financial condition. We have never paid any dividends on our class A common
stock and we do not anticipate paying such dividends in the foreseeable future.
We intend to retain earnings, if any, to finance our operations.
Sales of Unregistered Securities
During 1999, we sold the following securities in transactions that were
not registered under the Securities Act.
1. From January through August of 1999, we sold an aggregate of
506,500 shares of class A common stock to 20 accredited
investors for a total purchase price of $506,500 ($1.00 per
share).
2. In November and December of 1999, we sold an aggregate 495
shares of series A convertible preferred stock to 4 accredited
investors for a total purchase price of $495,000 ($1,000 per
share). Each share of series A convertible preferred stock is
convertible into 2,000 shares of class A common stock.
These transactions were exempt from the registration requirements of
the Securities Act under Section 4(2) of the Securities Act and Rule 506 of
Registration D. There were no underwriters involved in these transactions and
there were no underwriting discounts or commissions paid in connection with
these transactions. The purchasers in each transaction represented their
intention to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution of the securities and
appropriate legends were affixed to the certificates for the securities issued
in such transactions. All purchasers of securities in these transactions had
adequate access to information about us and were sophisticated investors.
11
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
The following discussion and analysis of our financial condition and
results of operation should be read in conjunction with the financial statements
and notes thereto appearing elsewhere in this report.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Sales. Sales for the year ended December 31, 1999, of $532,677 were nearly
$105,000, or 17%, less than the $637,941 recorded during the same time period in
1998. This decrease was primarily due to reduced sales of approximately $178,000
by one of our clients who packages and sells discount multi-health care programs
that includes ECI as the vision care provider, partially offset by sales to two
new clients totaling approximately $79,000.
Selling, General and Administrative Expenses. The major components of selling,
general and administrative expenses (G&A) are payroll, commissions, business
travel postage and printing, and profession/consulting fees. G&A expenses of
$2,536,855 were approximately $236,000, or about 9%, lower than the $2,772,858
for the year ended December 31, 1998. A $152,000 decline in commission
expenses, as well as a $71,000 decline in telephone expenses and a $69,000
decline in professional/consulting fees, was partially offset by an $52,000
increase in payroll and related payroll expenses.
Commissions declined by approximately $152,000, from $513,142 in 1998 to
$361,606 in 1999, because fewer equity dollars (the sales of common stock via
private placements), upon which commissions are paid, were raised in 1999 as
compared to 1998.
Telephone expenses decreased by nearly $71,000 to $40,960 in 1999 because lower
rates were negotiated in early 1999 and allowed credits were used to offset 1999
charges.
12
<PAGE>
Consulting/professional expenses declined from $421,288 in 1998 to $351,838 in
1999, a decrease of approximately $69,000, mainly due to an extraordinary level
of legal activity in 1998 and the company's efforts to reduce 1999 spending.
Payroll and employee expenses increased by $52,000 to $1,025,975 in the year
1999 because of the addition of 4 employees in late 1998 and early 1999. and
general payroll increases.
Business travel and postage and printing expenses were nearly the same level in
1999 as in 1998.
Interest Income. Interest income for 1999 of $11,463 was about $40,000 lower
than the interest earned in 1998. As a result of a private equity placement in
late 1997 and 1998, we maintained a cash balance significantly higher in 1998
than in 1999 and we were thus able to invest more principal in interest bearing
securities.
Interest Expense. During 1999, interest expense of $4,699 was nearly the same as
in 1998.
Depreciation and Amortization Expense. Since no major depreciable assets were
added during 1999, and with the January 1, 1999 adoption of Statement of
Position 98-5, "Reporting on the Cost of Start-up Activities", depreciation and
amortization expense of $31,739 was nearly $177,000 lower in 1999 than in 1998.
Change in Accounting Principle. Effective January 1, 1999, we adopted Statement
of Position 98-5, "Reporting on the Costs of Start-up Activities",. This
statement requires that certain costs of start-up activities and organization
costs be expensed as incurred rather than capitalized and amortized under
previous accounting principles. The cumulative effect of the change on net
income was $749,433, net of taxes in the amount of $0, since we had loss
carryforwards.
13
<PAGE>
Liquidity and Capital Resources
Since inception, our expenses have consistently exceeded our revenues.
Operations have primarily been funded from the issuance of debt and equity
securities aggregating approximately $7 million. All debt and related interest,
except for $50,000 of debt, was converted into equity in 1997 at a conversion
rate of $1.00 per share of common stock; there was no gain or loss on the
conversion. We used cash for operating activities of approximately $1.5 million
and $2.2 million in 1999 and 1998, respectively, primarily for payroll, business
travel and professional/consulting fees.
We invested $2,472 and $65,933 in 1999 and 1998, respectively, to acquire
computers and office furniture. During 1999 and 1998 we raised $977,500 and
$2,466,599, respectively, through financing activities, primarily the sale of
common stock at a price of $1 per share.
Going Concern
Note F to the audited financials expresses the uncertainty of our ability to
continue as a going concern. We believe that significant revenues will be
generated commencing in the third quarter of 2000 as a result of marketing
arrangements entered into since September 1999.
Forward-Looking Statements
This report includes forward-looking statements that are not based upon
historical facts. These statements, which discuss future expectations, estimate
the happening of future events, or our results of operations or financial
condition for future periods, can be identified by the use of forward-looking
terminology such as "may", "will", "expect", "believe", "intend", "anticipate",
"estimate", "continue", or similar words. These forward-looking statements are
subject to certain uncertainties, and there are important factors that may cause
actual results to differ materially from those expressed or implied by these
forward-looking statements. The forward-looking statements made in this report
relate only to events as of the date on which the statements are made. We
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events.
Item 7. Financial Statements.
The financial statements follow Item 13 of this report.
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None
14
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Secton 16(a) of the Exchange Act
The following is a list of our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
- - ----- ----- --------
<S> <C> <C>
Clark A. Marcus 57 Chairman, President, Chief Executive
Officer and Director
James L. Koenig 52 Senior Vice President, Chief Financial
Officer, Secretary and Director
Richard Abrahamson, M.D. 38 Director
William Koch, M.D. 59 Director
Robert Veligdan, M.D. 50 Director
Steven Handwerger 57 Director
Sharon Kay Ray 41 Director
</TABLE>
Clark A. Marcus, one of our founders, has served as Chairman of the Board and
Chief Executive Officer since September 1993. He also has served as President
since February 1996. Mr. Marcus has been a practicing attorney since 1968 and
was senior partner in the New York law firms of Victor & Marcus and Marcus &
Marcus.
James L. Koenig has been Sr. Vice President, Chief Financial Officer and a
member of our Board of Directors since February 1996. He initially joined us as
an independent sales agent in December 1994. Prior to joining us, he worked in
various accounting/management capacities primarily in the utilities industry.
From 1984 to November 1994, Mr. Koenig was employed by Tampa Electric Company in
various executive capacities ranging from Assistant Controller to Director of
Audit Services and Director of Regulatory Affairs.
Richard Abrahamson, M.D., one of our founders, has been a member of our Board of
Directors since August 1995 . Dr. Abrahamson also serves as a member of our
Medical Screening Committee. Since July 1992, Dr. Abrahamson has operated a
private ophthalmology practice specializing in diseases and surgery of the eye.
Dr. Abrahamson advises us on credentials of ophthalmologists, expansion of our
network and sometimes interacts with network providers.
William H. Koch, M.D. has been a member of our Board of Directors since
February 1996. He has been a psychiatrist and child development specialist since
1974. He is the Founder and Director of Parent and Child Services, Inc., New
York City; The Parent and Child Consultation Services, New York City; and the
"School for Parents." He is a former member of the faculty of the College of
Physicians and Surgeons, New York City, and Special Consultant to Child
Protective Services, New York City. Dr. Koch also is an author, lecturer and
consultant.
15
<PAGE>
Robert Veligdan, D.M.D., has been a member of our Board of Directors since May
1994. He has been a Professor and Instructor at Columbia University since 1977
and lectures on numerous topics relative to dentistry. He is also a staff member
at Columbia University Hospital. He has operated a private dentistry practice
since 1975. Dr. Veligdan is a member of numerous professional associations
including the American Dental Association, the staff of Columbia University
S.D.O.S., Academy of Oral Rehabilitation, Academy of General Dentistry and the
International Congress of Oral Implantologists.
Steven Handwerger has been a member of our Board of Directors since February
1996. He has been employed by Halmode Apparel (a division of Kellwood) since
December 1996, where he is in charge of merchandising and sales for the Plaza
South Division. From December 1991 through December 1996, he was President of
Santa Fe Enterprises, a dress manufacturer.
Sharon Kay Ray, one of our founders, has been a member of our Board of Directors
since inception. Since March 1989, she has served as regional marketing
representative for Novo Nordis Pharmaceuticals, a multi-national pharmaceutical
company and as a special marketing consultant for a number of public and
non-public corporations.
All our directors hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified, and all
executive officers hold office at the discretion of the Board of Directors. We
do not have an audit committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires our officers, directors
and persons who own more than ten percent of our class A common stock to file
certain reports of ownership and changes in ownership with the SEC within
specified time periods. Officers, directors and ten-percent stockholders are
required by regulation to furnish us with copies of all Section 16 (a) forms
they file. We are not aware of any failures to file reports or report
transactions in a timely manner during the fiscal year ended December 31, 1999.
16
<PAGE>
Item 10. Executive Compensation
The following table sets forth the compensation paid to, earned by or accrued
for our Chief Executive Officer and each of our other executive officer for whom
more than $100,000 was paid or accrued as compensation for the years ended
December 31, 1999, 1998 and 1997 (collectively, the "Named Executive Officers"):
Annual Compensation
<TABLE>
<CAPTION>
Cash
Name and Principal Position Year Compensation Other Compensation
- - --------------------------- ---- ------------ ------------------
<S> <C> <C> <C>
Clark Marcus 1999 $254,720 $73,333(1)
Chief Executive Officer and President 1998 $213,745 $81,241(1)
1997 $128,933 $89,034(1)
James L. Koenig 1999 $203,694 $ 6,375(2)
Senior Vice President, Chief Financial 1998 $154,341 $20,200(2)
Officer and Secretary 1997 $113,702 --
</TABLE>
- - ------------------
(1) Includes legal retainer (see Item 12. Certain Relationships and Related
Transactions); auto allowance (1999 - $5,000; 1998 - $5,390); and life
insurance premiums (1999 - $4,971; 1998 - $8,563; and 1997 - $1,339); and
reimbursement for overnight child care expenses while out-of-town on
business (1998 - $22,879; 1997 - $15,727).
(2) Includes auto allowance (1999 - $5,000; 1998 - $18,000) and life insurance
premiums (1999 - $1,375; 1998 - $2,200).
Employment Agreements
Clark Marcus serves as our Chief Executive Officer pursuant to an employment
agreement which expires in September 2002. The agreement provides for a salary
of $150,000 per annum, increased by an amount equal to the greater of fifteen
percent (15%) of the prior year's salary or the increase in the consumer price
index for the Tampa, Florida area, plus a bonus beginning at three percent (3%)
of our pre-tax profits in any year that our revenues exceed $1 million and
increasing up to seven percent (7%) of our pre-tax profits in any year that our
revenues exceed $4 million. His base salary for the fiscal year ending December
31, 1999 is $241,546. We may terminate his employment for gross misconduct in
the performance of his duties. If Mr. Marcus' employment is terminated within 12
months following a change in control, Mr. Marcus will receive his salary, bonus
and additional compensation for a period equal to the greater of the remainder
of the term of the employment agreement or 3 years.
James L. Koenig serves as our Senior Vice President and Chief Financial
Officer pursuant to an employment agreement which expires in February 2001. The
agreement provides for a salary of $125,000 per annum, increased by an amount
equal to the greater of ten percent (10%) of the prior year's salary or the
increase in the consumer price index for the Tampa, Florida area, plus a bonus
of three percent (3%) of our pre-tax profits in any year that our revenues
exceed $1 million. His base salary for the fiscal year ending December 31, 1999
is $199,650. We may terminate his employment for gross misconduct in the
performance of his duties. If Mr. Koenig's employment is terminated within 12
months following a change in control, Mr. Koenig will receive his salary, bonus
and additional compensation for a period equal to the greater of the remainder
of the term of the employment agreement or 3 years.
Each of Messrs. Marcus and Koenig have entered into agreements with us which
provide that, for a period of three years following the termination of his
employment, he will not
o engage, directly or indirectly, in a business within the
United States that markets products or services the same as,
similar to, or competitive with, our products or services,
whether fully developed or in the development stage.
o solicit or accept business from any entity within the United
States which is or was a customer of ours during his tenure
with us, if such business involves one of our products.
o solicit the employment of, hire or cause any other entity to
hire, any of our employees.
Stock Options
No stock options have been granted to Messrs. Marcus or Koenig.
17
<PAGE>
Stock Option Plan
Our Board of Directors has adopted, and in May 1997 our stockholders
approved, the Eye Care International, Inc. 1997 Stock Option Plan. The stock
option plan is to be administered by the Board of Directors or a committee of
the Board. Pursuant to the plan, options to purchase 500,000 shares of class A
common stock may be granted to directors, employees (including officers) and
consultants.
The plan authorizes the issuance of incentive stock options, as defined
in Section 422 (b) of the Internal Revenue Code of 1986, as amended,
non-qualified stock options and stock appreciation rights ("SARs", and together
with ISOs and NQSOS, "Options"). Consultants and directors who are not also
employees are eligible for grants of only non-qualified stock options or
non-qualified stock options in tandem with stock appreciation rights. The
exercise price of each incentive stock option may not be less than 100% of the
fair market value of the class A common stock at the time of grant, except that
in the case of a grant to an employee who owns 10% or more of our outstanding
stock or outstanding stock of a subsidiary or parent of our company, the
exercise price may not be less than 110% of the fair market value on the date of
grant. The aggregate fair market value of the shares covered by incentive stock
options, or incentive stock options in tandem with stock appreciation rights,
granted under the plan that become exercisable by a participant in the plan for
the first time in any calendar year is subject to a $100,000 limitation. The
exercise price of each non-qualified stock option, or non-qualified stock option
in tandem with a stock appreciation right, is determined by the Board of
Directors or committee, in its discretion, but may in no event be less than 85 %
of the fair market value of a share of class A common stock at the time of
grant.
Subject to the provisions of the plan, the Board of Directors, or the
committee, has the authority to determine the individuals to whom the stock
options are to be granted, the number of shares to be covered by each option,
the type of option, the exercise period, the restrictions, if any, on the
exercise of the option, the terms for payment of the exercise price and other
terms and conditions. No option granted under the stock option plan shall have
an expiration date late than 10 years from the date of grant, and if an
incentive stock option, or a stock appreciation right in tandem with an
incentive stock option, is granted to a person owning 10% or more of our
outstanding stock or the outstanding stock of a subsidiary or of our parent,
such incentive stock option shall not be exercisable after the expiration of
five years from the date of grant. A stock appreciation right may be
exercised at any time during the exercise period of the incentive stock option
or non-qualified stock option with which it is granted in tandem and prior to
the exercise of such incentive stock option or non-qualified stock option.
Payments by holders of options upon exercise of any option may be made (as
determined by the Board of Directors or the committee) in cash, by delivery of
shares of common stock or such other form of payment as may be permitted under
the plan.
No options have been granted under the plan.
18
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information concerning the beneficial
ownership of our common stock as of March 1, 2000 by (i) each stockholder known
by us to be a beneficial owner of more than five percent of the outstanding
common stock; (ii) each executive officer whose compensation for 1999 was in
excess of $100,000; and (iii) all directors and officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percentage of Common Stock
Ownership (1) Beneficially Owned (2)
--------------------------- -------------------------------------------------------
Class A Class B As a % As a % As a %
Common Common of All of All of All
Name Stock Stock Common Stock Class A Class B
- - ----- -------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Clark Marcus (3) 75,000 474,100 5.8% * 34.4%
Eva Katzman (3) - 268,600(4) 2.9% * 19.3%
Sharon Kay Ray (3) 23,000 198,200 2.4% * 14.4%
Richard Abrahamson, MD(3) 72,740 181,800 2.7% * 13.2%
James L. Koenig (3) 24,000 130,000 1.6% * 9.4%
Robert G. Veligdan,DDS(3) 62,500 - * * --
William Koch (3) - 25,000 * -- 1.8%
Steven Handwerger(3) 5,000 - * * --
All officers and directors 262,240 1,009,100 13.5% 3.3% 73.2%
as a group (9 persons)
</TABLE>
- - ------------
* Less than 1%
(1) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated, subject to community
property laws, where applicable. For purposes of this table, a person
or group of persons is deemed to beneficially own any shares that such
person has the right to acquire within 60 days after March 1, 2000.
(2) Calculated as a percentage of the total number of shares of common
stock issued and outstanding without respect to voting power. Each
share of class B common stock is entitled to five votes per share, as
compared to one vote per share of class A common stock. For purposes of
computing the percentage of outstanding shares held by each person or
group of persons named above on March 1, 2000, any shares, which
such person or group of persons has the right to acquire within 60 days
after such date is deemed to be outstanding for the purpose of
computing the percentage ownership of such person. As of March 1, 2000,
we had 8,012,604 shares of class A common stock outstanding and
1,377,700 shares of class B common stock outstanding, or a total of
9,390,304 shares of common stock outstanding.
(3) Address is c/o Eye Care International, Inc., 1511 North Westshore
Boulevard, Suite 925, Tampa, Florida 33607.
(4) Includes 193,600 shares of Class B common stock owned personally by
Mrs. Katzman and 75,000 shares of Class B common stock held in trust
the minor children of Jerry Katzman, M.D., formerly an officer and
director. Dr. Katzman disclaims beneficial ownership or control over
all of said shares.
Item 12. Certain Relationships and Related Transactions
We pay Clark Marcus, our President and Chief Executive Officer, a
retainer of $5,000 per month for legal services.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Exhibit
3.1* Certificate of Incorporation, as amended.
3.2* By-laws
3.3 Certificate of Designation for Series A Convertible Preferred
Stock.
10.1 1997 Stock Option Plan
10.2* Employment Agreement with Clark Marcus.
10.3* Employment Agreement with James L. Koenig
21.1* Subsidiaries
27.1 Financial Data Schedule
- - -------
* Incorporated by reference to our Registration Statement on Form 10-SB filed on
November 1, 1999.
(b) Reports on Form 8-K.
None
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: March 30, 2000
EYE CARE INTERNATIONAL, INC.
By: /s/ Clark A. Marcus, By: /s/ James L. Koenig
------------------------------------- --------------------------
Clark A. Marcus, James L. Koenig
President and Chief Executive Officer Senior Vice President and
(Principal Executive Officer) Chief Financial Officer
(Principal Financial and
Accounting Officer)
In accordance with the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant on March 30, 2000 in the capacities indicated.
Signature Title
--------- -----
/s/ Clark A. Marcus
- - -------------------------------- Chief Executive Officer,
Clark A. Marcus President and a Director
(Principal Executive Officer)
/s/ James L. Koenig
- - -------------------------------- Senior Vice President and
James L. Koenig Chief Financial Officer and a
Director (Principal Financial
and Accounting Officer)
- - -------------------------------- Director
Richard A. Abrahamson, M.D.
/s/ William Koch, M.D.
- - -------------------------------- Director
William Koch, M.D.
/s/ Robert Veligdan, M.D.
- - -------------------------------- Director
Robert Veligdan, M.D.
/s/ Steven Hardwerger
- - -------------------------------- Director
Steven Hardwerger
- - -------------------------------- Director
Sharon Kay Ray
<PAGE>
Index to Consolidated Financial Statements
Page
Independent Auditor's report F-1
Consolidated balance sheet at December 31, 1999 F-2
Consolidated statements of income and retained earnings
for the years ended December 31, 1999 and 1998 F-3
Consolidated statements of changes in common equity for
the years ended December 31, 1999 and 1998 F-4
Consolidated statements of cash flows for the years ended
December 31, 1999 and 1998 F-5
Notes to consolidated financial statements F-6
<PAGE>
PHILIP J. ELENIDIS & COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Eye Care International, Inc.
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Eye Care
International, Inc. and Subsidiary as of December 31, 1999 and the consolidated
statements of income and retained earnings, changes in common equity and cash
flows for the years ended December 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Eye Care
International, Inc. and Subsidiary as of December 31, 1999 and the results of
its operations, changes in common equity and cash flows for the years ended
December 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note F to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note F. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Yonkers, New York /s/ Philip J. Elenidis & Company
March 27, 2000
984 North Broadway Phone: (914) 965-1002
Yonkers, New York 10701 Fax: (914) 965-8214
F-1
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1999
---------
Current assets
Cash $ 129,482
Accounts receivable 112,002
Miscellaneous receivables and
advances 139,998
---------
$ 381,482
Fixed assets - net of accumulated
depreciation 60,315
Other assets
Organization expense - net of
accumulated amortization --
---------
Total assets $ 441,798
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses and taxes payable $ 452,978
Notes payable 50,000
----------
$ 502,978
----------
Stockholders' equity
Capital stock
- 30,000,000 shares of $.001 par
value common stock authorized:
9,010,304 shares issued and outstanding 9,010
- 10,000,000 shares of $.001 par
value preferred stock authorized:
495 shares issued 1
Paid in capital 6,894,325
Retained earnings (6,964,516)
----------
$ (61,180)
----------
Total liabilities and
stockholders' equity $ 441,798
==========
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-2
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended December 31,
1999 1998
---- ----
Revenue
Membership fees $ 532,677 $ 637,941
Interest 11,463 51,705
----------- -----------
$ 544,140 $ 689,646
General and administrative expenses 2,536,855 2,772,858
Interest 4,699 5,833
Depreciation and amortization 31,739 208,722
----------- -----------
2,573,293 2,987,413
----------- -----------
Loss from operations (2,029,153) (2,297,767)
Other income - proceeds from lawsuit -- 5,000
----------- -----------
Loss before cumulative effect
of accounting change (2,029,153) (2,292,767)
Cumulative effect of accounting
change to adopt SOP 98-5 (749,433) --
----------- -----------
Net loss (2,778,586) (2,292,767)
Retained earnings - January 1, (4,185,930) (1,893,163)
----------- -----------
Retained earnings - December 31, $(6,964,516) $(4,185,930)
=========== ===========
Earnings per share $(.31) ($0.28)
=========== ===========
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-3
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN COMMON EQUITY
Common Paid-in Retained
Equity Capital Earnings
Balance December 31, 1997 $6,297 $3,452,940 ($1,893,163)
Net Income/(Loss) ($2,292,767)
Issuance of Capital Stock $2,207 $2,464,392
Balance December 31, 1998 $8,504 $5,917,332 ($4,185,930)
Net Income/(Loss) ($2,778,586)
Issuance of Capital Stock $ 506 $ 976,989
Balance December 31, 1999 $9,010 $6,894,325 ($6,964,516)
F-4
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998
---- ----
Cash flow from operating activities
Net loss $(2,278,586) $(2,292,767)
Adjustment to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 31,739 208,722
Accounting change 749,433
Changes in operating assets and liabilities
Decrease in accounts receivables 56,479 146,737
Increase or increase in miscellaneous
receivables and advances 8,303 (116,545)
Increase or decrease in accrued expenses
and taxes payable 428,345 (115,330)
----------- -----------
Net cash provided by operating activities (1,504,288) (2,169,183)
Cash flow from investing activities
Purchase of fixed assets (2,472) (65,933)
Cash flow from financing activities
Proceeds from sale of capital stock 977,500 2,466,599
----------- -----------
Increase or decrease in cash (529,260) 231,483
Cash - January 1, 658,742 427,259
----------- -----------
Cash - December 31, 129,482 658,742
----------- -----------
Supplemental disclosures
Interest paid 4,153 5,833
----------- -----------
Income taxes paid -0- -0-
=========== ============
The accompanying auditor's report and notes are an integral part of these
financial statements.
F-5
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note A - NATURE OF THE ORGANIZATION
--------------------------
Eye Care International, Inc. and Subsidiary (the Company) markets
vision care benefit plans and enhancements to plans provided by
others. The Company's benefit plans and plan enhancements afford its
member/subscribers, and those of its plan sponsors (employers,
associations, etc.) and other licensed organizations, the opportunity
to obtain discounted services from its national network of ophthalmic
physicians. Through contractual arrangements with others, the
Company's plans also provide its member/subscribers with access to
providers of eye wear and other benefits on a discounted basis.
The Company's principal operating revenues consist of annual fees
charged to participating physicians and user fees charged either
directly to its member/subscribers, or indirectly through plan
sponsors or through licensing arrangements with providers of other
benefit plans in exchange for access by their member/subscribers to
the Company's network of ophthalmologists on a similarly discounted
basis.
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
1. Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, National Vision Services,
Inc. All significant intercompany transactions and balances have
been eliminated in consolidation.
2. Revenue Recognition
-------------------
The Company sells one, two and three year memberships in its vision
plan. At the time of enrollment, it issues a membership kit that
includes a membership card, network providers and other materials
which completes the Company's obligation during the term of
membership. After thirty days, the membership cannot be cancelled,
therefore membership fees are recognized in full at the time of
enrollment. Membership fees however, can neither be determined nor
estimated until reported to the Company by the selling organization
and are subject to possible subsequent audit by the Company at its
option under the terms of the related agreement. Accordingly,
depending on the timeliness and accuracy of membership reports
received (which are presently beyond the Company's control),
membership income is not recognized in the Company's financial
statements until reported
F-6
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------
2. Revenue Recognition (continued)
-------------------
by licensees, which may be in periods later than those in which they
were earned and subject to adjustment in subsequent periods.
3. Fixed Assets and Depreciation
-----------------------------
Fixed assets are recorded at cost. Depreciation of fixed assets is
recorded using accelerated and straight line methods over the
estimated useful lives of the related assets.
4. Income Taxes
------------
Income taxes are to be provided for the tax effects of transactions
reported in the financial statements. Provisions will be made for
deferred income taxes, which result from timing differences between
expenses and income as reported for financial statement purposes and
their deductibility or exclusion for income tax purposes, when
appropriate.
5. Warrants
---------
The Company has issued 482,500 warrants for the purchase of common
stock. Of these warrants, 82,500 have an exercise price of $1.00 per
share and expire at various dates from January 2001 to April 2003.
The warrants were issued to individuals who made loans to the
Company in 1995 through 1997 at the rate of one warrant per dollar
loaned. Upon maturity, $32,500 of the notes were paid in full
without the holder exercising the warrants. The remaining 50,000
warrants relate to the notes payable detailed in Note C.
F-7
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------------
5. Warrants (continued)
--------
The remaining 400,000 warrants were issued in 1998 to an individual
as an incentive to sign a "spokesperson" contract for future
service. These warrants have an exercise price of $1.50 per share
and expire in June 2003. Conversion of these warrants would have a
negligible affect on earnings per share computation.
6. Preferred Stock
---------------
In late 1999, the Company issued 495 shares of convertible preferred
stock at a price of $1,000 per share. Each share of preferred stock
is convertible into 2,000 shares of common stock and has a
liquidation preference of $1,000 per share. We have the right to
redeem shares of series A convertible preferred stock on the third
anniversary of the date shares of series A convertible preferred
stock were first issued at a redemption price of $1,200 per share.
7. Change in Accounting Principle
------------------------------
Effective January 1, 1999, the Company adopted Statement of Position
98-5, Reporting on the Costs of Start-up Activities. This statement
requires that certain costs of start-up activities and organization
costs be expensed as incurred rather than capitalized and amortized
under previous accounting principles. The cumulative effect of the
change on net income was $749,433.
Note C - NOTES PAYABLE
-------------
The Company is indebted to two stockholders in the amount of $25,000.00
each. The monies bear interest at the rate of 8% and are payable upon
demand.
Note D - INCOME TAXES
------------
Substantially all of the Company's retained earnings deficit will be
available as an operating loss carryforward to reduce future income tax
obligations as may be incurred through the year 2015. However, because
of the Company's relatively short operating history, the potential tax
benefit of this loss has been valued at zero in the financial
statements and will remain so until realized or until the criterion in
Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes, for recognition of a deferred tax asset has been met.
F-8
<PAGE>
EYE CARE INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Note E - COMMITMENTS AND CONTINGENCIES
----------------------------
The Company leases its present offices under an operating lease
expiring on July 31, 2003 with an option to renew for one year. Rent
expense for the years amounted to $87,576 and $54,416 respectively.
Future minimum rental commitments at December 31, 1999 are as follows:
2000 $ 92,048
2001 96,523
2002 100,992
2003 42,855
--------
$419,994
========
Note F - GOING CONCERN
-------------
As shown in the accompanying financial statements, the Company has
incurred substantial losses from operations. Management believes that
the Company will generate significant new business in the future and
also be able to sell shares of its capital stock to outsiders beginning
in January, 2000. Absent an increase in revenue or the sale of shares
of stock, there may be uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
F-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
3.1* Certificate of Incorporation, as amended.
3.2* By-laws
3.3 Certificate of Designation for Series A Convertible Preferred
Stock.
10.1 1997 Stock Option Plan
10.2* Employment Agreement with Clark Marcus.
10.3* Employment Agreement with James L. Koenig
21.1* Subsidiaries
27.1 Financial Data Schedule
- - -------
* Incorporated by reference to our Registration Statement on Form 10-SB filed on
November 1, 1999.
<PAGE>
EYE CARE INTERNATIONAL, INC.
Certificate of Designation
Series A Convertible Preferred Stock
Pursuant to Section 151
of the
General Corporation Law of the State of Delaware
Eye Care International, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), DOES HEREBY CERTIFY that, at a meeting of the Board of
Directors on November 10, 1999, the following resolution was duly adopted by the
Board of Directors of the Corporation pursuant to Section 151 of the General
Corporation Law of the State of Delaware:
RESOLVED, that pursuant to the authority vested in the Board
of Directors of the Corporation by Article 4 of the Corporation's
certificate of incorporation, as amended (the "Certificate of
Incorporation"), a series of Preferred Stock of the Corporation be, and
it hereby is, created out of the authorized but unissued shares of the
capital stock of the Corporation, such series to be designated Series A
Convertible Preferred Stock (the "Series A Preferred Stock"), to
consist of 1,500 shares, par value $0.001 per share, of which the
preferences and relative and other rights, and the qualifications,
limitations or restrictions thereof, shall be (in addition to those set
forth in the Corporation's Certificate of Incorporation) as follows:
1. Dividend Rights. Holders of shares of Series A Preferred Stock shall
have no right to receive dividends.
2. Liquidation Rights.
------------------
2.1 In the event of any liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary (each of
which is hereinafter referred to as a "Liquidation"), the holders of shares of
Series A Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders an
amount per share equal to $1,000, before any distribution shall be made to the
holders of Class A or Class B Common Stock or any other stock junior to Series A
Preferred Stock as to the distribution of assets upon Liquidation. (Except as
specifically indicated or unless the context requires otherwise, references
1
<PAGE>
herein to Common Stock include the Class A and Class B Common Stock). If upon
Liquidation the Corporation's assets are not sufficient to pay in full the
amounts so payable to the holders of shares of Series A Preferred Stock and the
holders of any other series of Preferred Stock ranking on a parity as to the
distribution of assets on Liquidation with shares of Series A Preferred Stock,
all shares of Series A Preferred Stock and of such other series of Preferred
Stock shall participate ratably in the distribution of assets in proportion to
the full amounts to which they are respectively entitled.
2.2 For the purpose of this Paragraph 2, a consolidation or
merger of the Corporation with any other corporation, or the sale, transfer or
lease of all or substantially all of its assets, shall not constitute or be
deemed a Liquidation.
3. Redemption.
----------
3.1 At any time on or after the third anniversary of the date
upon which shares of Series A Preferred Stock are first issued (the "Date of
Initial Issue"), the Corporation shall have the right to redeem, in whole or in
part, all of the outstanding shares of Series A Preferred Stock at a price of
$1,200 per share to the extent the Corporation shall have funds legally
available for such payment.
3.2 Notice or redemption of Series A Preferred Stock shall be
given to the holders of shares of Series A Preferred Stock by mailing to such
holders a notice of such redemption, first class, postage prepaid, not less than
20 nor more than 30 days before the date fixed for redemption, at their last
addresses as they shall appear upon the books of the Corporation. Any notice
which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the stockholder receives such notice; and
failure duly to give such notice by mail, or any defect in such notice, to any
stockholder whose shares of Series A Preferred Stock have been designated for
redemption shall not affect the validity of the proceedings for the redemption
of any other shares of Series A Preferred Stock. The notice of redemption shall
state the number of outstanding shares of Series A Preferred Stock to be
redeemed from such holder and the date fixed for such redemption, the price at
which such shares are to be redeemed, and where payment of the redemption price
is to be made upon surrender of such shares.
3.3 On and after the date fixed in any such notice of
redemption as the date of redemption (unless default shall be made by the
Corporation in providing moneys for the payment of the redemption price), all
rights as stockholders of the Corporation of the holders of shares of Series A
Preferred Stock to be redeemed, except the right to receive the redemption price
as herein provided, shall cease and terminate. At any time on or after the date
fixed as aforesaid for such redemption, the respective holders of record of
shares of Series A Preferred Stock to be redeemed shall be entitled to receive
the redemption price upon actual delivery to the Corporation of certificates of
the shares to be redeemed, such certificates, if required by the Corporation, to
2
<PAGE>
be properly stamped for transfer and duly endorsed in blank or accompanied by
proper instruments of assignment and transfer thereof duly executed in blank.
3.4 In the event that the Corporation does not have funds
legally available to redeem all of the shares of Series A Preferred Stock at the
time specified in Paragraph 3.3, the Corporation shall so advise the holder or
holders of the shares in writing by first class registered or certified mail
sent to each such holder's address as it appears on the records of the
Corporation, and the obligation of the Corporation to redeem such shares shall
be postponed until such time as the Corporation shall have funds legally
available to permit such redemption. At such time, the Corporation shall fix a
postponed date for the redemption and so advise the holder or holders of such
shares in writing in the manner provided in Paragraph 3.2.
4. Status of Series A Preferred Stock Reacquired. Shares of Series A
Preferred Stock which have been issued and reacquired in any manner shall (upon
compliance with applicable provisions of the laws of the State of Delaware), be
deemed to be canceled and have the status of authorized and unissued shares of
the class of Preferred Stock issuable in series undesignated as to series and
may be redesignated and reissued.
5. Voting Rights. Except as required by law, no holder of Series A
Preferred Stock will be entitled to vote on matters as to which stockholders
generally are entitled to vote.
6. Conversion Rights.
-----------------
6.1 Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, into 2,000 shares of Class A
Common Stock (the "Conversion Rate"), subject to adjustment as hereinafter
provided, at any time or from time to time upon the terms and in the manner
hereinafter set forth in this Paragraph 6.
6.1.2 In order to convert shares of Series A Preferred Stock
into Class A Common Stock, the holder thereof shall (i) surrender the
certificate or certificates for such shares of Series A Preferred Stock, duly
endorsed to the Corporation or in blank, to the Corporation at its principal
office or at the office of the agency maintained for such purposes, (ii) give
written notice to the Corporation at such office that such holder elects to
convert such shares of Series A Preferred Stock, and (iii) state in writing
therein the name or names in which such holder wishes the certificate or
certificates for shares of Class A Common Stock to be issued. Each conversion
shall be deemed to have been effected at the close of business on the date on
which the Corporation or such agency shall have received such surrendered Series
A Preferred Stock certificate(s), and the person or persons in whose name or
names any certificate or certificates for shares of Class A Common Stock shall
be issuable upon such conversion shall be deemed to have become the record
holder or holders of the shares represented thereby on such date. As soon as
practicable after such conversion, the Corporation shall issue or deliver at
such office to the holder for whose account such shares of Series A Preferred
Stock were so surrendered, or to such holder's nominee or nominees, certificates
(bearing such legend(s) as may be required under applicable securities laws) for
3
<PAGE>
the number of full shares of Class A Common Stock to which such holder shall be
entitled, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the closing
price per share of the Class A Common Stock on the principal exchange (including
for this purpose, the Nasdaq National Market) on which it is then listed, or if
it is not so listed, the closing bid price per share for such stock, as reported
by Nasdaq, the OTC Bulletin Board, the National Quotation Bureau, Incorporated
or other similar service which regularly reports closing bid quotations for such
stock, in each instance as of the close of business on the date of such
conversion.
6.2 The conversion rate shall be subject to adjustment from
time to time in case the Corporation shall pay a stock dividend on its Class A
Common Stock (other than in shares of the Series A Preferred Stock), or in case
the Corporation shall subdivide or combine the outstanding shares of Class A
Common Stock, the conversion rate shall immediately be proportionately adjusted.
In case of any capital reorganization or any reclassification of the capital
stock of the Corporation or in case of the consolidation or merger of the
Corporation with or into another corporation or the sale of all or substantially
all of the assets of the Corporation as or substantially as an entirety to
another corporation, each share of Series A Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
to which a holder of the number of shares of Class A Common Stock of the
Corporation then deliverable upon conversion of such share of Series A Preferred
Stock would have been entitled upon such reorganization, reclassification,
consolidation, merger or conveyance; and, in any such case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of the shares of Series A Preferred Stock,
to the end that the provisions set forth herein (including provisions with
respect to changes in and other adjustments of the conversion rate) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the shares of Series A Preferred Stock.
6.3 No adjustment in the conversion rate shall be required
unless such adjustment (and any other adjustments which by reason of this
Paragraph 6.3 are not required to be made) would not, if made, entitle the
holders of all then outstanding shares of Series A Preferred Stock upon
conversion thereof to receive additional shares of Class A Common Stock equal in
the aggregate to one percent (1%) or more of the total issued and outstanding
shares of Class A Common Stock. All calculations under this Paragraph 6.3 shall
be made to the nearest one one-hundredth (1/100) of a share.
6.4 Whenever the conversion rate is adjusted as herein
provided, an officer of the Corporation shall compute the adjusted conversion
rate in accordance with the foregoing provisions and shall prepare a written
instrument setting forth such adjusted conversion rate and showing in detail the
facts upon which such adjustment is based, and a copy of such written instrument
shall forthwith be mailed to each holder of record of the Series A Preferred
Stock, and made available for inspection by the stockholders of the Corporation.
4
<PAGE>
6.5 The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized but unissued Class
A Common Stock, for the purpose of effecting the conversion of the shares of
Series A Preferred Stock, the full number of shares of Class A Common Stock then
deliverable upon the conversion of all shares of Series A Preferred Stock then
outstanding, and such shares shall be listed, subject to notice of issuance, on
any stock exchange(s) on which outstanding shares of Class A Common Stock may
then be listed.
6.6 The Corporation will pay and all taxes that may be payable
in respect of the issuance or delivery of shares of Class A Common Stock on
conversion of shares of Series A Preferred Stock pursuant hereto. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of shares of Class
A Common Stock in a name other than that in which the shares of Series A
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Corporation the amount of any such tax, or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.
6.7 All issued and outstanding shares of Series A Preferred
Stock shall be deemed to have been converted into, and shall (without any action
of the holder thereof) become, that number of fully paid and nonassessable
shares of Class A Common Stock into which such shares of Series A Preferred
Stock are then convertible in accordance with the provisions of this Paragraph 6
immediately upon the consummation of the Corporation's sale of Common Stock in a
bona fide public offering on an underwritten firm commitment basis pursuant to a
registration statement declared effective by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, which public offering results
in aggregate gross cash proceeds to the Corporation of at least $5,000,000.
7. Exclusion of Other Rights. Except as may otherwise be required by
law, the shares of Series A Preferred Stock shall not have any preferences or
relative, participating, optional or other special rights other than those
specifically set forth in this resolution and in the Certificate of
Incorporation, as amended.
8. Severability of Provisions. If any right, preference or limitation
of the Series A Preferred set forth in this resolution is invalid, unlawful, or
incapable of being enforced by reason of any rule of law or public policy, all
other rights, preferences and limitations set forth in this resolution which can
be given effect without the invalid, unlawful or unenforceable right, preference
or limitation shall, nevertheless, remain in full force and effect, and no
right, preference or limitation herein set forth shall be deemed dependent upon
any other such right, preference or limitation unless so expressed herein.
9. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed and this certificate to be signed by Clark Marcus, its President and
Chief Executive Officer, and attested to by James L. Koenig, its Secretary, this
10th day of November 1999.
/s/ Clark Marcus
-------------------------------------
Clark Marcus
President and Chief Executive Officer
[CORPORATE SEAL]
ATTEST:
/s/ James L. Koenig
- - -----------------------------------------
James L. Koenig
Secretary
7
<PAGE>
EYE CARE INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
1. Purposes.
The EYE CARE INTERNATIONAL, INC. 1997 STOCK OPTION PLAN (the "Plan") is
intended to provide the employees, directors, independent contractors and
consultants of Eye Care International, Inc. (the "Company") and/or any
subsidiary or parent thereof with an added incentive to commence and/or continue
their services to the Company and to induce them to exert their maximum efforts
toward the Company's success. By thus encouraging employees, directors,
independent contractors and consultants and promoting their continued
association with the Company, the Plan may be expected to benefit the Company
and its stockholders. The Plan allows the Company to grant Incentive Stock
Options ("ISOs") (as defined in Section 422(b) of the Internal Revenue Code of
1986, as amended (the "Code"), Non-Qualified Stock Options ("NQSOs") not
intended to qualify under Section 422(b) of the Code and Stock Appreciation
Rights ("SARs") (collectively the "Options"). The vesting of one or more Options
granted hereunder may be based on the attainment of specified performance goals
of the participant or the performance of the Company, one or more subsidiaries,
parent and/or division of one or more of the above.
2. Shares Subject to the Plan.
The total number of shares of Class A Common Stock of the Company,
$.001 par value per share, that may be subject to Options granted under the Plan
shall be five hundred thousand (500,000) in the aggregate, subject to adjustment
as provided in Paragraph 8 of the Plan; however, the grant of an ISO to an
employee together with a tandem SAR or any NQSO to an employee together with a
tandem SAR shall only require one share of Class A Common Stock available
subject to the Plan to satisfy such joint Option. The Company shall at all times
while the Plan is in force reserve such number of shares of Class A Common Stock
as will be sufficient to satisfy the requirement of outstanding Options granted
under the Plan. In the event any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject thereto shall again be available for granting of Options under the Plan.
3. Eligibility.
All employees of the Company or of a "subsidiary" or "parent" of the
Company, as the quoted terms are defined within Section 424 of the Code are
eligible to receive ISO's or ISO's in tandem with SAR's (provided the SAR meets
the requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a) through
(e) inclusive). ISO's or ISO's in tandem with SAR's (provided the SAR meets the
requirements set forth in Temp. Reg. Section 14a.422A-1, A-39 (a) through (e)
inclusive) may be granted from time to time under the Plan to one or more
employees of the Company or of a "subsidiary" or "parent" of the Company, as the
quoted terms are defined within Section 424 of the Code. An Officer is an
employee for the above purposes. However, a director of the Company who
<PAGE>
is not otherwise an employee is not deemed an employee for such purposes. NQSOs
and NQSO's in tandem with SARs may be granted from time to time under the Plan
to one or more employees of the Company, Officers, members of the Board of
Directors, independent contractors, consultants and other individuals who are
not employees of, but are involved in the continuing development and success of
the Company and/or of a subsidiary of the Company, including persons who have
previously been granted Options under the Plan.
4. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Company as such Board of Directors may be composed from time to time and/or by a
Stock Option Committee or Compensation Committee (the "Committee") which shall
be comprised of solely of at least two Outside Directors (as such term is
defined in regulations promulgated from time to time with respect to Section
162(m)(4)(C)(i) of the Code) appointed by such Board of Directors of the
Company. As and to the extent authorized by the Board of Directors of the
Company, the Committee may exercise the power and authority vested in the Board
of Directors under the Plan. Within the limits of the express provisions of the
Plan, the Board of Directors or Committee shall have the authority, in its
discretion, to determine the individuals to whom, and the time or times at
which, Options shall be granted, the character of such Options (whether ISOs,
NQSOs, and/or SARs in tandem with NQSOs, and/or SARs in tandem with ISOs) and
the number of shares of Class A Common Stock to be subject to each Option, the
manner and form in which the optionee can tender payment upon the exercise of
his Option, and to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
Option agreements that may be entered into in connection with Options (which
need not be identical), subject to the limitation that agreements granting ISOs
must be consistent with the requirements for the ISOs being qualified as
"incentive stock options" as provided in Section 422 of the Code, and to make
all other determinations and take all other actions necessary or advisable for
the administration of the Plan. In making such determinations, the Board of
Directors and/or the Committee may take into account the nature of the services
rendered by such individuals, their present and potential contributions to the
Company's success, and such other factors as the Board of Directors and/or the
Committee, in its discretion, shall deem relevant. The Board of Directors'
and/or the Committee's determinations on the matters referred to in this
Paragraph shall be conclusive.
(b) Notwithstanding anything contained herein to the contrary, at
anytime during the period the Company's Class A Common Stock is registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "1934
Act), the Committee, if one has been appointed to administer all or part of the
Plan, shall have the exclusive right to grant Options to Covered Employees as
defined under Section 162(m)(3) of the Code (generally executive officers
subject to Section 16 of the 1934 Act) and set forth the terms and conditions
thereof. With respect to persons subject to Section 16 of the 1934 Act,
transactions under the Plan are intended, to the extent possible, comply with
all applicable conditions of Rule 16b-3, as amended from time to time, (and its
successor provisions, if any) under the 1934 Act and Section 162(m)(4)(C) of the
Code of 1986, as amended. To the extent any provision of the Plan or action by
the Board of Directors or Committee fails to so
-2-
<PAGE>
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Board of Directors and/or such Committee.
5. Terms of Options.
Within the limits of the express provisions of the Plan, the Board of
Directors or the Committee may grant either ISOs or NQSOs or SARs in tandem with
NQSOs or SARs in tandem with ISOs. An ISO or an NQSO enables the optionee to
purchase from the Company, at any time during a specified exercise period, a
specified number of shares of Class A Common Stock at a specified price (the
"Option Price"). The optionee, if granted a SAR in tandem with a NQSO or ISO,
may receive from the Company, in lieu of exercising his option to purchase
shares pursuant to his NQSO or ISO, at one of the certain specified times during
the exercise period of the NQSO or ISO as set by the Board of Directors or the
Committee, the excess of the fair market value upon such exercise (as determined
in accordance with subparagraph (b) of this Paragraph 5) of one share of Class A
Common Stock over the Option Price per share specified upon grant of the NQSO or
ISO/SAR multiplied by the number of shares of Class A Common Stock covered by
the SAR so exercised. The character and terms of each Option granted under the
Plan shall be determined by the Board of Directors and/or the Committee
consistent with the provisions of the Plan, including the following:
(a) An Option granted under the Plan must be granted within 10 years
from the date the Plan is adopted, or the date the Plan is approved by the
stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Class A Common Stock subject to
each ISO and each SAR issued in tandem with an ISO shall not be less than the
fair market value of such shares of Class A Common Stock at the time such ISO is
granted. Such fair market value shall be determined by the Board of Directors
and, if the shares of Class A Common Stock are listed on a national securities
exchange or traded on the over-the-counter market, the fair market value shall
be the closing price on such exchange, or the mean of the closing bid and asked
prices of the shares of Class A Common Stock on the over-the-counter market, as
reported by the Nasdaq Stock Market, the National Association of Securities
Dealers OTC Bulletin Board or the National Quotation Bureau, Inc., as the case
may be, on the day on which the Option is granted or, if there is no closing
price or bid or asked price on that day, the closing price or mean of the
closing bid and asked prices on the most recent day preceding the day on which
the Option is granted for which such prices are available. If an ISO or SAR in
tandem with an ISO is granted to any individual who, immediately before the ISO
is to be granted, owns (directly or through attribution) more than 10% of the
total combined voting power of all classes of capital stock of the Company or a
subsidiary or parent of the Company, the Option Price of the shares of Class A
Common Stock subject to such ISO shall not be less than 110% of the fair market
value per share of the shares of Class A Common Stock at the time such ISO is
granted.
-3-
<PAGE>
(c) The Option Price of the shares of Class A Common Stock subject to
an NQSO or an SAR in tandem with a NQSO granted pursuant to the Plan shall be
determined by the Board of Directors or the Committee, in its sole discretion,
but in no event less than 85% of the fair market value per share of the shares
of Class A Common Stock at the time of grant.
(d) In no event shall any Option granted under the Plan have an
expiration date later than 10 years from the date of its grant, and all Options
granted under the Plan shall be subject to earlier termination as expressly
provided in Paragraph 6 hereof. If an ISO or an SAR in tandem with an ISO is
granted to any individual who, immediately before the ISO is granted, owns
(directly or through attribution) more that 10% of the total combined voting
power of all classes of capital stock of the Company or of a subsidiary or
parent of the Company, such ISO shall by its terms expire and shall not be
exercisable after the expiration of five (5) years from the date of its grant.
(e) An SAR may be exercised at any time during the exercise period of
the ISO or NQSO with which it is granted in tandem and prior to the exercise of
such ISO or NQSO. Notwithstanding the foregoing, the Board of Directors and/or
the Committee shall in their discretion determine from time to time the terms
and conditions of SAR's to be granted, which terms may vary from the
afore-described conditions, and which terms shall be set forth in a written
stock option agreement evidencing the SAR granted in tandem with the ISO or
NQSO. The exercise of an SAR granted in tandem with an ISO or NQSO shall be
deemed to cancel such number of shares subject to the unexercised Option as were
subject to the exercised SAR. The Board of Directors or the Committee has the
discretion to alter the terms of the SARS if necessary to comply with Federal or
state securities law. Amounts to be paid by the Company in connection with an
SAR may, in the Board of Director's or the Committee's discretion, be made in
cash, Class A Common Stock or a combination thereof.
(f) An Option granted under the Plan shall become exercisable, in whole
at any time or in part from time to time, but in no event may an Option (i) be
exercised as to less than one hundred (100) shares of Class A Common Stock at
any one time, or the remaining shares of Class A Common Stock covered by the
Option if less than one hundred (100), and (ii) except with respect to
performance based Options, become fully exercisable more than five years from
the date of its grant nor shall less than 20% of the Option become exercisable
in any of the first five years of the Option, if not terminated as provided in
Section 6 hereof. The Board of Directors or the Committee, if applicable, shall,
in the event it so elects in its sole discretion, set one or more performance
standards with respect to one or more Options upon which vesting is conditioned
(which performance standards may vary among the Options).
(g) An Option granted under the Plan shall be exercised by the delivery
by the holder thereof to the Company at its principal office (to the attention
of the Secretary) of written notice of the number of full shares of Class A
Common Stock with respect to which the Option is being exercised, accompanied by
payment in full, which payment at the option of the optionee shall be in the
form of (i) cash or certified or bank check payable to the order of the Company,
-4-
<PAGE>
of the Option Price of such shares of Class A Common Stock , or, (ii) if
permitted by the Committee or the Board of Directors, as determined by the
Committee or the Board of Directors in its sole discretion at the time of the
grant of the Option with respect to an ISO and at or prior to the time of
exercise with respect to a NQSO, by the delivery of shares of Class A Common
Stock having a fair market value equal to the Option Price or the delivery of an
interest-bearing promissory note having an original principal balance equal to
the Option Price and an interest rate not below the rate which would result in
imputed interest under the Code (provided, in order to qualify as an ISO, more
than one year shall have passed since the date of grant and one year from the
date of exercise), or (iii) at the option of the Committee or the Board of
Directors, determined by the Committee or the Board of Directors in its sole
discretion at the time of the grant of the Option with respect to an ISO and at
or prior to the time of exercise with respect to a NQSO, by a combination of
cash, promissory note and/or such shares of Class A Common Stock (subject to the
restriction above) held by the employee that have a fair market value together
with such cash and principal amount of any promissory note that shall equal the
Option Price, and, in the case of a NQSO, at the discretion of the Committee or
Board of Directors by having the Company withhold from the shares of Class A
Common Stock to be issued upon exercise of the Option that number of shares
having a fair market value equal to the exercise price and/or the tax
withholding amount due, or otherwise provide for withholding as set forth in
Paragraph 9(c) hereof, or in the event an employee is granted an ISO or NQSO in
tandem with an SAR and desires to exercise such SAR, such written notice shall
so state such intention. To the extent allowed by applicable Federal and state
securities laws, the Option Price may also be paid in full by a broker-dealer to
whom the optionee has submitted an exercise notice consisting of a fully
endorsed Option, or through any other medium of payment as the Board of
Directors and/or the Committee, in its discretion, shall authorize.
(h) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares of Class A Common Stock covered by such
holder's Option until such shares of Class A Common Stock shall be issued to
such holder upon the exercise of the Option.
(i) All ISOs or SARs in tandem with ISOs granted under the Plan shall
not be transferable otherwise than by will or the laws of descent and
distribution and may be exercised during the lifetime of the holder thereof only
by the holder. The Board or the Committee, in its sole discretion, shall
determine whether an Option other than an ISO or SAR in tandem with an ISO shall
be transferable. No Option granted under the Plan shall be subject to execution,
attachment or other process.
(j) The aggregate fair market value, determined as of the time any ISO
or SAR in tandem with an ISO is granted and in the manner provided for by
Subparagraph (b) of this Paragraph 5, of the shares of Class A Common Stock with
respect to which ISOs granted under the Plan are exercisable for the first time
during any calendar year and under incentive stock options qualifying as such in
accordance with Section 422 of the Code granted under any other incentive stock
option plan maintained by the Company or its parent or subsidiary corporations,
shall not exceed $100,000. Any grant of Options in excess of such amount shall
be deemed a grant of a NQSO.
(k) Notwithstanding anything contained herein to the contrary, an SAR
which was granted in tandem with an ISO shall (i) expire no later than the
expiration of the underlying ISO; (ii) be for no more than 100% of the spread at
the time the SAR is exercised; (iii) shall only be
-5-
<PAGE>
transferable when the underlying ISO is transferable; (iv) only be exercised
when the underlying ISO is eligible to be exercised; and (v) only be exercisable
when there is a positive spread.
6. Death or Termination of Employment/Consulting Relationship.
(a) Except as provided herein, or otherwise determined by the Board of
Directors or the Committee in its sole discretion, upon termination of
employment with the Company voluntarily by the employee or termination of a
consulting relationship with the Company prior to the termination of the term
thereof, a holder of an Option under the Plan may exercise such Options to the
extent such Options were exercisable as of the date of termination at any time
within thirty (30) days after termination, subject to the provisions of
Subparagraph (d) of this Paragraph 6. Except as provided herein, or otherwise
determined by the Board of Directors or the Committee in its sole discretion, if
such employment or consulting relationship shall terminate for any reason other
than death, voluntary termination by the employee or for cause, then such
Options may be exercised at anytime within three (3) months after such
termination. Notwithstanding anything contained herein to the contrary, unless
otherwise determined by the Board of Directors or the Committee in its sole
discretion, any options granted hereunder to an Optionee and then outstanding
shall immediately terminate in the event the Optionee is terminated for cause,
and the other provisions of this Section 6 shall not be applicable thereto. For
purposes of this Section 6, termination for cause shall be deemed the decision
of the Company, in its sole discretion, that Optionee has not adequately
performed the services for which he/she/it was hired.
(b) If the holder of an Option granted under the Plan dies (i)
while employed by the Company or a subsidiary or parent corporation or while
providing consulting services to the Company or a subsidiary or parent
corporation or (ii) within three (3) months after the termination of such
holder's employment/consulting, such Options may, subject to the provisions of
subparagraph (d) of this Paragraph 6, be exercised by a legatee or legatees of
such Option under such individual's last will or by such individual's personal
representatives or distributees at any time within such time as determined by
the Board of Directors or the Committee in its sole discretion, but in no event
less than six months after the individual's death, to the extent such Options
were exercisable as of the date of death or date of termination of employment,
whichever date is earlier.
(c) If the holder of an Option under the Plan becomes disabled
within the definition of section 22(e)(3) of the Code while employed by the
Company or a subsidiary or parent corporation, such Option may, subject to the
provisions of subparagraph (d) of this Paragraph 6, be exercised at any time
within six months less one day after such holder's termination of employment due
to the disability.
-6-
<PAGE>
(d) Except as otherwise determined by the Board of Directors or the
Committee in its sole discretion, an Option may not be exercised pursuant to
this Paragraph 6 except to the extent that the holder was entitled to exercise
the Option at the time of termination of employment, consulting relationship or
death, and in any event may not be exercised after the original expiration date
of the Option. Notwithstanding anything contained herein which may be to the
contrary, such termination or death prior to vesting shall, unless otherwise
determined by the Board of Directors or Committee, in its sole discretion, be
deemed to occur at a time the holder was not entitled to exercise the Option.
(e) The Board of Directors or the Committee, in its sole discretion,
may at such time or times as it deems appropriate, if ever, accelerate all or
part of the vesting provisions with respect to one or more outstanding options.
The acceleration of one Option shall not infer that any Option is or to be
accelerated.
7. Leave of Absence.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) shall be considered as remaining in the employ of the Company or of
a subsidiary or parent corporation for ninety (90) days or such longer period as
such individual's right to reemployment is guaranteed either by statute or by
contract.
8. Adjustment Upon Changes in Capitalization.
(a) In the event that the outstanding shares of Class A Common Stock
are hereafter changed by reason of recapitalization, reclassification, stock
split-up, combination or exchange of shares of Class A Common Stock or the like,
or by the issuance of dividends payable in shares of Class A Common Stock , an
appropriate adjustment shall be made by the Board of Directors, as determined by
the Board of Directors and/or the Committee, in the aggregate number of shares
of Class A Common Stock available under the Plan, in the number of shares of
Class A Common Stock issuable upon exercise of outstanding Options, and the
Option Price per share. In the event of any consolidation or merger of the
Company with or into another company, where the Company is not the surviving
entity, or the conveyance of all or substantially all of the assets of the
Company to another company for solely stock and/or securities, each then
outstanding Option shall upon exercise thereafter entitle the holder thereof to
such number of shares of Class A Common Stock or other securities or property to
which a holder of shares of Class A Common Stock of the Company would have been
entitled to upon such consolidation, merger or conveyance; and in any such case
appropriate adjustment, as determined by the Board of Directors of the Company
(or successor entity) shall be made as set forth above with respect to any
future changes in the capitalization of the Company or its successor entity. In
the event of the proposed dissolution or liquidation of the Company, or, except
as provided in (b) below, the sale of substantially all the assets of the
Company for other than stock and/or securities, all outstanding Options under
-7-
<PAGE>
the Plan will automatically terminate, unless otherwise provided by the Board of
Directors of the Company or any authorized committee thereof.
(b) Any Option granted under the Plan, may, at the discretion of the
Board of Directors of the Company and said other corporation, be exchanged for
options to purchase shares of capital stock of another corporation which the
Company, and/or a subsidiary thereof is merged into, consolidated with, or all
or a substantial portion of the property or stock of which is acquired by said
other corporation or separated or reorganized into. The terms, provisions and
benefits to the optionee of such substitute option(s) shall in all respects be
identical to the terms, provisions and benefits of optionee under his Option(s)
prior to said substitution. To the extent the above may be inconsistent with
Sections 424(a)(1) and (2) of the Code, the above shall be deemed interpreted so
as to comply therewith.
(c) Any adjustment in the number of shares of Class A Common Stock
shall apply proportionately to only the unexercised portion of the Options
granted hereunder. If fractions of shares of Class A Common Stock would result
from any such adjustment, the adjustment shall be revised to the next higher
whole number of shares of Class A Common Stock .
9. Further Conditions of Exercise.
(a) Unless the shares of Class A Common Stock issuable upon the
exercise of an Option have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, prior to the
exercise of the Option, an optionee must represent in writing to the Company
that such shares of Class A Common Stock are being acquired for investment
purposes only and not with a view towards the further resale or distribution
thereof, and must supply to the Company such other documentation as may be
required by the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with said
Act.
(b) The Company shall not be obligated to deliver any shares of Class A
Common Stock until they have been listed on each securities exchange on which
the shares of Class A Common Stock may then be listed or until there has been
qualification under or compliance with such state or federal laws, rules or
regulations as the Company may deem applicable.
(c) The Board of Directors or Committee may make such provisions and
take such steps as it may deem necessary or appropriate for the withholding of
any taxes that the Company is required by any law or regulation of any
governmental authority, whether federal, state or local, domestic or foreign, to
withhold in connection with the exercise of any Option, including, but not
limited to, (i) the withholding of payment of all or any portion of such Option
and/or SAR until the holder reimburses the Company for the amount the Company is
required to withhold with respect to such taxes, or (ii) the cancelling of any
number of shares of Class A Common Stock issuable upon exercise of such Option
and/or SAR in an amount sufficient to reimburse the Company for the amount it is
-8-
<PAGE>
required to so withhold, (iii) the selling of any property contingently credited
by the Company for the purpose of exercising such Option, in order to withhold
or reimburse the Company for the amount it is required to so withhold, or (iv)
withholding the amount due from such employee's wages if the employee is
employed by the Company or any subsidiary thereof.
10. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by the
Board of Directors, or the date the Plan is approved by the stockholders of the
Company, or such date of termination, as hereinafter provided, and no Option
shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the outstanding shares
of capital stock of the Company entitled to vote thereon.
(c) The Board of Directors of the Company may at any time, prior to ten
(10) years from the earlier of the date of the adoption of the Plan by such
Board of Directors or the date the Plan is approved by the stockholders,
terminate the Plan or from time to time make such modifications or amendments of
the Plan as it may deem advisable; provided, however, that the Board of
Directors shall not, without approval by the affirmative vote of the holders of
a majority of the outstanding shares of capital stock of the Company entitled to
vote thereon, increase (except as provided by Paragraph 8) the maximum number of
shares of Class A Common Stock as to which Options or shares may be granted
under the Plan, or materially change the standards of eligibility under the
Plan. Any amendment to the Plan which, in the opinion of counsel to the Company,
will be deemed to result in the adoption of a new Plan, will not be effective
until approved by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding Option without the consent of the
individual to whom such Option shall have been previously granted.
11. Effective Date of the Plan.
The Plan shall become effective upon adoption by the Board of Directors
of the Company. The Plan shall be subject to approval by the affirmative vote of
the holders of a majority of the outstanding shares of capital stock of the
Company entitled to vote thereon within one year before or after adoption of the
Plan by the Board of Directors.
12. Not a Contract of Employment.
Nothing contained in the Plan or in any option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an Option
is or may be granted hereunder any right to remain in the employ of the Company
or of a subsidiary or parent of the Company or in any way limit the right of the
Company, or of any parent or subsidiary thereof, to terminate the employment of
any employee.
13. Other Compensation Plans.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 129,482 658,742
<SECURITIES> 0 0
<RECEIVABLES> 112,002 168,481
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 381,482 975,524
<PP&E> 60,315 89,582
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 441,798 1,814,539
<CURRENT-LIABILITIES> 502,978 74,633
<BONDS> 0 0
0 0
5 0
<COMMON> (61,185) 1,739,906
<OTHER-SE> 441,798 1,814,539
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 532,677 637,941
<TOTAL-REVENUES> 544,140 689,646
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 2,536,855 2,772,858
<LOSS-PROVISION> 31,739 208,722
<INTEREST-EXPENSE> 4,699 5,833
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,029,153) (2,297,767)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 5,000
<CHANGES> 749,433 0
<NET-INCOME> (2,788,586) (2,292,767)
<EPS-BASIC> (0.31) (0.28)
<EPS-DILUTED> (0.29) (0.26)
</TABLE>
